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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from _______ to _______ .
Commission File No. 0-752
WESTMORELAND COAL COMPANY
(Debtor-in-Possession as of December 23, 1996)
(Exact name of registrant as specified in its charter)
Delaware 23-1128670
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14th Floor, 2 North Cascade Avenue, Colorado Springs, CO 80903
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (719)442-2600
Securities registered pursuant to Section 12(b) of the Act:
NAME OF STOCK EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, par value $2.50
per share
Depository Shares, each
representing a one-quarter
share of Series A
Convertible Exchangeable
Preferred Stock
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
NAME OF STOCK EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Series A Convertible
Exchangeable Preferred
Stock, par value
$1.00 per share
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
X
-----
The aggregate market value of voting stock held by non-affiliates
as of February 26, 1997 is estimated to be $19,266,000. Voting
stock held by affiliates is designated as voting stock
beneficially held by executive officers and directors and by
holders of more than 10% of the outstanding voting stock.
There were 6,965,328 shares outstanding of the registrant's
Common Stock, $2.50 Par Value (the registrant's only class of
common stock), as of February 26, 1997.
There were 2,300,000 depository shares, each representing one
quarter of a share of the registrant's Preferred Stock, $0.25 Par
Value per depository share, outstanding as of February 26, 1997.
PART I
ITEM 1 - BUSINESS
The Company's principal activities are: (i) the production and
sale of coal from the Powder River Basin in Eastern Montana; (ii)
the ownership of interests in cogeneration and other non-
regulated independent power plants; (iii) the provision of repair
and maintenance services to utilities and power projects; and
(iv) the leasing of capacity at Dominion Terminal Associates, a
coal storage and vessel loading facility. Refer to Item 8 -
Financial Statements and Supplementary Data for more information
regarding the segments of the operations.
On December 23, 1996, the Company and four of its subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Colorado. These petitions are
described more fully in Item 3-Legal Proceedings.
COAL OPERATIONS
COAL PRODUCTION
Through Westmoreland Resources, Inc. ("WRI"), the Company
produces coal in the Powder River Basin in eastern Montana from
reserves owned by the Crow Indians. Prior to the idling of its
last eastern operation in the third quarter of 1995, the Virginia
Division and a wholly-owned subsidiary, Pine Branch Mining
Incorporated ("Pine Branch") produced coal on 60,000 acres of
reserves located in Virginia and Kentucky. Limited production by
subcontractors and sublessees continues.
WESTMORELAND RESOURCES, INC. WRI is 80% owned by the Company and
20% by Morrison Knudsen Corporation who also mines the coal on a
contract basis. It operates one large surface mine on
approximately 15,000 acres of subbituminous coal reserves in the
Powder River Basin. WRI shipped 4,668,000 tons, 4,426,000 tons,
and 4,364,000 tons of coal in 1996, 1995 and 1994, respectively.
The Company received cash dividends from WRI of $2,222,000,
$1,650,000 and $1,500,000 in 1996, 1995 and 1994, respectively.
Transportation is arranged and charges are paid by WRI's
customers.
VIRGINIA DIVISION. The Company's remaining Virginia Division
operations, all of which are idled, include one mine, one
preparation plant and one transloading facility. The Virginia
Division shipped 553,000 tons, 2,007,000 tons, and 4,512,000 tons
of coal in 1996, 1995 and 1994, respectively, including coal
produced by independent contractors and purchased coal. The
Company idled the Virginia Division in 1995, has sold various
assets during 1996, and is currently maintaining the remaining
assets on a standby basis. The Company continues to seek buyers
and/or operators for its remaining Virginia Division assets.
Asset sales in 1996 resulted in proceeds of approximately
$19,291,000. Additional asset sales could result in further
recoveries.
The following tables show, for each of the past five years, tons
sold and revenues derived from Company and unaffiliated
production as well as revenues from domestic and export
activities. Included in Company tonnages below are amounts
purchased from non-Company properties, but processed through
Company-owned facilities.
Coal Sales in Tons (tons in 000's)
Company Sold for
Year Total Produced Others
------ ------- ---------- ----------
1996 5,221 4,668 553
1995 7,063 6,590 473
1994 14,815 12,031 2,784
1993 16,687 11,551 5,136
1992 19,380 11,774 7,606
Coal Revenues ($'s in 000's)
Company Sold for
Year Total Produced Others
------ --------- ---------- ----------
1996 44,152 32,554 11,598
1995 111,303 95,181 16,122
1994 370,166 286,970 83,196
1993 465,256 307,468 157,788
1992 536,289 309,243 227,046
Coal Revenues ($'s in 000's)
Year Total Domestic Export
------ --------- ---------- --------
1996 44,152 44,152 -
1995 111,303 111,303 -
1994 370,166 340,489 29,677
1993 465,256 365,429 99,827
1992 536,289 399,130 137,159
Approximately 89% of the tonnage sold by the Company in 1996 was
pursuant to contracts at WRI calling for deliveries over a period
longer than one year ("long-term contracts"). The table below
presents total sales tonnage and the amount of coal tonnage sold
under long-term contracts for the last five years:
Sales Under Long-Term
Total Sales Tonnage (000s) Contracts Tons (000s) %
- ----------------------------- -------------------------
1996 5,221 4,657 89%
1995 7,063 4,206 60%
1994 14,815 11,981 81%
1993 16,687 12,774 77%
1992 19,380 13,867 72%
WRI's customers accounted for $32,554,000 in coal revenues in
1996 from the sale of 4,668,000 tons of coal, which represent 67%
of the Company's total 1996 coal revenues and 89% of the
Company's total tons sold in 1996.
The next table presents total sales tonnage the Company expects
to ship under existing long-term contracts for the next five
years from the Company's mining operations (all from WRI):
Projected Sales Tonnage Under
Existing Long-Term Contracts
(000s)
--------------------------------
1997 5,500
1998 5,200
1999 5,200
2000 5,200
2001 3,200
In 1996, the three largest customers of the Company accounted for
50% of its coal revenues. Northern States Power, Midwest Energy
Resources, Co. and Western Fuels Association accounted for 30%,
10% and 10%, respectively, of the Company's coal revenues. No
other customer accounted for as much as 10% of the Company's 1996
coal revenues. The long-term contract with WRI's largest
customer, Northern States Power, expires in 2005 and accounted
for 52% of the tons sold in 1996.
WRI has also entered into an option agreement with Northern
States Power whereby it has agreed to sell up to an additional
200,000,000 tons of coal through December 31, 2005. As
compensation for granting the option, WRI receives 1 1/4 cents,
payable quarterly (with applicable price adjustments) for each
optioned ton. The option may be exercised at any time in whole
or in part through December 31, 2005. If exercised, the sales
price will be based on the market price at the time the option is
exercised. WRI recorded income totaling $3,067,000, $3,014,000
and $2,961,000 during 1996, 1995 and 1994 respectively, relative
to the option agreement. No coal has been delivered under the
option agreement.
INDEPENDENT POWER OPERATIONS
Westmoreland Energy, Inc. ("WEI") is engaged owns and manages
interests in independent power projects. WEI, through various
subsidiaries, has interests in eight such power projects, all of
which are currently operational. The Roanoke Valley II project
("ROVA II" or "ROVA II Project") became operational during 1995.
Refer to Note 5 of the Consolidated Financial Statements for
additional information concerning WEI, including specific project
operational statistics.
Independent power projects sell electricity through long term
power contracts to either utilities, or in some cases, to large
industrial users. There are three types of independent power
projects: cogeneration projects which provide two types of
useful energy (e.g., electricity and steam) sequentially from a
single primary fuel (e.g., coal); small power producers which
utilize waste, biomass or other renewable resources as fuel; and
exempt wholesale generators ("EWG") which provide electrical
energy without the requirement to sell thermal energy or use
waste or renewables as fuel sources. WEI has invested in
projects that provide two types of useful energy sequentially
from a single primary fuel and in projects that are exempt
wholesale generators. The key elements of an independent power
project are a long-term contract for the sale of electricity,
long-term contracts for the fuel supply, a suitable site,
required permits and project financing. Cogeneration projects
require another long-term contract for the sale of the steam or
other thermal energy. The economic benefits of cogeneration can
be substantial because, in addition to generating electricity, a
significant portion of the energy is used to produce steam or
high temperature water (thermal energy) for industrial processes.
Electricity is sold to utilities and in certain situations, to
end-users of electrical power, including large industrial
facilities. Thermal energy from the cogeneration plant is sold
to commercial enterprises and other institutions. Large
industrial users of thermal energy include plants in the chemical
processing, petroleum refining, food processing, pharmaceutical,
pulp and paper industries.
The demand for power generated by cogeneration and other
independent power plants was originally fostered by the energy
crisis of the 1970's, which led to the enactment of legislation
that encouraged companies to enter the industry by reducing
regulatory requirements and facilitating the sale of electricity
to utilities. A great many did so and many projects have been
built. This along with various market developments, has
dramatically limited the number and quality of remaining
opportunities in the United States. First, the demand for
electrical power has not reached initial projections, resulting
in excess supply and severe downward pressure on generation and
prices. Second, public and regulatory policy has now reshifted
its focus to open competitive power markets. Such changes
threaten projects which are not cost competitive. Third, as
utilities have consolidated and otherwise positioned themselves
to address these events, they have become even more hostile and
aggressive toward independent power operators, other than their
own unregulated subsidiaries. While these factors have not
impacted WEI's projects, the Company believes the domestic
independent power market has matured and will offer extremely
limited opportunities for the development of new projects in the
near future. Most independent power producers are now primarily
focused on the international market place, in such places as
China and India, for development. The very large capital
demands, lengthy development periods, and substantial "out of
country" risks make such opportunities unattractive to the
Company at this time. As a result, the Company has made a
strategic decision to focus its efforts on maximizing the cash
return on its existing investments.
REPAIR AND MAINTENANCE SERVICES
On October 31, 1995, WEI, through its newly formed subsidiary,
Westmoreland-Corona, Inc., acquired The Corona Group Inc.
("Corona"). Corona and its subsidiaries offer technical repair
and maintenance services to the power generating industry,
including utilities, cogeneration facilities and independent
power producers. Corona's specialty consists of on-site repair,
reconditioning and upgrade services relating to turbine
generators. Corona is subject to a competitive bidding process
for substantially all work it performs. The majority of Corona's
contracts are short-term and on a fixed-fee basis.
TERMINAL OPERATIONS
Westmoreland Terminal Company, a wholly-owned subsidiary of the
Company, owns a 20% interest in Dominion Terminal Associates
("DTA"), the owner of a coal storage and vessel-loading facility
in Newport News, Virginia. DTA's annual throughput capacity is
22,000,000 tons, with a ground storage capacity of 1,700,000
tons. In 1996, DTA loaded 16,444,000 tons, including 3,278,000
tons for the Company. Prior to 1995, the terminal was utilized
by the Company for most of its coal exporting and intracoastal
business. Presently, the Company leases ground storage space and
vessel-loading capacity and facilities to others. Refer to Note
6 of the Consolidated Financial Statements for further
information regarding DTA.
GENERAL
EMPLOYEES AND LABOR RELATIONS
The Company, including subsidiaries, employed 70 people on
December 31, 1996 compared with 137 on December 31, 1995.
Included in these figures are 10 employees represented by the
United Mine Workers of America ("UMWA") at December 31, 1996, as
compared to 21 such employees at December 31, 1995.
The Independent Bituminous Coal Bargaining Alliance ("IBCBA"), an
alliance of four coal companies, including Westmoreland Coal
Company, was formed in 1992 to negotiate a wage agreement with
the UMWA which became effective on December 16, 1993 (the "1993
Agreement"). The effect of the UMWA contract in the future
should be minimal due to the relatively small number of covered
employees.
COMPETITION
The coal industry is highly competitive and the Company competes
(principally on price and quality of coal) with many other coal
producers of all sizes. The Company's production accounted for
less than 1% of coal production in the United States in 1996.
Coal-fired generation was responsible for nearly 60% of all
electricity generated within the United States in 1996.
The Company's steam coal production also competes with other
energy sources in the production of electricity. For example, a
significant, but indirect, cause of lower coal demand in the
future in the electric utility sector could be low natural gas
prices which could encourage utilities to meet a substantial
portion of future electricity growth with natural gas-fired
capacity additions. Such a strategy would displace some
potential new coal-fired capacity.
The Company's independent power operations face substantial
competition with respect to the development of new cogeneration
projects from unregulated affiliates of utility companies,
affiliates of fuel and equipment suppliers and other independent
developers. The Company has curtailed development efforts in
independent power and is now focused on maximizing returns on its
existing assets.
The Company's repair and maintenance service operations are
subject to substantial competition from other similar service
providers and original equipment manufacturers ("OEM's"). OEM's
have the ability to market and contract for repairs and
maintenance services at the time they sell the original
equipment.
Westmoreland Terminal Company is subject to competition from not
only domestic providers of coal transloading services but from
international competitors as well. A significant portion of the
coal shipped from DTA is exported to foreign locations. Coal
suppliers from Australia, China, Indonesia and a number of other
international suppliers provide similar services.
MINING SAFETY AND HEALTH LEGISLATION
The Company is subject to state and federal legislation including
the Federal Coal Mine Safety and Health Act of 1969 and the 1977
Amendments thereto, which prescribes mining health and safety
standards. In addition to authorizing fines and other penalties
for violations, the Act empowers the Mine Safety and Health
Administration to suspend or halt offending operations.
ENERGY REGULATION
WEI's cogeneration operations are subject to the provisions of
various laws and regulations, including the federal Public
Utilities Regulatory Policies Act of 1978 ("PURPA"). PURPA
provides qualifying cogeneration facility status ("QF") to
operations such as some of WEI's, which allows those facilities
to operate with certain exemptions from substantial federal and
state regulation, including regulation of the rates at which
electricity can be sold.
The most significant recent change in energy regulation was the
passage of the National Energy Policy Act of 1992 ("EP Act").
Companies can now apply for Exempt Wholesale Generator ("EWG")
status with the Federal Energy Regulatory Commission ("FERC").
An EWG project can provide electrical energy without the
requirement to sell thermal energy to a user. The EP Act permits
an EWG project to also be a QF project. An EWG that is not a QF
project must have its power rates approved. An EWG project that
is a QF project can receive avoided cost rates that are not
subject to approval by FERC. At both the national and State
level, there is an ongoing debate about removing regulatory
constraints and allowing competition and market forces to
determine the price of electricity. Two separate proposed bills,
calling for deregulation of the traditional utility monopolies,
are pending in the U.S. Congress. In addition, various states,
including Virginia and New York, are either studying or moving
toward a deregulated electric generation and distribution market
place. The direction this public debate will take and its
ultimate outcome are at this time undefined. It seems clear,
however, that there will be some form of deregulation but the
extent and timing of those decisions is not yet predictable.
PROTECTION OF THE ENVIRONMENT
MINING OPERATIONS. The Company believes its mining operations
are substantially in compliance with applicable federal, state
and local environmental laws and regulations, including those
relating to surface mining and reclamation, and it is the policy
of the Company to operate in compliance with such standards. WRI
has an agreement with its mining contractor, Morrison Knudsen
Company, Inc. (a stockholder), which determines the Company's
maximum liability for reclamation costs associated with final
mine closure. The agreement calls for the Company to pay
approximately $1,700,000 over a 15 year period which began in
December 1990. All remaining liability is that of customers who
are obligated to pay final reclamation costs under provisions of
their respective coal sales contracts. The Company maintains
compliance primarily through maintenance and monitoring following
initial compliance activities. Actual cash paid to perform
reclamation in 1996 amounted to $38,000 and was for only
Virginia. The Company made a $110,000 charge against earnings
for reclamation during 1996. Reclamation fees imposed by the
Federal Surface Mining Control and Reclamation Act of 1977 (the
"Surface Mining Act") at WRI amounted to approximately
$1,634,000, $1,538,000 and $1,514,000 in 1996, 1995 and 1994,
respectively. Reclamation fees incurred at the Virginia Division
amounted to $73,000, $217,000, and $900,000 in 1996, 1995 and
1994, respectively.
The Company projects that charges for maintenance and monitoring
activities to meet environmental requirements for operations it
continues to own will be minimal in 1997 due to the idle status
of Eastern operations. The reduction in overall charges,
exclusive of idling costs for environmental purposes, is largely
due to the asset dispositions that took place in 1994, 1995 and
during 1996, pursuant to which the buyers assumed reclamation and
environmental liabilities. Future costs could change either to
reflect the impact of new regulations or because presently
unforeseeable conditions may be imposed on future mining permits.
The Surface Mining Act regulations set forth standards,
limitations and requirements for surface mining operations and
for the surface effects of underground mining operations. Under
the regulatory scheme contemplated by the Surface Mining Act, the
Federal Office of Surface Mining ("OSM") issued regulations which
set the minimum standards to which State agencies concerned with
the regulation of coal mining must adhere. States that wish to
regulate such coal mining must present their regulatory plans to
OSM for approval. Once a State plan receives final approval, the
State agency has primary regulatory authority over mining within
the State, and OSM acts principally in a supervisory role. State
agencies may impose standards more stringent than those required
by OSM. The two states in which the Company currently has mining
operations, active or idle, Montana and Virginia, have submitted
regulatory plans to OSM, and these plans have received final
approval. There would be potential liability to the Company in
the event it, or any of its previous independent contractors,
failed to satisfy the obligations created by the Surface Mining
Act. Failure to comply with the Surface Mining Act could result
in the Company having its existing permits revoked or
applications for new permits or permit modifications blocked.
In the event final reclamation is not performed in accordance
with State and Federal regulations, the Company has $12,000,000
and $6,481,000 of reclamation bonds in place in Montana and
Virginia, respectively, to assure compliance with all applicable
regulations.
In 1990, certain amendments were enacted to the Clean Air Act
("1990 Amendments"). As the first major revisions to the Clean
Air Act since 1977, the 1990 Amendments vastly expanded the scope
of federal regulations and enforcement in several significant
respects. In particular, the 1990 Amendments require that the
United States Environmental Protection Agency issue new
regulations related to ozone non-attainment, air toxics and acid
rain. Phase I of the acid rain provisions required, among other
things, that electric utilities reduce their sulfur dioxide
emissions to less than 2.5 lbs per million Btu by January 1,
1995. Phase II requires an additional reduction in emissions to
less than 1.2 lbs per million Btu by January 1, 2000.
The 1990 Amendments allow utilities the freedom to choose the
manner in which they will achieve compliance with the required
emission standards, including switching to lower sulfur coal,
scrubbing and using SO2 credit allowances. The Company currently
anticipates little or no impact on its operations from the ozone
non-attainment and air toxic provisions of the 1990 Amendments
because the vast majority of WRI's customers currently use
scrubber facilities or blend with other coals that allow for
compliance with all applicable standards.
INDEPENDENT POWER. The environmental laws and regulations
applicable to the projects in which WEI participates primarily
involve the discharge of emissions into the water and air, but
can also include wetlands preservation and noise regulation.
These laws and regulations in many cases require a lengthy and
complex process of obtaining licenses, permits and approvals from
federal, state and local agencies. Meeting the requirements of
each jurisdiction with authority over a project can delay or
sometimes prevent the completion of a proposed project, as well
as require extensive modifications to existing projects. The
partnership owners of the projects in which WEI has its interests
have the primary responsibility for obtaining the required
permits and complying with the relevant environmental laws.
The Clean Air Act and the 1990 Amendments contain provisions that
regulate the amount of sulfur dioxide and nitrogen oxides that
may be emitted by a project. Most of the projects in which WEI
has investments are fueled by low sulfur coal and are not
expected to be significantly affected by the acid rain provisions
of the 1990 Amendments. New domestic projects will be required
to obtain allowance offsets for SO2 emissions if they do not meet
emission standards.
DOMINION TERMINAL ASSOCIATES. DTA is responsible for complying
with certain state and federal environmental laws and regulations
particularly those affecting air and water quality. DTA has
employees on its staff who are responsible for assuring that it
is in compliance with all laws and regulations. In the event
that DTA failed to comply with applicable laws and regulations,
the Company may be responsible for its 20% share of any loss
incurred as a result of non-compliance.
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. The Company's
assets are, and for each of the last three years have been,
located entirely with the United States. The Company last made
export sales in 1994. All of such sales were to unaffiliated
customers.
ITEM 2 - PROPERTIES
As of December 31, 1996, the Company owned or leased coal
properties located in Montana and Virginia. The Company's
estimated demonstrated reserves in owned or leased property on
December 31, 1996 in Montana were 648,346,000 tons and in
Virginia were 8,144,000 tons. Properties located in Montana are
leased by WRI from the Crow Tribe of Indians and run to
exhaustion. Nearly all of the Company's remaining eastern
reserves are leased from others including 6,282,000 tons under
lease from Penn Virginia Resources Corporation, a wholly-owned
subsidiary of Penn Virginia Corporation ("Penn Virginia"), which
owned a 10.85% voting interest in the Company at December 31,
1996. All leases with Penn Virginia run to exhaustion of the
coal reserves. The balance of the Company's leases are for
varying terms, including to exhaustion. Certain reserves are
owned in fee. In May 1996, the Company relinquished back to
Penn Virginia Resources Corporation 262,411,000 tons of coal
reserves as part of a sale of Virginia Division assets. In
January 1995, as part of its sale of the Hampton Division, the
Company sold back coal reserve leases in West Virginia (the
Hampton Division) of 62,875,000 tons to the lessor, Penn
Virginia. These reserves consisted of 8,091,000 tons of
demonstrated reserves and the balance were Unassigned Uneconomic
reserves.
The following table shows the Company's estimated demonstrated
coal reserve base and production in 1996. The term "demonstrated
coal reserve base" is as defined in the "Coal Resource
Classification System of the U.S. Geological Survey" (Circular
891). This represents the sum of the measured and indicated
reserve bases and includes assigned and unassigned economic
reserves. There are no unassigned economic reserves in the
reserve base.
Summary of Demonstrated Coal Reserve Base and Production Tons
as of December 31, 1996
(in thousands)
Total
Demonstrated
1996 Sulfur Assigned Unassigned Coal Reserve
Production (1) (2) Economic Base
- --------------------------------------------------------------------------
Western Operations
Montana Steam 4,668 .64 648,346 - 648,346
Eastern Operations
Virginia Steam 553 1.05/1.24 8,144 - 8,144
Total All
Operations 5,221 656,490 - 656,490
(1)Percent Sulfur applies to the 1996 production tonnages.
(2)Assigned tonnages are legally recoverable through existing facilities based
on current mining plans with current technology and the Company's
infrastructure.
Coal reserves in Montana represent recoverable tonnage held under
the terms of the Crow Tribe Lease, as amended in 1982, and other
minor leases. These reserves are located in Big Horn County,
Montana and are accessible via Interstate Highway 90.
Transportation is arranged and charges are paid by WRI's
customers. These reserves were estimated to be 799,803,000 tons
as of January 1, 1980 based principally upon a report by
independent consulting geologists, prepared in February 1980.
The reserves consist of two main seams and a stray seam between
the upper and lower main seams. Currently, the upper seam, with
estimated assigned reserves of 239,000,000 tons, is the only seam
being mined due to a quality modification required by a
significant customer. Annually, estimated remaining recoverable
reserves are reduced by production in the upper main seam and by
the amount of reserves in the lower and stray seams bypassed
after mining the upper main seam.
Estimates of reserves in Virginia are based mainly upon yearly
evaluations made by the Company's professional engineers and
geologists. The Company periodically modifies estimates of
reserves under lease which may increase or decrease previously
reported amounts. 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. In addition
to the coal reserves mentioned above, as of December 31, 1996 the
Company owns coal preparation and loading facilities in
Virginia. WRI owns and operates a dragline and coal crushing and
loading facilities at its mine in Montana.
ITEM 3 - LEGAL PROCEEDINGS
On December 23, 1996 Westmoreland Coal Company and four
subsidiaries, Westmoreland Resources, Inc., Westmoreland Coal
Sales Company, Westmoreland Energy, Inc., and Westmoreland
Terminal Company (the "Debtor Corporations"), filed voluntary
petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for
the District of Colorado. The Debtor Corporations are operating
their respective activities as debtors in possession pursuant to
provisions of the Bankruptcy Code. The Company anticipates
proposing a plan of reorganization for these entities pursuant to
Chapter 11 of the Bankruptcy Code.
Under Chapter 11, actions against the Debtor Corporations are
automatically stayed if a claim arose or is based upon events
that occurred on or before the petition date.
Westmoreland Energy, Inc.
WEI owns a 50% partnership interest in Westmoreland-LG&E Partners
("WLP") (the "ROVA Partnership"). The ROVA Partnership's
principal customer, Virginia Power, contracted to purchase the
electricity generated by ROVA I under a long-term contract. In
the second quarter of 1994, that customer disputed the ROVA
Partnership's interpretation of the provisions of the contract
dealing with the payment of the capacity purchase price when the
facility experiences a "forced outage" day. A forced outage day
is a day when ROVA I is not able to generate a specified level of
electrical output. The ROVA Partnership believes that the
customer is required to pay the ROVA Partnership the full
capacity purchase price unless forced outage days exceed a
contractually stated annual number of allowed days. The customer
asserts that it is not required to do so.
From May 1994 through December 1996, Virginia Power withheld
approximately $12,000,000 of these capacity payments during
periods of forced outages. To date, the Company has not
recognized any revenue on its 50% portion of the capacity
payments being withheld by Virginia Power. In October 1994, WLP
filed a complaint against Virginia Power seeking damages of at
least $5,700,000, contending that Virginia Power breached the
power purchase agreement in withholding such payments. In
December, 1994, Virginia Power filed a motion to dismiss the
complaint and in March, 1995, the court granted this motion. WLP
filed an amended complaint in April, 1995. Virginia Power filed
another motion to dismiss the complaint and in June 1995, the
Circuit Court of the City of Richmond, Virginia denied Virginia
Power's motion to dismiss WLP's amended complaint. In November
1995, Virginia Power filed with the court a motion for summary
judgment, and a hearing on the motion was held in early December
1995. In late January 1996, the court denied Virginia Power's
motion for summary judgment. Virginia Power filed a second
summary judgment motion on March 1, 1996. On March 18, 1996, the
Court granted the Virginia Power's second summary judgment motion
and effectively dismissed the complaint. The ROVA partnership
has appealed the Court's decision granting summary judgment. The
matter is on appeal to the Virginia Supreme Court. It has been
briefed and is awaiting argument. Regardless of the outcome, the
Company believes ROVA I will continue to operate profitable and
generate positive cash flows.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
This item is not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
In 1996, 1995, and 1994, the Company made no sales of its
securities which were not registered under the Securities Act of
1933, as amended (the "Securities Act"), except for issuances of
common stock under section 4(2) of the Securities Act of 1933, as
amended, to present and former Directors in lieu director's fees
as follows: 905 shares to Edwin E. Tuttle on December 16, 1994;
3,797 shares to Governor A. Linwood Holton, Jr. on January 13,
1995; and 2,181 to each of Thomas W. Ostrander and Edwin E.
Tuttle on December 18, 1995.
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 on the New York Stock
Exchange for the calendar quarters indicated. Trading was halted
on 12/23/96 by the NYSE and 4th quarter low closing prices
reflect the price of the stock at the time of the halt. At the
date of the filing of this From 10-K, there is no public trading
market for the Common Stock or the Preferred Stock.
Closing Prices
Common Stock Preferred Stock
--------------------------------
High Low High Low
--------------------------------
1995
First Quarter 6 5/8 4 1/2 18 1/4 14 1/2
Second Quarter 5 1/4 4 3/4 14 5/8 12
Third Quarter 4 1/2 2 3/4 13 1/4 9 1/8
Fourth Quarter 3 5/8 2 1/2 10 1/8 6
1996
First Quarter 3 5/8 2 1/2 7 7/8 6 1/4
Second Quarter 4 1/4 2 3/4 12 7/8 7 1/2
Third Quarter 3 1/2 2 3/4 9 3/4 8 3/4
Fourth Quarter 3 3/8 1 10 6 3/8
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS:
Number of Record Holders
Title of Class (as of February 26, 1997)
-----------------------------------------------
Common Stock
($2.50 par value) 1,832
Preferred Stock
($1.00 par value) 72
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 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
and has not been resumed. Common stock dividend payments may not
be declared until the preferred stock dividends that are in
arrears are made current.
Preferred stock dividends at a rate of 8.5% per annum were paid
quarterly from the third quarter of 1992 through the first
quarter of 1994. The declaration and payment of preferred stock
dividends was suspended in the second quarter of 1994 in
connection with extension agreements of the Company's principal
lenders. Upon the expiration of these extension agreements, the
Company paid a quarterly dividend on April 1, 1995 and July 1,
1995. The preferred stock dividend was suspended in the third
quarter of 1995 as a result of recognition of losses and the
subsequent shareholders' deficit. Common stock dividend payments
were not permitted under covenants contained by the Company's
loan agreements from January 1993 through December 22, 1994.
Further payment of common stock dividends is not permitted until
the preferred stock dividends that are in arrears are made
current. The nine quarterly dividends which are in arrears
(those dividends whose payment dates would have been July 1,
1994, October 1, 1994, January 1, 1995, October 1, 1995, January
1, 1996, April 1, 1996, July 1, 1996, October 1, 1996 and January
1, 1997) amount to $10,997,000 in the aggregate ($19.13 per
preferred share).
There are statutory restrictions limiting the payment of
preferred stock dividends under Delaware law, the state in which
the Company is incorporated. Under Delaware law, the Company is
permitted to pay preferred stock dividends only: (1) out of
surplus, surplus being the amount of shareholders' equity in
excess of the par value of the Company's two classes of stock; or
(2) in the event there is no surplus, out of net profits for the
fiscal year in which a preferred stock dividend is declared
(and/or out of net profits from the preceding fiscal year), but
only to the extent that shareholders' equity exceeds the par
value of the preferred stock ($575,000). The Company had
shareholders' equity at December 31, 1996 of $237,000.
As a result of the filing of voluntary petitions for
reorganization under Chapter 11 of the United States
Bankruptcy Code, the Company is prohibited from paying
dividends, either common or preferred. The Company's Board of
Directors will continue to review the payment of quarterly
dividends, both common and preferred, as well as the nine
preferred stock dividends which are in arrears, in light of the
above restrictions and the Company's ongoing circumstances.
ITEM 6 - SELECTED FINANCIAL DATA
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
FIVE YEAR REVIEW
1996(1) 1995* 1994* 1993* 1992*
CONSOLIDATED INCOME
STATEMENTS
(in thousands)
Revenue
- Coal $ 44,152 $ 109,114 $ 368,715 $ 465,256 $ 536,289
- Independent Power 25,157 18,523 5,443 4,642 4,679
and other
--------------------------------------------------------------------------------
Total revenues 69,309 127,637 374,158 469,898 540,968
Cost and expenses (83,593) (156,574) (391,476) (485,878) (574,614)
Unusual charges (credits) (11,896) 66,623 (2,100) 79,250 -
--------------------------------------------------------------------------------
Operating loss (2,388) (95,560) (15,218) (95,230) (33,646)
Gains on the sales of assets 24,238 9,088 41,130 2,000 - -
Interest expense 400 1,164 5,425 4,936 4,164
Interest and other income 3,986 4,106 2,540 2,755 1,824
--------------------------------------------------------------------------------
Income (loss) before
income taxes, minority
interest and cumulative
effect of change in
accounting principle 25,436 (83,530) 23,027 (95,411) (35,986)
Income taxes (575) (1,488) (2,291) (1,487) (3,495)
Minority interest (890) (1,368) (583) (748) (1,543)
Cumulative effect of change
in accounting for
pneumoconiosis benefits 14,372 - - - -
--------------------------------------------------------------------------------
Net income (loss) 38,343 (86,386) 20,153 (97,646) (41,024)
Less preferred stock
dividends:
Declared - 2,444 1,222 4,888 2,362
In arrears 4,888 2,444 3,666 - -
--------------------------------------------------------------------------------
Net income (loss) applicable
to common shareholders 33,455 (91,274) 15,265 (102,534) (43,386)
--------------------------------------------------------------------------------
COMMON STOCK INFORMATION
(in thousands except per share data)
Net income (loss) per
share applicable to common
shareholders $ 4.80 $ (13.11) $ 2.19 $ (14.74) $ (5.68)
Dividends declared per
common share $ - $ - $ - $ - $ .32
Weighted average number
of common and common
equivalent shares 6,965 6,965 6,956 6,954 7,635
----------------------------------------------------------------------------------
BALANCE SHEET DATA
(in thousands)
Working capital (deficit) $ 10,185 $ (16,458) $ (1,481) $ (6,839) $ 33,650
Net property, plant and
equipment 42,700 59,868 89,728 146,450 204,051
Total assets 153,971 167,107 229,739 265,498 324,625
Total debt 1,324 4,593 15,931 44,034 53,191
Shareholders' equity
(deficit) 237 (38,106) 50,724 31,790 134,477
* Certain amounts have been reclassified to conform with current classifications.
(1) On December 23, 1996, Westmoreland Coal Company and four
subsidiaries, Westmoreland Resources, Inc., Westmoreland Coal
Sales Company, Westmoreland Energy, Inc., and Westmoreland
Terminal Company (the "Debtor Corporations"), filed voluntary
petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court
for the District of Colorado. The Debtor Corporations are in
possession of their respective properties and assets and are
operating as debtors in possession pursuant to provisions of
the Bankruptcy Code. The Company anticipates proposing a plan
of reorganization for these entities pursuant to Chapter 11 of
the Bankruptcy Code. Refer to Note 1 to the Consolidated
Financial Statements for further details.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
BANKRUPTCY PROCEEDING
Westmoreland Coal Company and four subsidiaries, Westmoreland
Resources, Inc., Westmoreland Coal Sales Company, Westmoreland
Energy, Inc., and Westmoreland Terminal Company ("the Debtor
Corporations"), filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code on December
23, 1996. The Debtor Corporations are in possession of their
respective properties and assets and are operating as debtors in
possession pursuant to provisions of the Bankruptcy Code.
Recognizing that it would not be able to meet its retiree benefit
obligations to the United Mine Workers of America Pension and
Benefit Funds ("the Funds") on a current basis, Westmoreland
initiated discussions with the Funds in November 1995. The
Company submitted several proposals. After the Funds failed to
accept any of Westmoreland's proposals and offered no realistic
counter proposals, the Company made the decision to file for
protection under Chapter 11 of the United States Bankruptcy Code
to protect the Company's value from the demands of the Funds.
The Company believes that cash generated from existing operations
and the proceeds from the sale of its non-operating assets are
not sufficient to meet these Fund liabilities and that
substantial value would be lost if the Company liquidated,
specifically, that of its tax loss carryforwards.
The Chapter 11 filings raise substantial doubt about the
Company's ability to continue as a going concern. However, the
Consolidated financial statements contained herein have been
prepared in accordance with generally accepted accounting
principles applicable to a going concern and do not purport to
reflect or to provide for all of the consequences of the ongoing
Chapter 11 reorganization cases. Specifically, the consolidated
financial statements do not present the amount which will
ultimately be paid to settle liabilities and contingencies which
may be allowed in the Chapter 11 reorganization cases or the
effect of any changes which may be made in connection with the
Debtor Corporations' capitalization or operations resulting from
a plan of reorganization. The Debtor Corporations have not filed
a plan of reorganization as of this date, but expect to file one
in the near term. No assurances can be given that the Company
will be successful in reorganizing its affairs within the Chapter
11 bankruptcy proceedings.
Because of the ongoing nature of the reorganization cases, the
outcome of which is not presently determinable, the consolidated
financial statements contained herein are subject to material
uncertainties and may not be indicative of the results of the
Company's future operations or financial position.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities was $14,949,000 in 1996. Cash
provided from operating activities totaled $8,174,000 and
$13,622,000 in 1995 and 1994, respectively. The reduction in
cash provided by operations in 1996 as compared to 1995 is
principally due to the curtailment of eastern mining operations.
The reduction of cash provided by operations in 1995 as compared
to 1994 is mainly attributable to operating losses of $24,359,000
for the first nine months of 1995 and idling costs for the
remainder of 1995 for the Virginia division. The Company
received $23,503,000 from the sale of a coal contract in 1995.
Cash provided from investing activities in 1996, 1995 and 1994
was $14,684,000, $1,868,000 and $43,886,000, respectively. The
Company received $19,689,000 from the sale of various Virginia
Division assets in 1996. Offsetting these cash inflows was a
cash outlay of $4,200,000 for the increase in the investment in
WRI. The Company received $10,131,000 from the disposition of
various assets, mainly the Hampton Division, and $3,145,000 in
note payments in 1995. Offsetting this cash inflow in 1995 were
cash investments relating to equity commitments for a
cogeneration project of $4,611,000, acquisitions of $2,771,000
and fixed asset additions of $2,923,000. In 1994, the Company
received cash of $74,375,000 from the sale of Kentucky Criterion.
Offsetting this cash inflow was a cash payment of $23,178,000
relating to equity funding of independent power projects.
Cash used in financing activities in 1996, 1995 and 1994 totaled
$2,655,000, $13,784,000, and $66,317,000, respectively. Cash
used in 1996 primarily related to the repayment of debt. Cash
used in 1995 included $10,240,000 relating to the repayment of
debt and $2,444,000 in preferred stock dividends. Cash used in
1994 included $28,103,000 for the repayment of long-term debt and
$26,560,000 for the purchase of Dominion Terminal Associates
bonds.
Consolidated cash and cash equivalents at December 31, 1996
totaled $8,791,000. As a result of the Chapter 11 bankruptcy
filings, each filed subsidiary is responsible for its own cash
management and the Company is not allowed to consolidate the
individual cash balances. As of December 31, 1996, the cash
balances at the filed subsidiaries were: Westmoreland Resources,
Inc. ("WRI") - $3,095,000; Westmoreland Coal Sales Company -
$26,000; Westmoreland Terminal Company - $403,000; and
Westmoreland Energy, Inc. - $1,701,000. The cash balance for
Westmoreland Coal Company was $3,028,000. At December 31, 1995,
cash and cash equivalents totaled $11,711,000 (including
$3,213,000 at WRI). The Company's cash and cash equivalents are
not restricted as to use or disposition under the normal course
of business, except for the bankruptcy restrictions. The cash at
WRI, an 80%-owned subsidiary, is available to the Company only
through dividends. In addition, the Company had restricted cash,
which was not classified as cash or cash equivalents, of
$17,960,000 at December 31, 1996 and 1995. The $17,960,000 is
comprised of two items: a $9,960,000 interest-bearing cash
deposit account, which collateralizes the Company's outstanding
surety bonds for its workers' compensation self-insurance
programs and $8,000,000 invested in certificates of deposit which
is classified as an Investment in Independent Power Projects at
December 31, 1996. The $8,000,000 in certificates of deposit
represents cash proceeds which were transferred from debt reserve
accounts of certain of the Company's independent power projects
and for which bank letters of credit were substituted. The cash
proceeds are restricted as to use and were invested in
certificates of deposit of the bank issuing the letters of
credit. The certificates of deposit collateralize the letters of
credit.
Preferred stock dividends at a rate of 8.5% per annum were paid
quarterly from the third quarter of 1992 through the first
quarter of 1994. The declaration and payment of preferred stock
dividends was suspended in the second quarter of 1994 in
connection with extension agreements entered into with the
Company's principal lenders. Upon the expiration of these
extension agreements, the Company paid a quarterly dividend on
April 1, 1995 and July 1, 1995. Pursuant to Delaware law, the
preferred stock dividend was suspended in the third quarter of
1995 as a result of the recognition of losses related to the
idling of the Virginia division and the resulting shareholders'
deficit. The nine quarterly dividends which are in arrears
(those dividends whose payment dates would have been July 1,
1994, October 1, 1994, January 1, 1995, October 1, 1995, January
1, 1996, April 1, 1996, July 1, 1996, October 1, 1996 and January
1, 1997) amount to $10,997,000 in the aggregate ($19.13 per
preferred share).
There are statutory restrictions limiting the payment of
preferred stock dividends under Delaware law, the state in which
the Company is incorporated. Under Delaware law, the Company is
permitted to pay preferred stock dividends only: (1) out of
surplus, surplus being the amount of shareholders' equity in
excess of the par value of the Company's two classes of stock; or
(2) in the event there is no surplus, out of net profits for the
fiscal year in which a preferred stock dividend is declared
(and/or out of net profits for the preceding fiscal year), but
only to the extent that shareholders' equity exceeds the par
value of the preferred stock ($575,000). The Company had
shareholders' equity at December 31, 1996 of $237,000.
As a result of the filing of voluntary petitions for
reorganization under Chapter 11 of the United States
Bankruptcy Code, the Company is prohibited from paying
dividends, either common or preferred. The Company's Board of
Directors will continue to review the payment of quarterly
dividends, both common and preferred, as well as the nine
preferred stock dividends which are in arrears, in light of the
above restrictions and the Company's ongoing circumstances.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
COAL OPERATIONS. Coal revenues for 1996 were $44,152,000 as
compared to $109,114,000 in 1995. This reduction is attributable
to the fact that there were no coal sales from the Virginia
Division in 1996 as a result of the idling of that division in
September 1995. Expenses associated with the coal sales also
decreased. The gross margin for coal sales in 1996 remained
comparable to 1995 except for ongoing idle costs at the Virginia
Division which continued in 1996.
INDEPENDENT POWER OPERATIONS. Equity in earnings and development
fees for the independent power operations in 1996 was $15,335,000
compared to $16,968,000 in 1995.
SERVICES. Revenues for the service segment increased to
$8,995,000 in 1996 from $2,637,000 in 1995. This increase
reflects the fact that Corona was acquired in October 1995, and
consequently there was little revenue for the first nine months
of 1995 for this segment. For 1996 compared to 1995, there was
an increase in the gross margin of $1,346,000. This increase is
attributable to increased revenue, which absorbed more fixed
costs.
TERMINAL OPERATIONS. For 1996 there was an increase in the
equity in earnings of DTA of $1,909,000 as compared to 1995.
This increase is a result of an increase in the throughput
tonnage for the terminal. The per ton charge for the throughput
in 1996 was comparable to 1995.
Heritage costs for 1996 are lower than in 1995. The Company was
no longer self-insured for workers' compensation benefits as of
January 1, 1996 and no workers' compensation expense was recorded
in 1996 . The total expected obligation for all future workers'
compensation expense claims was actuarially determined and
recorded at December 31, 1995. Selling and administrative
expenses have declined due to downsizing and relocation of the
corporate office in September 1995.
In 1996, the Company recorded unusual credits of $11,896,000 for
the adjustment of accrued postretirement medical benefits of
$5,896,000 charged when the Hampton Division which was sold in
1995, and an adjustment of $6,000,000 related to an updated
actuarial valuation of the UMWA pension withdrawal liability.
The unusual charges recorded in September 1995 related to the
idling of the Virginia Division. The Virginia Division also
recognized a $23,500,000 gain during the third quarter of 1995
from the early contract buyout of the Duke Power Coal Purchase
Agreement.
During 1996, the Company realized proceeds of $19,800,000 from
the sale of Virginia Division assets in nine separate
transactions. The gain on these transactions was $24,043,000
which included $5,224,000 in reclamation obligations that were
assumed by the various purchasers. In January 1995, the Company
sold the assets of its Hampton Division (West Virginia) for net
proceeds of $7,400,000 resulting in a gain from the sale of
assets of $9,088,000.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
COAL OPERATIONS. Coal revenues for 1995 were $109,114,000 as
compared to $368,715,000 in 1994. The substantial decline is due
to the idling of the Virginia Division that took place in
September 1995 and the sales of the Kentucky Criterion and
Hampton Division mines in December 1994 and January 1995,
respectively. Expenses associated with the coal sales also
decreased. The gross margin for coal sales in 1995 remained
comparable to 1994.
INDEPENDENT POWER OPERATIONS. Equity in earnings and development
fees for the independent power operations in 1995 was $16,968,000
compared to $6,362,000 in 1994. This increase is attributable to
additional power projects reaching commercial operation status in
1995.
SERVICES. Revenues for the service segment increased in 1995
from $834,000 in 1994 to $2,637,000 in 1995. This increase
reflects the fact that Corona was acquired in October 1995, and
consequently there was no revenue for that entity in 1994.
TERMINAL OPERATIONS. For 1995 there was an decrease in the
equity in the losses of DTA of $671,000 as compared to 1994.
This decrease is a result of an increase in the throughput
tonnage for the terminal, as the per ton charge for the
throughput in 1995 was comparable to 1994.
Selling and administrative expenses decreased because of ongoing
downsizing related to the sales noted above and the relocation of
the corporate office in September 1995.
Unusual charges of $66,623,000 in 1995 primarily relate to idling
of the Virginia Division in the third quarter of 1995. Included
in the charges are medical costs accruals of $34,285,000,
recognition of a UMWA pension withdrawal liability of
$19,800,000, writedown of fixed assets of $18,900,000, severance
and early retirement costs of $8,600,000 and other costs totaling
approximately $5,500,000. The unusual charge in 1994 was a
credit of $2,100,000 and related to a reversal of Workers'
Compensation accruals.
Gains on the sales of assets include a gain in 1995 of $9,088,000
on the sale of the assets of the Hampton Division. The Company
realized gains in 1994 of $34,142,000 on the sale of the assets
of Criterion and $6,988,000 on the sale of several inactive
properties in West Virginia.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL CONTENTS
Consolidated Balance Sheets 22
Consolidated Statements of Operations 24
Consolidated Statements of Shareholders' Equity (Deficit) 25
Consolidated Statements of Cash Flows 26
Summary of Significant Accounting Policies 28
Notes to Consolidated Financial Statements 31
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
December 31, 1996 1995*
(in thousands)
- -----------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 8,791 $ 11,711
Receivables:
Trade 4,667 4,215
Notes 3 2,295
Other 2,215 1,418
- ----------------------------------------------------------------
6,885 7,928
Less allowance for
doubtful accounts - 2,515
- ----------------------------------------------------------------
6,885 5,413
Inventories 688 940
- ----------------------------------------------------------------
Other current assets 726 921
- ----------------------------------------------------------------
Total current assets 17,090 18,985
Property, plant and equipment:
Land and mineral rights 11,028 30,029
Plant and equipment 137,873 255,149
- ----------------------------------------------------------------
148,901 285,178
Less accumulated
depreciation and depletion 106,201 225,310
- ----------------------------------------------------------------
42,700 59,868
Investment in independent power
operations 51,386 49,069
Investment in Dominion Terminal
Associates (DTA) 19,841 19,673
Workers' compensation bond 9,960 9,960
Prepaid pension cost 11,021 7,612
Other assets 1,973 1,940
- ----------------------------------------------------------------
Total Assets $ 153,971 $ 167,107
See accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements.
* Certain amounts have been reclassified to conform with current
classifications.
December 31, 1996 1995*
(in thousands)
- ---------------------------------------------------------------
Liabilities and Shareholders' Equity
(Deficit)
Current liabilities:
Current installments of long-term debt $ 443 $ 1,462
Accounts payable and accrued expenses:
Trade 847 3,647
Taxes, other than income taxes 3,437 3,929
Other accrued expenses 1,588 7,606
Workers' compensation - 5,494
Postretirement medical costs - 10,400
Reclamation costs 590 -
Income taxes - 2,905
- ----------------------------------------------------------------
Total current liabilities 6,905 35,443
Liabilities subject to compromise 136,191 -
Long-term debt, less current 881 3,131
installments
Accrual for workers' compensation, less - 28,130
current portion
Accrual for postretirement medical
costs, less current portion - 73,373
Accrual for reclamation costs, less
current portion 4,216 10,311
Accrual for pneumoconiosis benefits 127 13,871
Other liabilities 261 15,558
Deferred income taxes - 14,827
Minority interest 5,153 10,569
Commitments and contingent liabilities
Shareholders' equity (deficit):
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued 575,000 shares 575 575
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued 6,965,328 shares 17,402 17,402
Other paid-in capital 94,641 94,641
Accumulated deficit (112,381) (150,724)
- ----------------------------------------------------------------
Total shareholders' equity (deficit) 237 (38,106)
- ----------------------------------------------------------------
Total Liabilities and Shareholders'
Equity (Deficit) $ 153,971 $ 167,107
See accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements.
* Certain amounts have been reclassified to conform with current
classifications.
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 1996 1995* 1994*
- ---------------------------------------------------------------
(in thousands except per share data)
Revenues:
Coal $ 44,152 $ 109,114 $ 368,715
Services 8,995 2,637 834
Independent power projects-
equity in earnings and
development fees 15,335 16,968 6,362
Dominion Terminal
Associates - equity in
earnings (share of losses) 827 (1,082) (1,753)
- ----------------------------------------------------------------
69,309 127,637 374,158
Cost and expenses:
Cost of sales - coal 50,863 104,120 320,392
Cost of sales - services 8,261 3,249 2,569
Depreciation, depletion
and amortization 2,336 14,903 16,800
Selling and administrative 12,497 17,865 34,481
Heritage costs 16,686 19,844 21,834
Pension benefit (3,601) (2,440) (1,862)
Doubtful accounts
recoveries (3,449) (967) (2,738)
Unusual charges (credits) (11,896) 66,623 (2,100)
- ----------------------------------------------------------------
71,697 223,197 389,376
Operating loss (2,388) (95,560) (15,218)
Other income (expense):
Gains on sales of assets
(including $10,700,000
from Penn Virginia
Corporation in 1996) 24,238 9,088 41,130
Interest expense (400) (1,164) (5,425)
Interest income 1,455 2,600 1,198
Other income 2,531 1,506 1,342
- ----------------------------------------------------------------
27,824 12,030 38,245
Income (loss) before income
taxes, minority interest and
cumulative effect of change
in accounting principle 25,436 (83,530) 23,027
Income taxes (575) (1,488) (2,291)
Minority interest (890) (1,368) (583)
Cumulative effect of
change in accounting
principle 14,372 - -
- ----------------------------------------------------------------
Net income (loss) 38,343 (86,386) 20,153
Less preferred stock
dividends:
Declared - 2,444 1,222
In arrears 4,888 2,444 3,666
- ----------------------------------------------------------------
Net income (loss) applicable
to common shareholders $ 33,455 $ (91,274) $ 15,265
================================================================
Net income (loss) per share
applicable to common
shareholders:
Before cumulative effect
of change in accounting
principle $ 2.74 $ (13.11) $ 2.19
Cumulative effect of
change in accounting
principle 2.06 - -
- ----------------------------------------------------------------
$ 4.80 $ (13.11) $ 2.19
================================================================
Pro forma amounts assuming
the change in the method of
accounting for pneumoconiosis
is applied retroactively:
Net income (loss) applicable
to common shareholders $ 19,083 $ (96,405) $ 20,089
Net income (loss) per common
share applicable to common
shareholders $ 2.74 $ (13.84) $ 2.89
================================================================
Weighted average number of
common shares outstanding 6,965 6,965 6,956
See accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements.
* Certain amounts have been reclassified to conform with current
classifications.
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
Class A
Convertible Retained
Exchangeable Earnings
Preferred Common Paid-In (Accumulated
Stock Stock Capital Deficit) Total
(in thousands)
- ---------------------------------------------------------------------------------------
Balance at January 1, 1994 $ 575 17,389 94,651 (80,825) 31,790
Net income - - - 20,153 20,153
Cash dividends declared on
preferred stock - - - (1,222) (1,222)
Other - 1 2 - 3
- ---------------------------------------------------------------------------------------
Balance at December 31, 1994 575 17,390 94,653 (61,894) 50,724
Net loss - - - (86,386) (86,386)
Cash dividends declared on
preferred stock - - - (2,444) (2,444)
Other - 12 (12) - -
- ---------------------------------------------------------------------------------------
Balance at December 31, 1995 575 17,402 94,641 (150,724) (38,106)
Net income - - - 38,343 38,343
- ---------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 575 17,402 94,641 (112,381) 237
As of December 31, 1996, there were nine cumulative undeclared quarterly
preferred stock dividends in arrears.
See accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 1995* 1994*
- -----------------------------------------------------------------
(in thousands)
Cash flows from operating
activities:
Net income (loss) $ 38,343 $ (86,386) $20,153
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Cumulative effect of change
in accounting for
pneumoconiosis benefits (13,871) - -
Unusual charges (credits) (11,896) 90,126 (2,100)
Gains on sales of assets (24,238) (9,088) (41,130)
Equity earnings from
independent power projects (15,335) (12,968) (6,450)
Deferred development fees
earned from independent
power projects - (4,000) 88
Cash distributions from
independent power projects
- equity earnings 12,971 10,370 1,105
Equity earnings from Dominion
Terminal Associates (827) 1,082 1,753
Cash generated by Dominion
Terminal Associates facility 3,786 1,842 1,451
Cash contributions to
Dominion Terminal Associates (3,187) (2,282) (2,991)
Depreciation, depletion and
amortization 2,336 14,903 16,800
Deferred income tax expense
(benefit) (579) (404) 360
Minority interest in WRI's
income 890 1,368 583
Changes in assets and
liabilities, net of non-cash
transactions:
Accounts receivable, net of
allowance for doubtful
accounts (1,331) 16,390 28,058
Inventories 252 4,389 6,945
Accounts payable and
accrued expenses (2,283) (26,263) (20,519)
Income taxes payable (2,905) (1,058) 869
Accrual for workers'
compensation (6,285) (267) 723
Accrual for postretirement
medical costs 7,250 5,008 7,183
Accrual for pneumoconiosis
benefits 127 (1,133) (2,471)
Other liabilities (914) (241) 455
Other 2,747 6,786 2,757
- ----------------------------------------------------------------
Net cash provided by (used in)
operating activities (14,949) 8,174 13,622
- ----------------------------------------------------------------
Cash flows from investing
activities:
Fixed asset additions (664) (2,923) (5,892)
Equity funding of independent
power projects - (4,611) (23,178)
(Increase) decrease in notes
receivable (141) 3,145 (567)
Purchase of additional
interest in WRI (4,200) - -
Purchase of subsidiary - (2,771) -
Hampton lease buyout - (1,103) -
Net proceeds from sales of
investments and assets 19,689 10,131 78,273
LG&E support fee payment - - (4,750)
- ----------------------------------------------------------------
Net cash provided by investing
activities 14,684 1,868 43,886
- ----------------------------------------------------------------
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1996 1995* 1994*
- ----------------------------------------------------------------
Cash flows from financing
activities:
Repayment of long-term debt (1,662) (10,240) (28,103)
Cash used to buy DTA bonds - - (26,560)
Cash deposits to support
surety bonds - - (8,210)
Dividends paid to preferred
shareholders - (2,444) (2,444)
Dividends paid and other
adjustments relative to
minority shareholders (993) (1,100) (1,000)
- ----------------------------------------------------------------
Net cash used in financing
activities (2,655) (13,784) (66,317)
- ----------------------------------------------------------------
Net decrease in cash and cash
equivalents (2,920) (3,742) (8,809)
Cash and cash equivalents,
beginning of year 11,711 15,453 24,262
- ----------------------------------------------------------------
Cash and cash equivalents,
end of year $ 8,791 $ 11,711 $ 15,453
================================================================
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 228 $ 1,106 $ 5,489
Income taxes 1,140 1,432 1,115
In September 1996, the Company completed a non-cash transaction
for the transfer of several of its idled Virginia Division mining
operations. In exchange for these operations, the purchaser
assumed responsibility for certain reclamation obligations
amounting to approximately $2,200,000. The entire amount of the
obligations assumed was recorded as a gain on the sale of assets.
In May 1996, the Company completed non-cash transactions for the
sale of its idled Wentz and Pine Branch Mining operations. The
purchasers of those assets assumed reclamation and other
liabilities totaling approximately $3,000,000 as part of those
transactions. The entire amount of the obligations assumed was
recorded as a gain on the sale of assets.
In October 1995, WEI, through its subsidiary, Westmoreland-
Corona, Inc. completed the purchase of the Corona Group Inc.
("Corona"). Corona was acquired for $2,771,000 in cash plus the
assumption of $2,042,000 in notes payable and other liabilities,
in exchange for 100% of Corona's stock.
In September 1995, the Company completed the sale of Cleancoal
Terminal Company ("Cleancoal"). In exchange for the assets of
the Cleancoal operations and a cash payment of $2,500,000, the
Company was released from its $8,864,000 loan guarantee
obligation on behalf of Adventure Resources to the purchaser, as
well as the guarantee of related interest payments of
approximately $70,000 per month.
In the first quarter of 1995, $8,000,000 was distributed from
debt reserve accounts of certain of the Company's independent
power projects and bank letters of credit were substituted for
the amounts distributed. The cash proceeds are restricted as to
use and were invested in certificates of deposit of the bank
issuing the letters of credit. The certificates of deposit
collaterlize the letters of credit and are classified on the
Company's Condensed Consolidated Balance Sheets as an Investment
in Independent Power Projects.
See accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements.
* Certain amounts have been reclassified to conform with current
classifications.
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY
The consolidated financial statements of Westmoreland Coal
Company (the "Company") include the accounts of the Company and
its majority-owned subsidiaries, after elimination of
intercompany balances and transactions. The Company uses the
equity method of accounting for companies where its ownership is
between 20% and 50% and for partnerships and joint ventures in
which less than a controlling interest is held.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets, liabilities,
revenues and expenses and the disclosure of contingent
liabilities in order to prepare these financial statements in
conformity with generally accepted accounting principles. Actual
results will likely differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments
purchased with maturities of three months or less to be cash
equivalents. All such instruments are carried at cost. Cash
equivalents consists of Eurodollar time deposits, money market
funds and bank repurchase agreements.
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. Development costs of mines in the pre-operating stage
are capitalized until commercial operations commence.
Maintenance and repair costs are expensed as incurred. Mineral
rights are depleted based upon estimated recoverable reserves.
Plant and equipment are depreciated straight-line over the
assets' estimated useful lives, ranging from 3 to 40 years. The
Company assesses the carrying value of its property, plant and
equipment for impairment by comparing estimated undiscounted cash
flows expected to be generated from such assets with their net
book value. If net book value exceeds estimated cash flows, the
asset is written down to fair value. When an asset is retired or
sold, its cost and related accumulated depreciation and depletion
are removed from the accounts. The difference between
unamortized cost and proceeds on disposition is recorded as a
gain or loss. Fully depreciated plant and equipment still in use
are not eliminated from the accounts.
INDEPENDENT POWER DEVELOPMENT
Costs incurred during the development process of independent
power projects are expensed in the period incurred until certain
events, including the execution of certain contracts, which are
critical to a project's construction and operation, have occured.
After these events have taken place, all subsequent costs are
capitalized. At the time when non-recourse bank financing has
been obtained, costs previously expensed by the Company, to the
extent reimbursed, are reported as development fee income. All
other income generated in connection with a project's development
is deferred until the project achieves commercial operation, the
required equity funding commitment is made, and the conversion of
the loan from a construction loan to a term loan is completed.
WORKERS' COMPENSATION AND PNEUMOCONIOSIS BENEFIT LIABILITIES
The Company is self-insured for workers' compensation claims
incurred prior to 1996 and federal and state pneumoconiosis
benefits for current and former employees. Workers compensation
claims incurred after January 1, 1996 are covered by a third
party insurance provider.
The liability for workers' compensation claims is an actuarially
determined estimate of the ultimate losses incurred on such
claims based on the Company's experience, and includes a
provision for incurred but not reported losses. Adjustments to
the probable ultimate liability are made continually based on
subsequent developments and experience and are included in
operations as incurred.
Effective January 1, 1996 and as discussed in Note 9, the Company
changed its method of accounting for pneumoconiosis benefits to
recognize actuarial gains and losses related to the pneumoconiosis
benefit obligation, as actuarially determined, in the period in
which they occur. Previously, the Company accrued for the projected
costs of pneumoconiosis benefits, on an actuarial basis, over the period
which benefits were expected to be paid. An independent trust has been
established to fund these benefits.
POST RETIREMENT BENEFITS OTHER THAN PENSIONS
The Company accounts for health care and life insurance benefits
provided to certain retired employees and their dependents by
accruing the cost of such benefits over the service lives of
employees. The Company is amortizing its transition obligation,
for past service costs relating to these benefits, over twenty
years. For union employees who retired prior to 1976, the
Company provides similar medical and life insurance benefits by
making payments to a multiemployer union trust fund. The Company
expenses such payments when made.
COAL REVENUES
The Company recognizes coal sales revenue at the time title
passes to the customer. The Company also records as revenue
amounts received from coal related activities, such as proceeds
from coal contract buy-outs and coal option payments. Coal
revenues include the sale of mined coal and sales of coal
produced by unaffiliated mining companies where the Company is a
sales agent or broker. The Company recognizes revenue for the
coal sold for unaffiliated 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 $10,642,000, $16,122,000,
$83,196,000 in 1996, 1995, and 1994, respectively.
RECLAMATION
Reclamation costs at active sites are fixed and are being
recognized evenly over a 15 year period. Total expected
reclamation costs at idled sites were fully accrued at the time
of idling. Estimates at idle sites are periodically reviewed and
adjustments are made in accruals to provide for changes in
expected future costs.
INCOME TAXES
The Company accounts for deferred income taxes using the asset
and liability method. Deferred tax liabilities and assets are
recognized for the expected future tax consequences of events
that have been reflected in the Company's financial statements
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.
NET INCOME (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS
Declared and undeclared cumulative preferred dividends are
deducted from net income in determining net income (loss)
applicable to common shareholders.
Net income (loss) per share applicable to common shareholders is
computed by dividing net income (loss) applicable 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 in the calculation when
they would have an anti-dilutive effect on income (loss) per
share.
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
1.NATURE OF OPERATIONS
The Company's principal activities, conducted within the United
States are, (i) the production and sale of coal from a contractor
operated mine in Powder River Basin in Eastern Montana; (ii) the
ownership of interests in cogeneration and other non-regulated
independent power plants; (iii) the provision of repair and
maintenance services to utilities and power projects; and (iv)
the leasing of capacity at Dominion Terminal Associates, a coal
storage and vessel loading facility.
CHAPTER 11 REORGANIZATION PROCEEDINGS
On December 23, 1996 ("Petition Date"), Westmoreland Coal Company
and four subsidiaries, Westmoreland Resources, Inc., Westmoreland
Coal Sales Company, Westmoreland Energy, Inc., and Westmoreland
Terminal Company (the "Debtor Corporations"), filed voluntary
petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for
the District of Colorado. The Debtor Corporations are in
possession of their respective properties and assets and are
operating as debtors in possession pursuant to provisions of the
Bankruptcy Code. The Company anticipates proposing a plan of
reorganization for these entities pursuant to Chapter 11 of the
Bankruptcy Code.
The consolidated financial statements contained herein have been
prepared in accordance with generally accepted accounting
principles applicable to a going concern and do not purport to
reflect or to provide for all of the possible consequences of the
ongoing Chapter 11 reorganization cases. Specifically, the
consolidated financial statements do not present the amount which
will ultimately be paid to settle liabilities and contingencies
which may be allowed in the Chapter 11 reorganization cases or
the effect of any changes which may be made in connection with
the Debtor Corporations' capitalization or operations resulting
from a plan of reorganization. Costs incurred related to the
reorganization were immaterial in 1996. The Debtor Corporations
have not filed a plan of reorganization as of this date, but
expect to file one in the near term.
Because of the ongoing nature of the reorganization cases, the
outcome of which is not presently determinable, the consolidated
financial statements contained herein are subject to material
uncertainties and may not be indicative of the results of the
Company's future operations or financial position. No assurance
can be given that the Company will be successful in reorganizing
its affairs within the Chapter 11 bankruptcy proceedings.
LIABILITIES SUBJECT TO COMPROMISE
The filing of the Chapter 11 cases by the Debtor Corporations (i)
automatically stayed actions by creditors and other parties in
interest to recover any claim that arose prior to the
commencement of the cases, and (ii) served to accelerate, for
purposes of allowance, all prepetition liabilities of the
Company, whether or not those liabilities were liquidated or
contingent as of the Petition Date. In accordance with AICPA
Statement of Position 90-7 ("Financial Reporting by Entities in
Reorganization under the Bankruptcy Code"), the following table
sets forth the liabilities of the Company subject to compromise
as of December 31, 1996:
Trade and other liabilities $ 8,318,000
Long-term debt 1,607,000
1974 UMWA Pension Trust 13,800,000
Workers' compensation 27,339,000
1992 UMWA Benefit Plan 28,115,000
1993 Wage Agreement Plan 44,619,000
Other postretirement benefits 12,393,000
----------------------------------------------------
Total $ 136,191,000
1974 UMWA PENSION TRUST. Although the Company has not formally
withdrawn from this plan in accordance with ERISA, the Company
maintains that for bankruptcy purposes, to the extent any
withdrawal liability under the Multiemployer Pension Act ("MPPA")
is in respect of consideration furnished by employees of the
Company prior to the Petition Date, such liability was incurred
prior to the Petition Date and constitutes a liability subject to
compromise, even if the withdrawal payment is due and payable
postpetition. The Company believes that except for a small
percentage (i.e., 2% to 3%) of the estimated aggregate withdrawal
liability of $13,800,000, such liability is in respect of
consideration furnished by employees of the Company prior to the
Petition Date. No litigation has occurred in the Bankruptcy
Court regarding this matter.
WORKERS' COMPENSATION BENEFITS. The Company maintains that to
the extent workers' compensation benefits pertain to matters and
transactions arising prior to the Petition Date, such liabilities
constitute liabilities subject to compromise. The Company
believes that substantially all of its liability on workers'
compensation benefits arose and was incurred prepetition and
constitute prepetition claims. No litigation has occurred in the
Bankruptcy Court regarding this matter.
1992 UMWA BENEFIT PLAN. Until shortly before the Petition Date,
the Company provided health care benefits under its individual
employer plan for beneficiaries who were age- and service-
eligible to receive benefits under the Coal Act as of February 1,
1993, and who retired before October 1, 1994, and their
dependents. Prepetition, the Company ceased providing such
benefits. The Company maintains that pursuant to applicable law,
prior to the Petition Date, the 1992 Plan became obligated to
provide health care coverage for such beneficiaries and their
dependents. The Company further maintains that, as a result
thereof and in accordance with law, all claims of the 1992 Plan
arising under the Coal Act were incurred by the Company before
the Petition Date and constitute prepetition liabilities subject
to compromise. The Company estimates the present value of the
Company's liabilities, not including the unrecognized net
transition obligation and the unrecognized loss totaling
$71,963,000, to the 1992 Plan total approximately $28,115,000.
The Company believes that for bankruptcy purposes the sum of
these amounts, $100,078,000, comprise the present value of the
liability subject to compromise.
Following the Petition Date, the Trustees of the 1992 Plan
commenced an adversary proceeding against the Company requesting
that the Bankruptcy Court: (a) enter a permanent injunction
requiring the Company to "reinstate" its individual employer plan
for those beneficiaries who were eligible and were receiving
benefits under the individual employer plan as of February 1,
1993 and who retired before October 1, 1994, and their
dependents; (b) enter a declaratory judgment that the pre-funding
premiums and monthly per-beneficiary premiums that arise under
the 1992 Plan constitute "taxes" and administrative liabilities
of the estate; and (c) enter an injunction requiring all of the
Debtor Corporations to pay these pre-funding premiums and monthly
per-beneficiary premiums under the 1992 Plan as and when
statements are submitted by the Trustees. The Company has filed
answers and counterclaims in the Bankruptcy Court vigorously
opposing this requested relief.
The Trustees of the 1992 Plan have filed a motion with the
Bankruptcy Court requesting that the Bankruptcy Court enter
summary judgment in their favor with respect to substantially all
of the relief requested in the above-referenced adversary
proceeding. The Company has filed pleadings in the Bankruptcy
Court opposing this motion. The Bankruptcy Court has not yet
scheduled a hearing thereon.
If the Trustees prevail with respect to the above-described
relief, then substantially all of the Trustees' claims likely
would not constitute a liability subject to compromise, but,
instead, the Company probably would be required to satisfy those
liabilities as postpetition obligations of some or all of the
Chapter 11 estates. Such a determination in favor of the
Trustees likely would have a materially adverse effect on the
Company's ability to meet its obligations and successfully emerge
from Chapter 11.
Prior to the Petition Date, on or about August 21, 1996, the
Company entered into a "Pledge Agreement" with the 1992 Plan and
the "Combined Benefit Fund" under which, among other things, the
Company pledged its interest in certain subsidiaries to secure
obligations specified therein to the 1992 Plan and the Combined
Benefit Fund. In pleadings filed before the Bankruptcy Court,
the Company has maintained that the 1992 Plan does not hold any
allowed secured claims against the Company by reason of the
Pledge Agreement. The Trustees have not yet responded to these
contentions, but it is expected that the Trustees will dispute
the Company's contentions. If the Bankruptcy Court ultimately
determines that the 1992 Plan holds allowed secured claims, then
to that extent, such claims would constitute secured liabilities
of the Company. In such event, whether or not those secured
liabilities would be subject to compromise would depend upon the
outcome of the above-described adversary proceeding.
UMWA COMBINED BENEFIT PLAN. The UMWA Combined Benefit Plan is a
multiemployer plan established for purposes of providing health
care benefits under the Coal Act to beneficiaries, and their
dependents, who were age- and service-eligible as of July 20,
1992 under the 1950 UMWA Benefit Plan or the 1974 UMWA Benefit
Plan. Prior to the Petition Date, the Company ceased making
payments under the Combined Benefit Plan. The Company maintains
that any liability of the Company to the Combined Benefit Fund
arose and was incurred pre-petition and constitutes pre-petition
liabilities subject to compromise. It is anticipated that the
Combined Benefit Fund will vigorously oppose this contention. To
date, no litigation has been commenced in the Bankruptcy Court by
the Combined Benefit Fund against the Company and visa versa.
The Company estimates the present value of the Company's
liabilities to the Combined Benefit Fund total approximately
$46,200,000 and is not included in the foregoing table.
Although the Company has not commenced any litigation with the
Combined Benefit Fund regarding the validity of any security
interest of the Combined Benefit Fund arising under the Pledge
Agreement, the Company anticipates it likely will maintain that
the Combined Benefit Fund does not hold any allowed secured
claims under the Pledge Agreement. The Company expects that the
Combined Benefit Fund will dispute any such contention.
1993 WAGE AGREEMENT PLAN. The 1993 Wage Agreement between the
Company and the UMWA requires the Company to establish and
provide benefits under an individual employer plan for certain
retirees. The Company currently provides such benefits through
its individual employer plan. The 1993 Benefit Plan is a
multiemployer benefit plan providing health care benefits to
specified beneficiaries entitled to such benefits under
bargaining agreements, where employers fail to provide such
benefits through their individual employer plan, as required
under such agreements. The Company's liabilities under the 1993
Benefit Plan, whether provided under the Company's individual
employer plan or by the 1993 Plan, are shown as subject to
compromise, by virtue of the provisions of Bankruptcy Code
sections 1113 and 1114, which authorizes the rejection of
collective bargaining agreements and modification of such
benefits subject to terms and conditions specified therein,
respectively. The Company estimates the present value of the
Company's liabilities, after the effect of the unrecognized net
loss of $3,767,000, to the 1993 Plan total approximately
$44,619,000. The Company believes that for bankruptcy purposes
the sum of these amounts, $48,386,000, comprise the present value
of the liability subject to compromise.
Current financial reporting by the Company assumes that the
Company would enter into a successor agreement to the 1993
Agreement Between Westmoreland Coal Company and United Mine
Workers of America ("1993 Wage Agreement") prior to expiration of
that agreement and would thereby continue to provide retiree
health benefits to such beneficiaries. The Company believes that
it is unlikely that the Company will enter into a successor
agreement. Further, the Company maintains that any obligation of
the Company to provide benefits under the 1993 Wage Agreement
with respect to the 1993 Plan (or the related individual employer
plan) extends only through the scheduled expiration of the 1993
Wage Agreement. No litigation has been commenced in the Chapter
11 cases regarding the Company's liabilities under the 1993 Plan
(or the related individual employer plan).
The nature of the Chapter 11 cases is to have all claims against
and interests in the Company resolved. Accordingly, the Company
anticipates that during the Chapter 11 cases the Bankruptcy Court
will establish a deadline on the filing of proofs of claim and
interest. No such deadline has yet been established, and,
accordingly, the Company's estimate of liabilities is subject to
modification and amendment based upon the Company's review of the
proofs of claims to be filed in response to such deadline.
2. ACQUISITIONS
WESTMORELAND RESOURCES, INC.
On October 1, 1996, the Company increased its ownership in
Westmoreland Resources, Inc. ("WRI") from 60% to 80% through the
completion of separate transactions with Morrison Knudsen ("MK")
and Penn Virginia Corporation ("Penn Virginia"). As a result of
these transactions, MK is now a 20% owner and will continue as
the contract operator for WRI.
Westmoreland purchased a 4% share of WRI from MK for $1,200,000
cash on September 30, 1996. Westmoreland also exercised a
previously negotiated option with Penn Virginia Corporation for
the purchase of Penn Virginia's 16% share of WRI for $3,000,000
cash on October 1, 1996, bringing Westmoreland's ownership to
80%. The transaction was accounted for as a purchase and the
excess of the share of the book value of the assets acquired over
the cost is reflected as a reduction in the carrying value of
land and mineral rights.
THE CORONA GROUP
On October 31, 1995, WEI, through its subsidiary, Westmoreland-
Corona, Inc., completed the purchase of The Corona Group Inc.
("Corona"). Corona and its subsidiaries offer technical services
and repair and maintenance services to the power generating
industry, including utilities, cogeneration facilities and
independent power producers.
Corona was acquired for $2,771,000 in cash plus the assumption of
$2,042,000 in notes payable and other liabilities, in exchange
for 100% of Corona's stock. The acquisition was accounted for
using the purchase method. The transaction resulted in goodwill
of $790,000 which is being amortized straight-line over a period
of fifteen years. The Company's financial statements include the
results of operations of Corona since November 1, 1995.
3. DISPOSITIONS
In 1996 the Company recognized $24,238,000 in gains on sales of
assets.
VIRGINIA DIVISION
In May 1996, the Company completed a transaction with Penn
Virginia Corporation involving the relinquishment of certain coal
reserves back to Penn Virginia. Westmoreland recorded a gain and
received a cash payment of $10,700,000. The transaction included
assignable access rights from Penn Virginia to Westmoreland to
Westmoreland's Stone Mountain reserves, a large adjacent tract of
high quality underground reserves owned in fee by the Company.
During 1996, the Company also sold its Wentz Complex to Stonega
Mining and Processing Company and its idled Pine Branch Mining,
Inc. to Roaring Fork Mining Company in non-cash transactions for
a total gain of $3,000,000. Each purchaser assumed certain
reclamation and other liabilities.
In September 1996, the Company completed a non-cash transaction
for the transfer of ownership of several of its idled Virginia
Division operations to Intrepid Coal Corporation. The Company
recognized a gain of $2,063,000 on this transaction. Included in
the transfer are the Holton Loadout, Crest Tipple, Pierrepont
coal handling facilities and mineral rights in the Holton and
Pierrepont Mines. In exchange for these operations, Intrepid
assumed responsibility for certain reclamation and environmental
liabilities and post retirement medical benefit obligations for
any former Westmoreland employees whom Intrepid may subsequently
employ.
During December 1996, the Company completed three transactions
involving various assets of the Virginia Division. On December
3, the Company sold to Cumberland Energy Corp. for $1,866,000
cash its Stone Mountain coal reserves. On December 11, the
Company sold to Mullins Coal Co. certain Virginia Division
facilities and related assets for $1,010,000 cash and $1,000,000
future royalties. On December 19, the Company received $250,000
cash and $450,000 in future royalties for the sale of certain
real property assets including the DM2 and DM5 mining properties.
CLEANCOAL TERMINAL COMPANY
In September 1995, the Company completed the sale of Cleancoal
Terminal Company ("Cleancoal"). In exchange for the assets of
the Cleancoal operations and a cash payment of $2,500,000, the
Company was released from its $8,864,000 loan guarantee
obligation on behalf of Adventure Resources to the purchaser, as
well as the guarantee of related interest payments of
approximately $70,000 per month. In anticipation of the pending
sale, the Company had recognized a loss of $1,882,000 in the
fourth quarter of 1994, closed Cleancoal in January 1995 and laid
off the majority of the Cleancoal employees on January 31, 1995.
HAMPTON DIVISION
In January 1995, the Company sold the assets of its Hampton
Division to an unrelated party and sold the Hampton Division
mineral lease to the lessor for $9,045,000. The net proceeds to
the Company, after the buy out of a related capital lease, were
approximately $7,376,000. The Company recorded a gain on the
disposal of $9,088,000 in 1995, after the reversal of certain
liabilities, including the reclamation and environmental
liabilities associated with the Hampton Division which were
assumed by the purchasers in the transaction. All charges
related to the shut down of the Hampton Division were made in
1994.
CRITERION
In the fourth quarter of 1994, the Company sold the assets of its
subsidiary Criterion for cash proceeds of $74,375,000 (net of
related cash expenses of $4,165,000) and realized a gain on the
transaction of $34,142,000.
WEST VIRGINIA-IDLED OPERATIONS
In the fourth quarter of 1994, the Company sold several inactive
properties in the West Virginia Division for cash proceeds of
$3,800,000 and the transfer of reclamation liabilities related to
the purchase, resulting in a gain of $6,988,000. These
properties had not been in operation since the mid-1980's.
4. UNUSUAL CHARGES
In 1996, the Company recorded an unusual credit of $11,896,000
for the adjustment of accrued post-retirement medical benefits of
$5,896,000 charged when the Hampton Division was sold in 1995 and
an adjustment of $6,000,000 related to an updated actuarial
valuation of the UMWA pension withdrawal liability.
VIRGINIA DIVISION
In the third quarter of 1995, the Company incurred $66,600,000 in
unusual charges (which is net of a $23,500,000 gain on an early
buyout of a sale contract) associated with the cessation of
mining activities at the Pine Branch and the Virginia Division
properties. Included in these charges were a postretirement
benefit cost curtailment charge of $34,285,000, a potential UMWA
pension withdrawal liability of $19,800,000, an impairment of
fixed assets of $18,900,000, severance and early retirement costs
of $8,600,000 and other costs totaling approximately $5,500,000.
These charges were partially offset by a $23,500,000 gain
realized from the settlement of a coal purchase agreement with
the Virginia Division's major coal customer.
Idling of the Virginia Division resulted in the termination of
740 employees. There are 10 employees remaining that are
involved in maintaining the properties on a standby status. Of
those who were terminated, 624 were UMWA employees involved in
all aspects of mining operations. The remaining 116 employees
were salaried and supervisory personnel.
Accruals for the above unusual charges as they relate to the
Virginia Division, incurred and included in the balance sheet of
the Company as of December 31, 1996 are as follows:
Liabilities Idling 1995 1996 1996 Liabilities
prior to related Amounts Amounts Adjust- at
idling charges Paid Paid ments December
(b) 31, 1996
(in thousands)
Post retirement
medical benefits $ 17,050 $ 34,200 (a) (a) $ (5,896) (a)
Termination benefits
and other severance
costs (classified $ - 28,400 (8,600) - (6,000) 13,800
in other long term
liabilities)
Other liabilities
arising from
the idling of
operations, including
amounts for
remediation activities 7,209 5,479 (3,000) (4,882)(c) - 4,806
-------------------------------------------------------------------------------------
$ 7,209 33,879 (11,600) (4,882) (6,000) 18,606
-------------------------------------------------------------------------------------
Current portion
of idling costs 6,900
-------------------------------------------------------------------------------------
Long term portion
of idling costs $ 11,706
-------------------------------------------------------------------------------------
(a)Certain liabilities related to the idling of operations are for post
retirement benefits which are actuarially determined on a company-wide
basis. Accordingly, amounts paid and remaining liabilities for these
items as they relate to the idling of the Virginia Division cannot be
specifically identified.
(b)1996 adjustments reflect changes in actuarial valuation and other
accounting estimates.
(c)Amount represents reclamation and other obligations assumed by purchasers
of Virginia Division assets.
5.WESTMORELAND ENERGY, INC.
Westmoreland Energy, Inc., ("WEI"), a wholly owned subsidiary of
the Company, holds general and limited partner interests in
partnerships which were formed to develop and own cogeneration
and other non-regulated independent power plants. Equity
interests in these partnerships range from 1.25 percent to 50
percent. WEI has interests in eight operating projects as listed
and described in the Project Status Summary below. 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 making
cash distributions to the partners, with which the partnerships
are in compliance. The type of restrictions on making cash
distributions to the partners vary from one project lender to
another.
Project Ft. Drum Altavista Hopewell Southampton
- ------------------------------------------------------------------
Watertown Altavista Hopewell Southampton
Location: New York Virginia Virginia Virginia
- ------------------------------------------------------------------
Status: Operational Operational Operational Operational
- ------------------------------------------------------------------
Gross
Megawatt 55.5 MW 70 MW 70 MW 70 MW
Capacity:
- ------------------------------------------------------------------
WEI Equity
Ownership: 1.25% 30.0% 30.0% 30.0%
- ------------------------------------------------------------------
Electricity Niagara Virginia Virginia Virginia
Purchaser: Mohawk Power Power Power
- ------------------------------------------------------------------
The Lane Firestone
Steam Host: Company, Tire & Hercules,
US Army Inc. Rubber Co. Inc.
- ------------------------------------------------------------------
Fuel Type: Coal Coal Coal Coal
- ------------------------------------------------------------------
Fuel Cyprus Amax Westmoreland United Coal United Coal
Supplier: Coal Co. Coal Company Company Company
- ------------------------------------------------------------------
Commercial
Operations
Date: 1989 1992 1992 1992
- ------------------------------------------------------------------
Roanoke Roanoke
Project Ft. Lupton Rensselaer Valley I Valley II
- ------------------------------------------------------------------
Weldon Weldon
Location: Ft. Lupton Rensselaer North North
Colorado New York Carolina Carolina
- ------------------------------------------------------------------
Status: Operational Operational Operational Operational
- ------------------------------------------------------------------
Gross
Megawatt 290 MW 81 MW 180 MW 50 MW
Capacity:
- ------------------------------------------------------------------
WEI Equity
Ownership: 4.49% 50.0% 50.0% 50.0%
- ------------------------------------------------------------------
Public
Electricity Service of Niagara Virginia Virginia
Purchaser: Colorado Mohawk Power Power
- ------------------------------------------------------------------
Rocky Mtn. Patch
Steam Host: Produce, Patch Rubber Rubber
Ltd BASF Company Company
- ------------------------------------------------------------------
Fuel Type: Natural Gas Natural Gas Coal Coal
- ------------------------------------------------------------------
Thermo Western Gas
Fuel Fuels, Marketing, TECO Coal/ TECO Coal/
Supplier: Inc. Ltd CONSOL CONSOL
- ------------------------------------------------------------------
Commercial
Operations
Date: 1994 1994 1994 1995
- ------------------------------------------------------------------
The following is a summary of aggregated financial information
for all investments owned by WEI and accounted for under the
equity method:
Balance Sheet
December 31, 1996 1995
(in thousands)
Assets
Current assets $ 126,389 $ 110,763
Property, plant and equipment, net 691,928 714,760
Other assets 70,491 72,422
- ----------------------------------------------------------------
Total assets $ 888,808 $ 897,945
Liabilities and equity
Current liabilities $ 51,268 $ 61,615
Long-term debt and other liabilities 677,861 702,778
Equity 159,679 133,552
- ----------------------------------------------------------------
Total liabilities and equity $ 888,808 $ 897,945
WEI's share of equity $ 42,864 $ 40,271
Restricted cash 8,000 8,000
Acquisition cost in excess of fair
market value of assets acquired, net
of amortization 1,060 1,107
Other, net (538) (309)
- ----------------------------------------------------------------
WEI's investment in independent power $ 51,386 $ 49,069
operations
The acquisition cost in excess of fair market value of assets
acquired is being amortized straight-line over the term of the
power contract for the related project.
Income Statement For years ended
December 31,
1996 1995 1994
--------------------------------------------------------
(in thousands)
Revenues $271,237 $ 237,693 $186,979
Operating income 137,872 130,192 81,650
--------------------------------------------------------
Net income $ 55,382 $ 39,416 $ 25,259
--------------------------------------------------------
WEI's share of equity
earnings $ 15,335 $ 12,968 $ 6,362
WEI performs project development and venture and asset management
services for the partnerships and has recognized related revenues
and income of $499,000, $454,000, and $712,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. Management
fees are recorded as revenues when the service is performed. WEI
receives development fees from certain projects. Recognition of
these fees as income is deferred until the related project
achieves commercial operation, the required equity funding
commitment is made and the conversion of the loan from a
construction loan to a term loan is completed. Fees of
$4,000,000 were recognized in 1995.
RECENT DEVELOPMENTS RELATING TO INDEPENDENT POWER PROJECTS
SOUTHAMPTON PROJECT - WEI owns a 30% general partnership interest
in LG&E-Westmoreland Southampton ("Southampton Partnership"),
which owns the Southampton Project. The Southampton Project,
which was engaged in start-up and testing operations from
September 1991 through March 1992, failed to meet Federal Energy
Regulatory Commission ("FERC") operating standards for a
qualifying facility ("QF") in 1992. The failure was due to three
factors: (i) the facility was not dispatched by its power
customer, Virginia Electric and Power Company ("Virginia Power"),
on a baseload schedule as anticipated, (ii) the facility was
engaged in start-up and testing operations during a portion of
that year, and (iii) the facility operator mistakenly delivered
non-sequential steam to the host over a significant period of
time. On February 23, 1994, the Southampton Partnership filed a
request with the FERC for a waiver of the FERC's QF operating
standard for 1992. Virginia Power intervened in the FERC
proceeding, opposed the granting of a waiver, and alleged that
its power contract with the Southampton Partnership had been
breached due to the failure of the facility to maintain QF status
in 1992.
On July 7, 1994, the FERC issued an order (1) denying the
application of the Southampton Partnership for a waiver of the
FERC's QF operating standard in 1992 with respect to the
Southampton Project and (2) directing the Southampton Partnership
to show cause why it should not be required to file rate
schedules with the FERC governing its 1992 electricity sales for
resale to Virginia Power. In 1994 the Southampton Project
established a reserve for the anticipated refund obligations
relating to this issue. On August 9, 1994, the Southampton
Partnership filed a request for rehearing of FERC's order or,
alternatively, a motion for reconsideration.
On August 1, 1996, FERC entered its decision in the Southampton
case. FERC determined that the Partnership's request for
reconsideration should be treated as timely filed, but that the
Southampton facility was not in complete compliance with the QF
requirements for 1992. FERC ordered Southampton to comply with
Section 205 for the Federal Power Act ("FPA"), and file, for
FERC's review, rates for calendar year 1992 for wholesale power
sales to Virginia Power. Otherwise, the Southampton project
remains exempt from regulation under the Public Utility Holding
Company Act ("PUHCA"), utility laws of Virginia and the other
provisions of the FPA. In August 1996, the Partnership filed a
motion seeking clarification of the August 1, 1996 order. The
Partnership also filed an additional request for rehearing.
These matters are still pending before the FERC.
Ultimate resolution of this matter has not yet been determined.
The FERC order does not completely settle what the applicable
rate is for 1992. The rate must be determined through
negotiations with Virginia Power and further FERC proceedings and
may result in refunds to Virginia Power, the ultimate amount of
which cannot be determined at this time.
ROVA I PROJECT - WEI owns a 50% partnership interest in
Westmoreland-LG&E Partners (the "ROVA Partnership"). The ROVA
Partnership's principal customer contracted to purchase the
electricity generated by ROVA I under a long-term contract. In
the second quarter of 1994, that customer disputed the ROVA
Partnership's interpretation of the provisions of the contract
dealing with the payment of the capacity purchase price when the
facility experiences a forced outage day. A forced outage day is
a day when ROVA I experiences an interruption in the facility's
ability to generate electrical output. The ROVA Partnership
believes that the customer is required to pay the ROVA
Partnership the full capacity purchase price unless forced outage
days exceed a contractually stated allowed annual number. The
customer asserts that it is not required to do so.
From May 1994 through December 1996, Virginia Power withheld
approximately $12,000,000 of these capacity payments during
periods of forced outages. To date, the Company has not realized
any income on its 50% portion of the capacity payments being
withheld by Virginia Power. In October 1994, The ROVA
Partnerships filed a complaint against Virginia Power seeking
damages of at least $5,700,000, contending that Virginia Power
breached the Power Purchase Agreement in withholding such
payments. In December, 1994, Virginia Power filed a motion to
dismiss the complaint and in March, 1995, the court granted this
motion. The ROVA Partnerships filed an amended complaint in
April, 1995. Virginia Power filed another motion to dismiss the
complaint and in June 1995, the Circuit Court of the City of
Richmond, Virginia denied Virginia Power's motion to dismiss The
ROVA Partnerships' amended complaint. In November 1995, Virginia
Power filed with the court a motion for summary judgment, and a
hearing on the motion was held in early December 1995. In late
January 1996, the court denied Virginia Power's motion for
summary judgment. The customer filed a second summary judgment
motion on March 1, 1996. On March 18, 1996, the Court granted
the customer's second summary judgment motion and effectively
dismissed the complaint. The ROVA partnership has appealed the
Court's decision granting summary judgment. The matter is
pending before the Virginia Supreme Court. Regardless of the
outcome, the Company believes Roanoke Valley I will operate
profitability and generate positive cash flows. The capacity
purchase price withheld had been included in the revenues and
earnings of the ROVA Partnership until a reserve was recorded as
of December 31, 1994 for the full amount withheld by the
customer. WEI had recognized its 50% share of the withheld
payments in earnings in the second, third and fourth quarters of
1994. In the fourth quarter of 1994, WEI's revenues were reduced
by $2,928,000, representing its 50% share of the disputed amount.
No earnings were recognized by WEI in 1995 or 1996 for payments
withheld by the customer relating to forced outage days.
RENSSELAER - The Company has been informed through public filings
that Niagara Mohawk Power Corporation ("NIMO")(which is the
purchasing utility for the Company's Rensselaer cogeneration
facility in which the Company has a 50% interest) believes that,
absent significant relief from its power purchase arrangements
with independent power producers (including qualifying
cogenerators), it may be forced either to file voluntary
bankruptcy or attempt to condemn and purchase the cogeneration
facilities through eminent domain. The Company, along with other
independent power producers, has entered into negotiations with
NIMO to restructure or terminate its contract. No definitive
terms have been reached and the ultimate effect of such an
agreement cannot be determined at this time.
6.DOMINION TERMINAL ASSOCIATES
Westmoreland Terminal Company ("WTC"), a wholly-owned subsidiary
of the Company, has a 20% interest in Dominion Terminal
Associates ("DTA"), a partnership formed for the construction and
operation of a coal-storage and vessel-loading facility in
Newport News, Virginia. DTA's annual throughput capacity is 22
million tons, and its ground storage capacity is 1.7 million
tons.
The Company currently leases the terminal's ground storage space
and vessel-loading facilities to certain unaffiliated parties.
Historically, the Company utilized the terminal for most of its
coal exporting business. In 1994, the Company discontinued
export sales.
The following is a summary of financial information for DTA:
Balance Sheet
December 31, 1996 1995
- ----------------------------------------------------------------
(in thousands)
Assets
Current assets $ 5,488 $ 4,964
Non-current assets 93,140 97,262
-----------------------------------------------------------
Total assets $ 98,628 $ 102,226
Liabilities and partners' deficit
Current liabilities $ 2,127 $ 3,756
Long-term debt and other
liabilities 116,556 117,177
Partners' deficit (20,055) (18,707)
-----------------------------------------------------------
Total liabilities and partners'
deficit $ 98,628 $ 102,226
WTC's share of partners' deficit $ (9,229) $ (8,604)
DTA Bonds 26,560 26,560
Goodwill, net of amortization 1,309 1,370
Other, net 1,201 347
-----------------------------------------------------------
Investment in DTA $ 19,841 $ 19,673
The Company is amortizing the goodwill using the straight-line
method over 30 years.
Income Statements
For the Years ended December 31, 1996 1995 1994
-------------------------------------------------------------
(in thousands)
Contribution from Partners $21,354 $17,922 $18,481
Total expenses 24,294 22,582 20,154
-------------------------------------------------------------
Excess of expenses over
partners' contributions $(2,940) $(4,660) $(1,673)
Equity in earnings (losses)
from DTA $ 827 $(1,082) $(1,753)
=============================================================
WTC and the Company have a joint and several obligation for
interest and principal obligations with respect to its share of
certain DTA bonds ($26,560,000) principal balance at December 31,
1996 and 1995). These obligations were supported by a letter of
credit on which the Company was the ultimate obligor.
In 1994, the Company was in violation of certain covenant
requirements in connection with the DTA letter of credit. As a
result on June 9, 1994 the DTA letter of credit was drawn. The
proceeds of the draw were used to purchase $26,560,000 (par
value) of DTA bonds. The Company repaid the amounts drawn under
the DTA letter of credit on December 22, 1994. The $26,560,000
of DTA bonds are now owned by WTC and have been accounted for as
an increase in the investment in DTA.
The Company actively markets its 20% share of the terminal's
facilities. Accordingly, the Company's share of net income
represents the revenue received and expenses incurred resulting
from the utilization of the Company's share of the terminal's
coal-storage and vessel loading operations.
The DTA partners have a Throughput and Handling Agreement whereby
WTC is committed to fund its proportionate share of DTA's
operating expenses. WTC's total cash funding obligations, were
$3,187,000, $2,282,000, and $2,991,000 for 1996, 1995 and 1994,
respectively.
7. DEBT
The Company's total debt is summarized in the following tables:
December 31, 1996 1995
-----------------------------------------------------------
(in thousands)
Capital lease obligations payable in
installments through 1997 with
variable interest rate $ 2 $ 1,261
WCI:
Notes Payable (unsecured) - payable
to former Corona shareholders and due
January 1, 1998 with interest at 7.4% 81 789
Sanwa Bank Note (secured by Corona
assets) - 280
WRI:
Contracts for deed and mortgage
notes, payable with specified interest
rates from 4% to 7% net of unamortized
discount (1996-$273 and 1995-$329)
maturing through 2005 2,111 2,263
-----------------------------------------------------------
Total debt 2,931 4,593
Less current installments 563 1,462
-----------------------------------------------------------
Long-term portion of debt $ 2,368 $ 3,131
December 31,
1996 1995
--------------------------------------------
(in thousands)
Current Maturities:
Capital leases $ 2 $ 1,239
WCI debt 395 72
WRI debt 166 151
--------------------------------------------
Total current maturities $ 563 $ 1,462
Principal payments due on long-term debt, including capital
leases, for the next five years and beyond are as follows:
Year Ending Amount
-------------------------------------------
(in thousands)
December 31, 1997 $ 563
December 31, 1998 602
December 31, 1999 200
December 31, 2000 220
December 31, 2001 242
After December 31, 2001 1,104
-------------------------------------------
The contracts for deed and mortgage notes payable of WRI are
secured by land and surface rights with a net book value of
$1,444,000 at December 31, 1996.
Refer to Note 1 for additional information regarding liabilities
subject to compromise due to the bankruptcy filing.
8. WORKERS' COMPENSATION BENEFITS
The Company was self-insured for workers' compensation benefits
through December 31, 1995. The amounts charged to expense for
workers' compensation were $12,890,000, and $5,108,000 for 1995
and 1994, respectively. Based on actuarial data, $1,300,000 was
credited to earnings during 1996. The cash payments for workers'
compensation were $5,010,000, $6,505,000 and $6,266,000 in 1996,
1995 and 1994, respectively.
The Company is required to obtain surety bonds in connection with
its self-insured workers' compensation plan. The Company's
surety bond underwriter requires cash collateral for such
bonding. As of December 31, 1996, $9,960,000 was deposited in
the cash collateral account which is classified in Other Assets
(long-term) in the Company's Consolidated Balance Sheets.
Beginning in 1996, the Company is covered by insurance for new
workers' compensation claims and is no longer self-insured.
Refer to Note 1 for additional information regarding liabilities
subject to compromise due to the bankruptcy filing.
9. PNEUMOCONIOSIS BENEFITS
As a result of the suspension of the Company's eastern coal operations
(as discussed in Notes 3 and 4) and the termination of all employees eligible
for pneumoconiosis benefits, the Company changed its method of accounting
for pneumoconiosis benefits during the fourth quarter of 1996,
and applied such change retroactively to January 1, 1996.
Previously, the Company accrued for the projected costs of pneumoconiosis
benefits, on an actuarial basis, over the period which benefits were
expected to be paid. Under the newly adopted method of accounting,
the Company recognizes all actuarial gains or losses related to the
pneumoconiosis benefit obligation in the period in which they occur.
The cumulative effect of the change at January 1, 1996 was a credit of
$14,372,000. Adoption of this new accounting method decreased net income by
$2,562,000 in 1996. Management believes the newly adopted accounting
method is preferable due to the aformentioned change in circumstances.
The discount rates used in determining the accumulated pneumoconiosis
benefit as of December 31, 1996 and December 31, 1995 were 7.5% and 7.0%,
respectively.
The following table sets forth the plans status:
December 31, 1996 1995
----------------------------------------------------------------
(in thousands)
Actuarial present value of
benefit obligation:
Terminated employees $ 20,200 $ 21,100
Claimants 20,100 21,000
----------------------------------------------------------------
Total present value of
benefit obligation 40,300 42,100
Plan assets at fair value 40,173 42,601
----------------------------------------------------------------
Funded status (127) 501
Unrecognized net gain - (14,372)
----------------------------------------------------------------
Accrued pneumoconiosis
benefit cost $ 127 $ 13,871
----------------------------------------------------------------
Refer to Note 1 for additional information regarding liabilities
subject to compromise due to the bankruptcy filing.
10. POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
SINGLE-EMPLOYER PLANS
The Company and its subsidiaries provide certain health care and
life insurance benefits for retired employees and their
dependents. Substantially all of the Company's current employees
(unionized and non-unionized) may become eligible for these
benefits if certain age and service requirements are met at the
time of termination or retirement as specified in the plan
agreement. These benefits are provided through self-insured
programs.
The Company adopted SFAS 106 effective January 1, 1993 and
elected to amortize its unrecognized, unfunded accumulated
postretirement benefit obligation over a 20-year period. The
Company expensed $15,247,000, $15,259,000, and $16,726,000 for
SFAS 106 in 1996, 1995 and 1994, respectively. This accounting
standard does not change the cash requirements for funding these
benefits. Cash payments for medical and life insurance benefits
were $8,929,000, $9,722,000 and $7,775,000 in 1996, 1995 and
1994, respectively.
During 1995, as a result of the events described in Note 4, the
number of employees and employees accumulating benefits under the
plan, has been reduced significantly. The impact of these events
has been accounted for as a plan curtailment, and accordingly,
the Company recognized a loss of $34,285,000 which has been
included as a component of unusual charges.
The following table sets forth the actuarial present value of
benefit obligation and amounts recognized in the Company's
financial statements:
December 31, 1996 1995
--------------------------------------------------------------
(in thousands)
Accumulated postretirement benefit
obligation:
Current retirees and
beneficiaries $(156,340) $(162,059)
Fully eligible active plan
participants - (44)
Other active plan participants (716) (375)
--------------------------------------------------------------
Total accumulated benefit
obligation (157,056) (162,478)
Unrecognized net transition obligation 65,603 69,704
Unrecognized net loss or (gain) 6,326 14,937
--------------------------------------------------------------
Accrued postretirement benefit cost $ (85,127) $ (77,837)
The health care cost trend rate assumed ranges from 7.0% in 1997
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 as of December
31, 1996 by $21,800,000 and the aggregate of the service and
interest cost components of net periodic postretirement benefit
cost for 1996 by $1,600,000.
The discount rate used in determining the accumulated
postretirement benefit was 7.5% and 7.0% at December 31, 1996 and
1995, respectively.
The components of net periodic postretirement benefit cost are as
follows:
December 31, 1996 1995 1994
---------------------------------------------------------------
(in thousands)
Service cost of benefits
earned $ 66 $ 253 $ 689
Interest cost on projected
benefit obligation 11,186 10,375 10,517
Net amortization and
deferral 3,995 4,631 5,520
----------------------------------------------------------------
Net periodic postretirement
benefit cost $ 15,247 $ 15,259 $ 16,726
MULTIEMPLOYER PLANS
Until shortly before the commencement of the Chapter 11 cases for
the Debtor Corporations, the Company made payments into the UMWA
Benefit Trust Funds (the "Funds"), which are multiemployer health
plans neither controlled nor administered by the Company. These
Funds are designed to pay benefits to the Company's UMWA
employees who retired prior to 1976 and to the Company's pro-rata
assigned share of 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 was required by
the Coal Industry Retiree Health Benefit Act of 1992 to make
monthly premium payments into the Funds, but subject to the
bankruptcy process. These payments were based on the number of
beneficiaries assigned to the Company. The Company discontinued
making payments to the multiemployer plans during 1996.
The net present value of the Company's future cash payments is
estimated to be $46,200,000. The amounts of the cash payments
into the Funds were $2,805,000, $5,368,000 and $6,072,000 in
1996, 1995 and 1994, respectively. The amounts expensed by the
Company amounted to $2,805,000, $4,798,000, and $4,327,000 in
1996, 1995 and 1994, respectively.
Refer to Note 1 for additional information regarding liabilities
subject to compromise due to the bankruptcy filing.
11. 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
as specified in the plan agreement. The Company's funding policy
is to contribute annually the minimum amount prescribed, as
specified by applicable regulations. Prior service costs and
actuarial gains are amortized over plan participants' expected
future service using the straight-line method. The transition
asset is amortized over twenty years with seventeen years
remaining. Pension income amounted to $4,079,000, $2,439,000,
and $1,862,000 in 1996, 1995 and 1994, respectively.
The following table sets forth the funded status of the Company's
plan and the amounts recognized in the Company's financial
statements:
December 31, 1996 1995
---------------------------------------------------------------
(in thousands)
Actuarial present value of benefit
obligations:
Total vested and accumulated benefit
obligations $(54,166) $(59,282)
---------------------------------------------------------------
Projected benefit obligation (55,563) (60,325)
Plan assets at fair value, primarily
listed stocks and fixed income investments 84,177 83,917
---------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 28,614 23,592
Unrecognized transition assets (2,192) (2,477)
Unrecognized prior service cost 309 351
Unrecognized net gain (15,710) (13,854)
---------------------------------------------------------------
Prepaid pension cost included in
other assets $ 11,021 $ 7,612
The components of net periodic pension
income for years ended
December 31, 1996 1995 1994
----------------------------------------------------------------
(in thousands)
Service cost for benefits earned
during the period $ 267 $ 516 $ 1,057
Interest cost on projected
benefit obligation 4,103 4,307 4,488
Actual return on plan assets (7,082) (18,286) 1,084
Net amortization and deferral (889) 11,023 (8,491)
----------------------------------------------------------------
Net periodic pension income $(3,601) $ (2,440) $(1,862)
Projected benefits have been discounted using a rate of 7.5% and
7.0% at December 31, 1996 and 1995, respectively. The rate of
increase in future compensation levels for the plan was 5.0% at
December 31, 1996 and 1995. The expected long-term rate of
return on assets was 9.0% for 1996 and 1995.
During 1995, as a result of the events described in Note 4, the
number of employees, and employees accumulating benefits under
the plan, has been significantly reduced. The impact of these
events has been accounted for as a plan curtailment.
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
which provides benefits to certain employees that are not
eligible 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 $211,000, $225,000, and $232,000 in 1996, 1995, and
1994 respectively.
The following table sets forth the plan's funded status and
amounts recognized in the Company's financial statements.
December 31, 1996 1995
-------------------------------------------------------------
(in thousands)
Actuarial present value of benefit
obligations:
Accumulated benefit obligations,
including vested benefits of $677 and
$632 in 1996 and 1995, respectively $ (955) $ (999)
-------------------------------------------------------------
Projected benefit obligation (1,266) (1,421)
Unrecognized prior service cost 810 926
Unrecognized net gain (500) (284)
Additional minimum liability - (220)
-------------------------------------------------------------
Accrued pension cost included in other
liabilities $ (956) $ (999)
The components of net periodic SERP
costs for year ended December 31, 1996 1995 1994
-------------------------------------------------------------
(in thousands)
Service cost for benefits earned
during this period $ 59 $ 54 $ 61
Interest cost on projected benefit
obligation 79 94 83
Net amortization and deferral 73 77 88
-------------------------------------------------------------
Net periodic SERP cost $ 211 $ 225 $ 232
Projected benefits have been discounted using a rate of 7.5% and
7.0% at December 31, 1996 and 1995, respectively. The rate of
increase in future compensation levels for the plan was 5.0% for
1996 and 1995.
The Company is required under the national contract with the
United Mine Workers' of America (the "UMWA") to pay amounts based
on hours worked or tons processed (depending on the source of the
coal) to the UMWA Retirement Funds with respect to unionized
employees, subject to bankruptcy process. These multiemployer
pension plans 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 $19,800,000,
and $1,021,000 for the years ended December 31, 1995, and 1994,
respectively. The actuarially determined obligation decreased by
$6,000,000 in 1996 and is reflected as a credit to earnings,
classified as an unusual credit. The liability balance remaining
at December 31, 1996 is $13,800,000. The amount charged in 1995
to expense includes the estimated liability the Company would
incur upon withdrawal from the plan. Under ERISA, as amended by
the Multiemployer Pension Plan Amendment Act of 1980 ("MPPA"), a
company contributing to a multiemployer plan is liable for its
share of unfunded vested liabilities upon termination or
withdrawal from the plan. Although the Company is not aware of
any determination by the UMWA Trustees that the Company has
incurred a partial or complete withdrawal, for purposes of
showing the Company's liabilities subject to compromise the
Company shows a withdrawal liability subject to compromise in the
amount of approximately $13,800,000.
The Board of Directors approved the establishment of a voluntary
Early Retirement Incentive Program (the "Program") during the
first quarter of 1995. The program was implemented in 1995
during the third quarter and is now complete. Senior Management
and employees of WEI were not eligible to participate in this
program. Participating employees who receive benefits under the
Program are not eligible for benefits under the severance
policies of the Company or its subsidiaries. Under ERISA,
pension assets are only available to plan participants. The
Company recorded a charge of $9,069,000 for benefits paid to
employees participating in the program in 1995 and 1996.
Refer to Note 1 for additional information regarding liabilities
subject to compromise due to the bankruptcy filing.
12. INCOME TAXES (BENEFIT)
As discussed in Note 3, the Company increased its ownership in
WRI to 80%, the threshold required for including WRI in the
Company's consolidated income tax return. Accordingly, WRI must
file a stand alone tax return for the first nine months of 1996
and the Company is not able to offset WRI's income with the
Company's net operating loss carryforwards.
Income tax expense attributable to income (loss) before income
taxes and minority interest consists of:
1996 1995 1994
----------------------------------------------
(in thousands)
Federal:
Current $ 1,150 $1,863 $ 1,177
Deferred (579) (334) 296
----------------------------------------------
571 1,529 1,473
State:
Current 4 29 754
Deferred - (70) 64
----------------------------------------------
4 (41) 818
----------------------------------------------
Income taxes $ 575 $1,488 $ 2,291
Income tax expense attributable to income (loss) 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:
1996 1995 1994
----------------------------------------------------------
(in thousands)
Computed tax expense
(benefit) at statutory rate $13,036 $(28,400) $ 7,829
Increase (decrease) in tax
expense resulting from:
Percentage depletion (206) (131) (340)
State income taxes, net - (70) 540
Minimum tax - - 500
Net operating loss
carryforwards and change
in valuation allowance (12,255) 30,004 (6,587)
Other - 85 349
----------------------------------------------------------
Income taxes $ 575 $ 1,488 $ 2,291
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1996 and 1995 are presented below:
Deferred tax assets: 1996 1995
--------------------------------------------------------
(in thousands)
Net operating loss carryforwards $ 77,148 $ 59,043
Investment tax credit
carryforwards 4,500 4,500
Accounts receivable, due to
allowance for doubtful accounts 6,667 7,822
Deferred income 117 18
Plant and equipment, differences
due to depreciation and
amortization - 9,064
Accruals for the following:
Workers' Compensation 9,295 9,151
Postretirement benefit
obligation 29,075 26,398
Pneumoconiosis 4,692 4,716
Reclamation 1,634 3,506
Other 3,678 3,024
--------------------------------------------------------
Total gross deferred assets 136,806 127,242
Less valuation allowance (118,985) (124,910)
--------------------------------------------------------
Net deferred tax assets $ 17,821 $ 2,332
Deferred tax liabilities: 1996 1995
--------------------------------------------------------
(in thousands)
Plant and equipment, differences
due to depreciation and
amortization $(13,924) $(14,376)
Prepaid pension (3,684) (2,547)
Advanced royalties, capitalized
for financial purposes (110) (109)
Unamortized discount on long-term
debt for financial purposes (103) (127)
Total gross deferred tax
liabilities (17,821) (17,159)
--------------------------------------------------------
Net deferred tax liability $ 0 $(14,827)
The Company and subsidiaries have available net operating loss
carryforwards to reduce future taxable income and investment tax
credit carryforwards to offset future taxes payable. The
following table illustrates the expiration date and amounts of
the net operating loss carryforwards for both regular and minimum
taxes:
Expiration Regular Minimum
Date Tax Tax
----------------------------------
(in thousands)
1997 $ 2,982 -
1998 1,735 -
1999 8,316 -
2000 8,314 -
after 2000 205,559 108,192
---------------------------------
Total $ 226,906 $ 108,192
The Company also has investment tax credit carryforwards of
$4,500,000 which expire over the period from 1997 through 2000.
13. 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.
As of December 31, 1996 and 1995, the Company had outstanding
6,965,328 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.
In July 1992, the Company sold 2,300,000 Depository 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 depository share and
dividends accumulate on the Preferred Stock at 8.5% per annum,
equivalent to $2.125 per year per depository 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 Depository Share. The Preferred Stock is
redeemable at the option of the Company, in whole or in part,
from time to time, initially at an amount equivalent to $26.28
per Depository 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 Depository 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 8.5% 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.
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 has
been acquired.
The Board of Directors has the ability to reduce 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.
Preferred stock dividends at a rate of 8.5% per annum were paid
quarterly from the third quarter of 1992 through the first
quarter of 1994. The declaration and payment of preferred stock
dividends was suspended in the second quarter of 1994 in
connection with extension agreements of the Company's principal
lenders. Upon the expiration of these extension agreements, the
Company paid a quarterly dividend on April 1, 1995 and July 1,
1995. Pursuant to the requirements of Delaware law, the
preferred stock dividend was suspended in the third quarter of
1995 as a result of recognition of losses and the subsequent
shareholders' deficit. The nine quarterly dividends which are in
arrears (dividend payment dates July 1, 1994, October 1, 1994,
January 1, 1995, October 1, 1995, January 1, 1996, April 1, 1996,
July 1, 1996, October 1, 1996 and January 1, 1997) amount to
$10,997,000 in the aggregate ($19.13 per preferred share). Common
stock dividends may not be declared until the preferred stock
dividends that are in arrears are made current.
There are statutory restrictions limiting the payment of
preferred stock dividends under Delaware law, the state in which
the Company is incorporated. Under Delaware law, the Company is
permitted to pay preferred stock dividends only: (1) out of
surplus, surplus being the amount of shareholders' equity in
excess of the par value of the Company's two classes of stock; or
(2) in the event there is no surplus, out of net profits for the
fiscal year in which a preferred stock dividend is declared
(and/or out of net profits from the preceding fiscal year), but
only to the extent that shareholders' equity exceeds the par
value of the preferred stock ($575,000). The Company had
shareholders' equity at December 31, 1996 of $237,000.
As a result of the filing of voluntary petitions for
reorganization under Chapter 11 of the United States
Bankruptcy Code, the Company is prohibited from paying
dividends, either common or preferred. The Company's Board of
Directors will continue to review the payment of quarterly
dividends, both common and preferred, as well as the nine
preferred stock dividends which are in arrears, in light of the
above restrictions and the Company's ongoing circumstances.
14. INCENTIVE STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS
As of December 31, 1996, the Company had options, stock
appreciation rights and restricted stock outstanding from three
Incentive Stock Option and Stock Appreciation Rights Plans.
The plans provide for three types of incentive awards: incentive
stock options ("ISOs"), stock appreciation rights ("SARs") and
restricted stock. The 1982 and 1985 Plans provide for the
granting of ISOs and SARs and the 1995 Plan provides for the
granting of ISOs and restricted stock. The 1985 and 1995 Plans
also provide for the grant of non-qualified options, if so
designated, and contains the terms specified for non-qualified
options. A 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 the excess, if any, of the fair
market value of one share of common stock of the Company on the
date the right is exercised over the exercise price of the SAR.
Restricted stock is an award payable in shares of common stock
subject to forfeiture under certain conditions. 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 under the 1982 and 1985 Plans may not be exercised until
2 years from the date of grant as to 50% of the total number
granted and as to the remaining 50% not until 3 years from the
date of grant; the right to exercise ISOs and SARs terminates
after 8 years from the date of grant. Under the 1995 Plan one-
fourth of the ISOs granted vest in each of the next four years.
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 1995 Plan
Shares of common stock 200,000 400,000 350,000
Stock appreciation rights 470,000 940,000 -
The 1982 Plan expired on January 4, 1992, and the 1985 Plan
expired on January 7, 1995. Therefore, no further ISOs or SARs
may now be granted from either plan. Information for 1996, 1995
and 1994 with respect to the Plans is as follows:
Weighted
Issue Stock Stock Average
Price Restricted Option Appreciation Exercise
Range Stock Shares Rights Price
- -----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1993 $ 5.75-18.50 - 430,853 18,445 $ 13.29
Granted on December 19, 1994 6.50 - 107,458 - 6.50
Ceased to be exercisable in 1994 5.75-18.50 - (126,456) (3,176) 15.08
- -----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 5.75-18.50 - 411,855 15,269 10.97
Granted on December 5, 1995 2.63 5,000 255,000 - 2.63
Ceased to be exercisable in 1995 5.75-18.50 - (120,956) (12,503) 11.81
- -----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 2.63-18.50 5,000 545,899 2,766 6.89
Ceased to be exercisable in 1996 2.63-18.50 - (56,342) - 6.93
- -----------------------------------------------------------------------------------------------------
Outstanding as of December 31, 1996 $ 2.63-18.50 5,000 489,557 2,766 6.88
- -----------------------------------------------------------------------------------------------------
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 1996, 1995 and
1994 no adjustment was recorded.
The Company applies ABO Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has
been recognized for its stock option plans. Had compensation
cost for the Company's three stock-based compensation plans been
determined on the fair value at the grant dates for awards under
those plans consistent with the FASB Statement 123, the Company's
net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
1996 1995
(in thousands, except
per share data)
------------------------------------------------------
Net Income:
As reported $ 33,455 $(91,274)
Pro forma $ 33,327 $(91,402)
Primary earnings per share
As reported $ 4.80 $ (13.11)
Pro forma $ 4.78 $ (13.12)
------------------------------------------------------
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in 1995:
no dividend yield; expected volatility of 124%; risk-free
interest rate of 5.59%; and expected life of 8 years.
15. BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into two segments:
coal and services. The coal segment includes the production and
sale of coal from the Powder River Basin in eastern Montana. It
also includes coal mining operations in the eastern United States
which were idled in the third quarter of 1995. The services
segments principally includes repair and maintenance services to
the power generating industry, including utilities, cogeneration
facilities and independent power producers. Summarized financial
information by segment for 1996, 1995 and 1994 is as follows:
1996 1995 1994
- ------------------------------------------------------------------
(in thousands)
Revenues:
Coal $ 44,152 $109,114 $ 368,715
Services 8,995 2,637 834
Equity investments 16,162 15,886 4,609
- ------------------------------------------------------------------
$ 69,309 $127,637 $ 374,158
Operating income (loss):
Coal $ (6,737) $(92,969) $ 16,389
Services 734 (612) (1,735)
Equity investments 16,162 15,886 4,609
Corporate (12,497) (17,865) (34,481)
- ------------------------------------------------------------------
$ (2,338) $(95,560) $(15,218)
Total assets:
Coal $ 46,495 $ 62,909 $ 127,676
Services 11,061 9,069 3,902
Equity investments 71,227 68,742 64,568
Corporate 25,188 26,387 33,593
- ------------------------------------------------------------------
$ 153,971 $ 167,107 $ 229,739
Depreciation, depletion and
amortization:
Coal $ 1,687 $ 14,705 $ 16,586
Services 520 104 52
Corporate 129 94 162
- ------------------------------------------------------------------
$ 2,336 $ 14,903 $ 16,800
Capital expenditures:
Coal $ 338 $ 2,228 $ 5,801
Services 241 154 61
Corporate 85 541 30
- ------------------------------------------------------------------
$ 664 $ 2,923 $ 5,892
16. COMMITMENTS AND CONTINGENCIES
PROTECTION OF THE ENVIRONMENT
The Company believes its mining operations are substantially in
compliance with applicable federal, state and local environmental
laws and regulations, including those relating to surface mining
and reclamation, and it is the policy of the Company to operate
in compliance with such standards. The Company maintains
compliance primarily through maintenance and monitoring
activities. WRI has an agreement with its mining contractor,
Morrison Knudsen Company, Inc. (a stockholder), which determines
the Company's maximum liability for reclamation costs associated
with final mine closure. The agreement calls for the Company to
pay approximately $1,700,000 over a 15 year period which began in
December 1990. All remaining liability is that of customers who
are obligated to pay final reclamation costs under provisions of
their respective coal sales contracts. Virginia Division mine
sites are in idle status and all expected future reclamation
obligations have been fully accrued. However, no assurances can
be given that the actual costs of required reclamation activities
will approximate the amounts accrued.
In 1995 the Company accrued approximately $3,400,000 against
earnings in order to comply with environmental regulations
applicable to its mining operations. There were no charges
against earnings in 1996 or 1994. The entire charge related to
idling of the Company's Virginia Division and Pine Branch
operations. The Company estimates its total liabilities for
reclamation are $4,806,000, all of which have been accrued as of
December 31, 1996. No assurance can be given that the amount
accrued accurately reflects the actual cost of reclamation
activities that may be required. Actual cash paid to perform
reclamation in 1996, 1995, and 1994 amounted to $148,000,
$895,000 and $553,000, respectively. In addition, assessed
reclamation fees imposed by the Federal Surface Mining Control
and Reclamation Act of 1977 (the "Surface Mining Act") amounted
to approximately $1,707,000, $1,755,000 and $2,414,000 in 1996,
1995 and 1994, respectively.
In the event final reclamation is not performed in accordance
with state and federal regulations, the Company has $12,000,000
and $6,481,000 of reclamation bonds in place in Montana and
Virginia, respectively, to assure compliance with all applicable
regulations.
ADVENTURE RESOURCES, INC.
The Company has both secured and unsecured claims against
Adventure Resources, Inc. ("Adventure") in the United States
Bankruptcy Court for the Southern District of West Virginia. The
secured claims approximate $5,900,000 and are collateralized by
first and subordinated liens on certain assets of Adventure. No
payments have been received on these claims to date, however,
asset recoveries of $3,100,000 were received during 1996 and the
Company is seeking to recover certain remaining assets. As of
December 31, 1996, all claims against Adventure have been fully
reserved due to the uncertainty of collecting all or a portion of
the amounts.
LEASE OBLIGATIONS
The Company and its subsidiaries lease coal lands from an
affiliated company and other third-parties. Under the terms of
these agreements, the Company is subject to minimum annual
royalties aggregating $184,000 plus real estate taxes, until the
leases expire in 1998.
WRI has an agreement to lease coal reserves from the Crow Tribe
of Indians which is in effect until exhaustion of the underlying
reserves. This lease requires annual rentals, recoupable minimum
royalty and production royalty payments. The royalty rate varies
from 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
$3,438,000, $5,844,000 and $17,262,000 in 1996, 1995 and 1994,
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, 1996 are
as follows:
(in thousands)
1997 $ 366
1998 367
1999 360
2000 270
2001 149
After 2001 -
17. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company leases coal lands from Penn Virginia Resources
Corporation whose parent company, Penn Virginia Corporation
("Penn Virginia") holds a 10.85% voting interest in the Company
at December 31, 1996. Amounts paid to Penn Virginia for
royalties on coal were $1,301,000, $5,325,000 and $11,019,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
In 1996 and 1995 the Company sold certain mineral leases back to
Penn Virginia. Refer to Note 3 to the Consolidated Financial
Statements for additional information regarding the sale of these
leases.
Westmoreland Resources, Inc., a 80% owned subsidiary, has a coal
mining contract with Morrison Knudsen Company, Inc., one of its
stockholders. Mining costs incurred under the contract were
$16,552,000, $15,719,000 and $15,390,000 in 1996, 1995 and 1994,
respectively.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 are as
follows:
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
- ----------------------------------------------------------------
(in thousands except per share data)
1996
Revenues $ 15,507 $ 15,453 $ 16,608 $ 21,741
Costs and expenses 22,798 23,632 22,163 15,000
Unusual charges (credits)(3) - - - 11,896
Gain on the sale of
assets(1) 2,441 14,740 3,081 3,976
Net income before
cumulative effect of
change in accounting
principle:
As originally reported 456 11,065 2,161 24,661
Adjustments for
cumulative effect of
change in accounting for
pnemoconiosis benefits 13,871 - - -
As adjusted 12,668 10,447 1,543 13,685
Less preferred stock:
Declared(2) - - - -
In arrears(2) 1,222 1,222 1,222 1,222
Net income (loss) applicable
to common shareholders 11,446 9,225 321 12,463
Net income (loss) per share
before cumulative effect of
change in accounting principle:
As originally reported (.11) 1.41 .14 3.36
Cumulative effect of change
in accounting for
pnemoconiosis benefits 1.99 - - -
As adjusted 1.64 1.32 .05 1.79
Number of common and common
equivalent shares outstanding
(weighted average) 6,965 6,965 6,965 6,965
- ----------------------------------------------------------------
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
- ----------------------------------------------------------------
(in thousands except per share data)
1995
Revenues $ 44,865 $ 42,436 $ 22,962 $ 17,374
Costs and expense 53,156 53,274 35,570 14,574
Unusual (charges) credits(3) - - (70,538) 3,915
Gain on sale of assets(1) 9,088 - - -
Net income (loss) 1,478 (10,443) (82,987) 5,566
Less preferred stock:
Declared (2) 1,222 1,222 - -
In arrears (2) - - 1,222 1,222
Net income (loss) applicable
to common shareholders 256 (10,443) (84,209) 3,122
Net income (loss) per share
applicable to common
shareholders .04 (1.50) (12.10) .45
Number of common and common
equivalent shares outstanding
(weighted average) 6,959 6,961 6,961 6,965
- ---------------------------------------------------------------
(1)Refer to Note 3 to the Consolidated Financial Statements for
information on the sale of assets.
(2)Refer to the Consolidated Statements of Shareholders' Equity
(Deficit) and Note 13 to the Consolidated Financial
Statements.
(3)Refer to Note 4 to the Consolidated Financial Statements for
information related to the unusual charges.
19. SUPPLEMENTARY COAL STATISTICS (UNAUDITED)
Information with respect to the Company's coal reserves is
as follows:
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------
Demonstrated coal reserve
base at year-end
(thousands of tons) 656,490 680,602 701,047 815,169 966,843
Production tonnage
(thousands of tons) 5,221 7,784 10,923 10,463 10,405
Average price per ton $ 9.35 $ 15.68 $ 23.24 $ 25.58 $ 25.25
- ---------------------------------------------------------------------
Independent Auditor's Report
The Board of Directors and Shareholders
Westmoreland Coal Company:
We have audited the accompanying consolidated balance sheets of
Westmoreland Coal Company and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for
each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Westmoreland Coal Company and subsidiaries at
December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the
Company together with its four subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court on
December 23, 1996. Although the Company and the subsidiaries are
currently operating their businesses as debtors-in-possession
under the jurisdiction of the Bankruptcy Court, the continuation
of their businesses as going concerns is contingent upon, among
other things, the ability to formulate a plan of reorganization
which will gain approval of the creditors and confirmation by the
Bankruptcy Court and the ability to generate sufficient cash from
operations and financing sources to meet obligations as they come
due. The Company's filing under Chapter 11 raises substantial
doubt about the Company's ability to continue as a going concern.
Management plans in regard to these matter are described in Note
1 to the consolidated financial statements. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Denver, Colorado
March 17, 1997
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
This item is not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Each of the following persons are now Directors of the Company
with a term of office which expires upon the election and
qualification of his successor.
Messrs. Killen and Sight were elected at a special meeting of the
holders of the depositary shares held in September 1996, pursuant
to a provision of the Certificate of Designation for the
preferred stock (which is represented by the depositary shares)
that required the Company, upon failing to pay preferred stock
dividends for six quarterly dividend payment periods, to increase
the size of its Board by two and to hold a meeting for the
election of two directors by the holders of the depositary
shares.
All Directors other than Mr. Killen were elected at the 1996
annual meeting of shareholders. Mr. Sight was elected at the
1996 annual meeting of shareholders and, pursuant to an agreement
with the Company, resigned from the board in order to stand for
election at the special meeting by the holders of the depositary
shares. No family relationships exist among the Directors.
Business
Experience During Director
Past Five Years of the Committee
and Other Company Memberships
Name Directorships Age Since (1)
- ---------------------------------------------------------------------------
Pemberton Hutchinson(2) Chairman of the 66 1977 Executive;
Board of the Compensation
Company (January and Benefits
1992 through June
1996); Chief
Executive Officer
(January 1989
through June
1993); President
of the Company
(June 1981 through
June 1992)
Director of Mellon
Bank Corporation,
Teleflex,
Incorporated and
The Pep Boys
- ------------------------------------------------------------------------
Robert E. Killen (2) Chairman of the 56 September 1996
Board (since April
1996) and Chief
Executive Officer
(since October
1991) of The
Killen Group,
Inc.; Chairman of
the Board of
Berwyn Financial
Services (since
October 1991);
President of The
Killen Group, Inc.
(from September
1982 to April
1996).
- ---------------------------------------------------------------------------
William R. Klaus (2) Partner, Pepper, 71 1973 Executive;
Hamilton & Compensation
Scheetz, attorneys and Benefits
(Chairman);
Audit;
Independent
Directors
- ---------------------------------------------------------------------------
Thomas W. Ostrander (2) Managing Director, 46 1995 Audit;
Salomon Brothers Independent
Inc, investment Directors
banking firm (Chairman);
(since 1989); Corporate
Works with a Governance
variety of (Chairman)
domestic and
international
corporations
providing services
in the area of
capital formation,
corporate
strategy, mergers
and acquisitions
and other
corporate and
financial strategy
matters.
- ---------------------------------------------------------------------------
Christopher K. Seglem(2) Chairman of the 50 1992 Executive
Board of Directors
(since June 1996)
and Chief
Executive Officer
of the Company
(since June 1993);
President of the
Company (since
June 1992); Chief
Operating Officer
of the Company
(June 1992 through
June 1993);
Executive Vice
President of the
Company (December
1990 through June
1992)
- ---------------------------------------------------------------------------
James W. Sight (2) Director of United 41 1995 Audit;
Recycling Independent
Industries (since Directors;
January 1995); Corporate
Director of U.S. Governance
Home Corp. (since
June 1993); Co-
Chairman of the
Board of Metro
Airlines, Inc.
(December 1992
through 1995);
private investor.
- ---------------------------------------------------------------------------
Edwin E. Tuttle (2) Director of 70 1978 Executive;
General Accident Compensation
Insurance Company and
of America; Benefits;
Director of Audit
CoreStates Bank, (Chairman);
N.A. (until April Independent
1996); retired Directors
Vice-Chairman of
Elf Atochem of
North America,
Inc., (a
diversified
chemical company).
- ---------------------------------------------------------------------------
(1) See "Information about the Board and Committees"
following.
(2) The Company filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code on
December 23, 1996, which proceeding is ongoing at the date of
this report. Each of the Directors named above was a Director
of the Company, and Mr. Seglem and each of the executive
officers named under "Executive Officers of the Registrant" in
Part I above was an executive officer of the Company, at and
within two years before the time of the filing. The Company
filed a "pre-packaged" plan of reorganization under Chapter 11
of the United States Bankruptcy Code on November 8, 1994 to
facilitate the sale of the assets of a subsidiary, Criterion
Coal Company, a portion of the proceeds of the sale of which
were to be used to repay maturing long-term debt. The
Company's plan of reorganization was confirmed on December
16, 1994 and the Company emerged from bankruptcy on December
22, 1994. Mr. Hutchinson was a Director and an executive
officer of the Company within two years before the time of the
filing and a Director at the time of the filing. Mr. Seglem
was a Director and held the executive offices indicated at and
within two years before the time of the filing. In addition,
Messrs. Klaus and Tuttle were Directors of the Company at and
within two years before the time of the filing and each of the
executive officers named under "Executive Officers" below
except Mr. Jaeger was an executive officer of the Company at
and within two years before the time of the filing.
EXECUTIVE OFFICERS
Below is a table showing the executive officers of the Company,
their ages as of March 1, 1997, positions held and year of
election to their present offices. No family relationships exist
among them. All of the officers are elected annually by the
Board of Directors and serve at the pleasure of the Board of
Directors.
Name Age Position Held Since
- ----------------------------------------------------------------------
(1) Christopher K. Seglem 50 Chairman of the Board 1996
President and 1992
Chief Executive Officer 1993
(2) Ronald W. Stucki 52 Senior Vice President
-Operations 1992
(3) Theodore E. Worcester 56 Senior Vice President of
Law and Administration 1995
General Counsel and 1992
Corporate Secretary 1996
(4) R. Page Henley, Jr. 61 President Westmoreland
Coal Sales Company 1995
(5) Robert J. Jaeger 48 Senior Vice President of
Finance, Treasurer
and Controller 1996
- ----------------------------------------------------------------------
(1)Effective January 1988, Mr. Seglem was elected to the
positions of Vice President, General Counsel, and Secretary
for the Company. In November 1988, he was elected a Senior
Vice President of the Company. In May 1990, he relinquished
the position of Secretary. In December 1990, he was elected
an Executive Vice President of the Company, at which time he
relinquished the position of General Counsel. In June 1992,
he was elected President and Chief Operating Officer, and in
December 1992, he was elected a Director of the Company. In
June 1993, he was elected Chief Executive Officer of the
Company, at which time he relinquished the position of Chief
Operating Officer. In June 1996, he was elected Chairman of
the Board. He is a member of the bar of Pennsylvania.
(2)Mr. Stucki was General Manager and Vice President of
Colorado Westmoreland Inc. (a former wholly-owned subsidiary
of the Company) until the operation was sold to Cyprus Coal
Company ("Cyprus") in November 1988, where he continued
employment and became Vice President of the Colorado
and Wyoming operations. He left Cyprus to rejoin the Company
as Senior Vice President-Operations in July 1992. Mr. Stucki
is a registered professional engineer. Mr. Stucki has
resigned from the Company effective April 15, 1997.
(3)Mr. Worcester was elected Vice President & General
Counsel of the Company in December 1990. In June 1992, he
was elected Senior Vice President while retaining his
position of General Counsel of the Company. In 1995, he was
elected Senior Vice President of Law and Administration
and in 1996, Corporate Secretary, in addition to his General
Counsel position. He is a member of the bar of Colorado.
(4)Mr. Henley was elected Vice President-Development and
Government Affairs in May 1988, which position he held until
he was elected Senior Vice President-Development and
Government Affairs in May 1990. In June 1992, he was elected
Senior Vice President-Government Affairs. In 1993, Mr.
Henley was also elected Vice President, General Counsel and
Secretary of the Company's WEI subsidiary, and undertook
additional duties, including project development. In 1994,
Mr. Henley was elected Senior Vice President-Development of
the Company, and retained his position as Vice President of
the Company's WEI subsidiary. In 1995 Mr. Henley was elected
president of Westmoreland Coal Sales Co. and relinquished his
position in WEI. He is a member of the bars of West Virginia
and Virginia.
(5)Mr. Jaeger held various financial positions at Penn
Virginia Corporation from 1976 and was Vice President and
Chief Financial Officer when he left in March 1995. He
joined Westmoreland Energy, Inc. in April 1995 as Vice
President-Finance. He was elected Vice President Finance,
Treasurer and Controller of the Company in September 1995.
He was elected Senior Vice President-Finance, Treasurer and
Controller in February 1996. Mr. Jaeger is a certified
public accountant.
INFORMATION ABOUT THE BOARD AND COMMITTEES
The Board of Directors held 13 meetings during 1996. Each
director attended more than 75% of the aggregate total number of
meetings and of the total number of meetings held by all
committees on which he served during the time he was in office.
The Audit Committee of the Board of Directors, composed of
Messrs. Tuttle (Chairman), Klaus, Ostrander and Sight, met two
times during 1996. This Committee, which reports to the Board of
Directors, reviews the adequacy of the Company's internal
accounting controls and oversees the implementation of management
recommendations. It also reviews with the Company's independent
auditors the audit plan for the Company, the internal accounting
controls, financial statements and management letter. It also
recommends to the Board the selection of independent auditors for
the Company.
The Compensation and Benefits Committee of the Board of
Directors, composed of Messrs. Klaus (Chairman), Hutchinson and
Tuttle, met two times during 1996. This Committee reviews the
Company's and its subsidiaries' employee benefit programs and
management compensation and it reports its recommendations to the
Board of Directors.
The Executive Committee of the Board of Directors, composed of
Messrs. Hutchinson, Tuttle, Klaus and Seglem, and the Corporate
Governance Committee, composed of Messrs. Ostrander and Sight,
did not meet during 1996.
The Committee of Independent Directors, composed of Messrs.
Ostrander (Chairman), Tuttle, Klaus and Sight during this period,
met three times during 1996. This Committee is composed of
directors who are not and have never been officers or employees
of the Company or of Penn Virginia Corporation (see "Transactions
with Other Companies" below). It reviews matters involving
transactions or issues between the Company and Penn Virginia
Corporation, to determine that the terms and conditions of
settlement are fair and reasonable to the Company and no less
favorable than if negotiated with an unaffiliated company.
The Board of Directors does not have a standing nominating
committee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934 requires
the Company's officers and directors and persons who own more
than ten percent of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers,
directors and greater than ten percent shareholders are required
by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, all statements of beneficial
ownership required to be filed with the Securities and Exchange
Commission in fiscal 1996 were timely filed.
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth information for 1996, 1995, and
1994 as to the person who held the position of Chief Executive
Officer during 1996 and as to the other four most highly
compensated executive officers at the end of 1996 whose total
salary and bonus for 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE(3)
Long Term
Annual Compensation Compensation Awards
-----------------------------------------------------------------
Other Restricted Stock
Name and Annual Stock Options All Other
Principal Compen- Award(4) (#Common Compen-
Positions Year Salary Bonus(1) sation ($) Shares) sation(2)
- ------------------------------------------------------------------------------------------
Christopher K. 1996 334,802 0 22,000 0 13,200
Seglem, 1995 290,004 162,402 0 75,000 99,973
Chairman of 1994 290,004 203,003 0 16,000 12,295
the Board,
Chief Executive
Officer and President
- ------------------------------------------------------------------------------------------
R. Page Henley 1996 175,000 0 0 0 3,750
Senior Vice 1995 156,169 74,961 0 12,731 0 5,195
President - 1994 156,169 31,234 0 3,500 3,769
Government
Relations,
President,
Westmoreland
Coal Sales
Company, Inc.
- ------------------------------------------------------------------------------------------
Robert J. 1996 156,000 0 1,393 0 83,864
Jaeger, 1995 38,016 0 20,000 4,206
Senior Vice 1994 84,175(5) N/A N/A N/A N/A
President N/A
Finance,
Controller and
Treasurer
- ------------------------------------------------------------------------------------------
Ronald W. 1996 192,577 0 1,271 0 36,596
Stucki, 1995 180,011 86,405 0 20,000 38,293
Senior Vice 1994 180,011 108,006 0 13,000 3,859
President-
Operations
- ------------------------------------------------------------------------------------------
Theodore E. 1996 179,644 0 4,839 0 3,750
Worcester, 1995 156,208 74,980 0 20,000 40,476
Senior Vice 1994 156,208 93,725 0 13,000 3,784
President of
Law and
Administration
and General
Counsel
- -------------------------------------------------------------------------------------------
(1) Of the amounts shown in the bonus column for 1995, 50 percent
was paid in the first quarter of 1996. Payment of the
remaining 50 percent was deferred until the earliest to occur
of (a) such year in which the Company has a positive cash flow
from operations or (b) upon sale, merger or liquidation of the
Company, provided that the individual is employed by the
Company at the time the 50 percent would be paid, or if not
employed, such employment was terminated by reason other than
voluntary resignation (which would include a decision to not
accept relocation of employment), or other than for discharge
due to gross or willful misconduct. None of these deferred
amounts have been paid.
(2) All Other Compensation for the named executive officers in
1996 consisted of directors' fees, Company contributions to
the 401(k) salary savings plan (the "Plan"), one month's
salary for relocation, moving expenses and reimbursement for
temporary living costs as set forth in the following. Mr.
Seglem received directors' fees of $9,450. The Company
contributed $3,750 to the Plan during 1996 on behalf of
Messrs. Seglem, Stucki, Worcester, and Henley and $3,231 for
Mr. Jaeger. One month's salary in the amount of $13,000 was
paid Mr. Jaeger in 1996 under the Company's relocation policy.
Amounts paid for moving and related expenses on behalf of the
named executives were: Mr. Stucki $32,846 and Mr. Jaeger
$67,633.
(3) The Company has an Executive Severance Policy, amended with
the consent of the participants, which covers certain of the
executive officers named above, and provides that in the event
of termination of such person's employment with the Company or
its subsidiaries for reasons set forth in the Policy, or from
a change-in-control of the Company, as defined in the Policy,
such executive officer will be entitled to a severance award.
This award shall include an amount equal to twice the
executive officer's annual average cash compensation, defined
as the greater of the annualized base salary at the time of
severance plus the amount of bonus awarded (including amount
deferred) in that year or the annual average of the executive
officer's most recent five calendar years of base salary and
bonus awarded (including amount deferred), including the year
of termination. The severance award will be paid in
approximately equal monthly installments over a period of 24
months following the date of termination, unless the executive
officer elects to receive the present value of his total
severance, including the present value of executive benefits,
in a lump sum cash distribution at the time of termination.
(4) Mr. Henley was granted 5,000 shares of restricted stock under
the Westmoreland Coal Company 1995 Long-Term Incentive Stock
Plan. These shares are valued in the table at the closing
price of the Company's common stock on the date of grant,
December 5, 1995, and are treated like other shares of common
stock for the purpose of the payment of dividends. At
December 31, 1996, the aggregate restricted stock holdings of
all officers named in the table were 5,000 shares, valued at
$5,000, based on the closing price of the Company's common
stock on December 23, 1996, the last day on which the
Company's common stock was traded on the New York Stock
Exchange in 1996. These shares ceased to be restricted on
January 1, 1997. Neither the grant of the restricted stock
nor his vesting in the stock required any consideration to be
paid by Mr. Henley.
(5) Mr. Jaeger was hired April 17, 1995.
The following table presents information regarding the number of
unexercised options to purchase common shares and the number of
unexercised stock appreciation rights at December 31, 1996:
Aggregated Option/SAR Exercises in the last Fiscal Year and FY-
End Option/SAR Values
- --------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
December 31, 1996 December 31, 1996
- --------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
Christopher K. Seglem 129,947 64,250 -0- -0-
Ronald W. Stucki 43,500 21,500 -0- -0-
Theodore E. Worcester 43,500 21,500 -0- -0-
R. Page Henley 27,796 1,750 -0- -0-
Robert J. Jaeger 5,000 15,000 -0- -0-
- --------------------------------------------------------------------------------
No member of the named executive officer group exercised any
options during 1996, or held any unexercised SARs as of December
31, 1996.
RETIREMENT PLAN
The Company sponsors a Retirement Plan (the "Plan") for eligible
employees of the Company and its subsidiaries to which employees
make no contributions. All employees whose terms and conditions
of employment are not subject to collective bargaining and who
work 1,000 or more hours per year are eligible for participation
in the Plan. Eligible employees become fully vested after five
years of service, or in any event, upon attaining age 65.
In general, the Plan provides for payment of annual retirement
benefits to eligible employees equal to 1.2% of any employee's
average annual salaried compensation (over the sixty most highly
compensated consecutive months of employment) plus .5% of such
average annual compensation in excess of the employee's pay used
to determine Social Security retirement benefits ("covered
compensation") for each year of service to a maximum of 30 years.
The plan also provides for disability benefits and for reduced
benefits upon retirement prior to the normal retirement age of
65.
No amounts are included in the salary compensation column of the
Summary Compensation Table above in respect of Plan contributions
by the Company and its subsidiaries because the Plan is a
qualified defined benefit plan. Based on the most recent
actuarial valuation, dated December 31, 1996, no contribution is
required or permitted to this Plan for 1996, due to the full
funding limitations imposed under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The basis upon which
benefits are computed is a straight-life annuity; payments are
available in other forms on an actuarially reduced basis
equivalent to a straight-life annuity. Benefit amounts set forth
in the table below are not subject to any deduction for Social
Security benefits or other offset amounts.
The following table shows estimated annual retirement benefits,
which are representative of an employee currently age 65 whose
salary remained unchanged during his or her last five years of
employment and whose benefit will be paid for the life of the
employee:
Annual Benefit for
Compensation Years of Service Credited
-----------------------------------------------
10 20 30 or more
-----------------------------------------------
$25,000 $ 3,000 $ 6,000 $ 9,000
50,000 7,204 14,408 21,612
100,000 15,704 31,408 47,112
150,000 24,204 48,408 72,612
200,000 32,704 65,408 98,112
250,000 41,204 82,408 123,612
300,000 49,704 99,408 149,112
-----------------------------------------------
Years of service credited under the Plan for the following
individuals as of December 31, 1996 are: Mr. Seglem-16 years,
Mr. Stucki-17 years, Mr. Worcester-6 years, Mr. Henley- 13 years,
and Mr. Jaeger- 2 years.
The current compensation covered by the Plan for any named
executive officer in the Summary Compensation Table is that
amount reported in the Salary column, subject to limitations
imposed by the Internal Revenue Code.
The annual benefit presented in the above table reflects the
inclusion of a Supplemental Executive Retirement Plan (the
"SERP"), established by the Company, effective January 1, 1992,
which currently covers all the executive officers named above.
Senior management and certain other key individuals are eligible
to participate in the SERP.
To become vested in the SERP, a participant must attain age 55
and generally complete 10 years of service. The SERP is a non-
qualified plan which supplements the Retirement Plan because of
Internal Revenue Code limits on annual compensation that may be
considered in determining a participant's annual benefit and the
amount of annual benefit payable to the participant. Bonus
amounts are included in a participant's compensation under the
SERP, although excluded under the Retirement Plan. Benefits are
payable out of the Company's general assets, and shall commence
and be payable at the same time and in the same form as the
Retirement Plan.
COMPENSATION OF DIRECTORS
Through May 1996 the attendance fee for the Chairman of the Board
of Directors was $1,300, for each committee chairman was $750 and
for each director attending a Board or committee meeting was
$650. Beginning with the Board of Directors meeting in June
1996, the attendance fee for the Chairman of the Board of
Directors was decreased to $1,250, the attendance fee for each
committee chairman was increased to $1,250, and the attendance
fee for each director attending a Board or committee meeting was
increased to $1,000. At the June 1996 meeting of the Board of
Directors, Mr. Hutchinson, who retired as Chairman at that
meeting received his fee at the previous rate of $1,300 and Mr.
Seglem, who was elected as Chairman of the Board of Directors at
that meeting, received his fee at the new rate of $1,250. The
attendance fees paid to Mr. Seglem are included in the All Other
Compensation column of the Summary Compensation Table.
Throughout 1996, the annual retainer fee to each outside director
was $15,000, of which $9,000 was paid in cash, and the $6,000
remaining could be used to purchase stock of the Company, or at
the director's election could also be paid in cash. None of the
Directors received the $6,000 portion of this fee due to the
Company's filing under Chapter 11 of the United States Bankruptcy
Code on December 23, 1996.
Mr. Hutchinson retired as an employee of the Company as of
December 31, 1993. For the period January 1, 1994, to the Annual
Meeting of Shareholders in 1996, he agreed to provide consulting
services to the Board of Directors as it might request, for which
he received $1,250 per month. Such services also included advice
with respect to matters of corporate strategy and shareholder
relationships. Mr. Hutchinson also received benefit payments
from the Company's SERP in 1996 (see discussion under Retirement
Plan, supra) although such payments have been suspended as a
result of the Company's Chapter 11 proceeding.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
Mr. Lennox K. Black served on the Compensation and Benefits
Committee until May 10, 1996, and Messrs. Halsey and Klaus served
on the Committee until June 12, 1996. Thereafter, the members of
the Compensation and Benefits Committee were Messrs. Klaus,
Hutchinson and Tuttle. Mr. Black is Chairman of the Board and,
through May 7, 1996, was also Chief Executive Officer of Penn
Virginia Corporation. See discussion under Item 13 below. There
were no other compensation committee interlocks or insider
participation in compensation decisions affecting executive
officers.
No member of this Committee was an officer or employee of the
Company. No executive officer of the Company served either as a
member of the compensation committee or as a director of a
company, one of whose executive officers served on the Company's
Compensation and Benefits Committee, or as a member of the
compensation committee of a company, one of whose executive
officers served as a Director of the Company.
COMPENSATION & BENEFITS COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
In determining the compensation for the Company's Chief Executive
Officer for the year ended December 31, 1996, the Compensation &
Benefits Committee considered quantitative, qualitative and
comparative factors.
Quantitative factors considered included (i) the continued
progress in implementing the plan to dispose of underperforming
and non-core assets, most significantly, the sale of nearly all
of the Virginia Division assets and the relinquishment of certain
coal reserves to Penn Virginia Corporation, resulting in
significant proceeds to the Company in excess of $19 million and
the transfer to others of certain reclamation and post-retirement
medical liabilities, (ii) achieving through two separate
transactions increased ownership, from 60% to 80%, of the stock
of Westmoreland Resources, Inc. ("WRI"), thereby permitting
consolidation for tax purposes providing in turn a substantial
improvement in the return to the Company on its investment in WRI
through the application of the Company's net operating loss
carryforwards to reduce Federal income taxes on WRI's earnings,
(iii) significant improvements at WRI resulting in aggregate coal
sales near the maximum projected production capacity of the
Absaloka Mine through 1999; (iv) completion of the planned
transition of Westmoreland Energy, Inc. from a development-
oriented company to one with a focus on maximizing the value of
its existing assets over the long term; (v) initiating and
conducting exhaustive negotiations with UMWA benefit funds for
the purpose of seeking a negotiated settlement of certain retiree
benefit obligations, the interim result of which was a timely
filing under Chapter 11 of the United States Bankruptcy Code;
(vi) increased capacity utilization of the Dominion Terminal
Associates facility resulting in a positive cash flow; and (vii)
implementation of certain programs designed to reduce medical
benefit costs together with continued reductions in other
overhead costs for items such as insurance, corporate office
expense and corporate headquarters staff.
The qualitative factors considered included uncontrollable
factors affecting the Company's performance, the Chief Executive
Officer's knowledge of and experience with the Company's
operations, his leadership qualities affecting the Company's
relationships with shareholders, consultants, advisors,
customers, suppliers, employees, collective bargaining
organizations and the communities within which the Company has
operations, his overall management abilities, initiatives and
planning for the future and his extraordinary efforts put forth
by means of diligence, hard work and exceptionally long hours.
Comparative factors considered were compensation paid to chief
executive officers of comparably sized companies, and
particularly of those of companies in the coal and independent
power industries and work-out situations.
With respect to the other named executive officers, the Committee
considered the quantitative and comparative factors mentioned
above, as well as the evaluations by Mr. Seglem of the officers'
performances including the fact that the corporate headquarters
is performing the same functions as it has in previous years with
a substantial reduction in personnel.
Although these factors were considered for purposes of
determination of base salary, no base salary increases were
granted to any of the named executives in 1996 due to the
Company's financial and operational position and the need to
conserve cash during the year.
The Company has a program designed to compensate management for
performance and results and to place a substantial portion of the
total compensation package "at risk." The bonus program
recognizes the critical and difficult circumstances within which
the company is currently operating, thereby requiring performance
and results to be evaluated on strategic, as well as financial,
criteria. Retention of key management personnel during this
difficult period is a major objective of this bonus program.
Also, the Committee believes that stock options are an important
feature of executive compensation. Stock option awards made to
executive officers are designed to align the interests of
management more closely with those of the shareholders of the
Company by increasing stock ownership by management.
Nevertheless, due to the Company's financial and operational
position in early 1997 when the 1996 bonus and stock option
decisions were made, no bonuses were declared or paid and no
stock options were awarded for 1996 to any of the named executive
officers.
The Committee believes that the combination of bonuses and grants
of stock options is important in attracting and retaining senior
management of the caliber to best serve the Company, and will
consider paying bonuses and granting stock options when, in the
judgment of the Committee, the Company's financial, operating and
legal position permits.
William R. Klaus, Chairman
Pemberton Hutchinson
Edwin E. Tuttle
PERFORMANCE GRAPH
The Performance Graph compares the cumulative total shareholder
return on the Company's common stock for the five-year period
December 31, 1991 through December 31, 1996 with the cumulative
total return over the same period of the Standard & Poor's 500
Stock Index and the companies comprising the Dow Jones Coal
Index.
(Printer Insert Graph)
- The S&P 500 index rose from $100 at 12/31/91 to $203 at
12/31/96.
- Westmoreland Coal Company dropped from $100 at 12/31/91 to
$1.00 at 12/31/96.
- The Dow Jones Coal index rose from $100 at 12/31/91 to
$150 at 12/31/96.
* $100 invested on 12/31/91 in stock or index including
reinvestment of dividends. Calculated on the basis of
the Company's fiscal year which ends December 31,
except that the calculation of the cumulative total
return on the Company's common stock at December 31,
1996 is based on the reported last sale price on
December 23, 1996, the last day of 1996 on which the
stock was traded on the New York Stock Exchange.
NOTE: The companies comprising the DJ COAL INDEX were Pittston
Minerals Group, Penn Virginia Corporation, Addington Resources
(through December 20, 1996), Zeigler Coal Holding Company and
Cyprus AMAX Minerals.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SHARE OWNERSHIP
Except as set forth in the following table, no person or entity
known to the Company beneficially owned more than 5% of the
Company's voting securities as of January 31, 1997:
Number of Shares and Nature of Beneficial Ownership(1)
-------------------------------------------------------
Name and Address of Common Percentage of Depositary Percentage of
Beneficial Owner Stock Common Stock Shares Depositary Shares
First Union Corporation 406,700 (2) 5.8 %
One First Union Center
Charlotte, NC 28288
Alvin Hoffman 187,700 (3) 8.2 %
c/o Makefield Securities Corp.
6699 NW 2nd Ave. Unit 416
Boca Raton, FL 33487
The Killen Group, Inc. 913,905 (4) 13.1 %
1189 Lancaster Avenue
Berwyn, PA 19312
Lawndale Capital 172,500 (5) 7.5 %
Management, Inc.
One Sansome Street, Suite 3900
San Francisco, CA 94104
Riverside Capital
Advisers, Inc. 663,800 (6) 28.9 %
2320 Northeast 9th Street
Suite 300
Fort Lauderdale, FL 33304
Ryback Management Corp. 183,100 (7) 8.0 %
7711 Carondelet Ave. Suite 700
P.O. Box 16900
St. Louis, Missouri 63105
James W. Sight 379,000 (8) 5.4 %
8500 College Boulevard
Overland Park, KS 66210
Wynnefield Partners 492,700 (8) 7.1 %
Small Cap Value LP
One Penn Plaza, Suite 4720
New York, NY 10119
(1) Based on information contained in filings made with the
Securities and Exchange Commission ("Commission") or reported
to the Company by the respective shareholders. Except as
indicated below, the Company is informed that the respective
beneficial owners have sole voting power and sole dispositive
power with respect to the shares shown opposite their names.
(2) Shares held by a subsidiary, First Union Bank, in a fiduciary
capacity for its customers.
(3) Includes 57,600 shares that Mr. Hoffman holds as a personal
investment and 130,100 shares that he holds on behalf of
clients in discretionary accounts. Mr. Hoffman reports that
he does not hold voting power with respect to the 130,100
shares.
(4) Includes 502,400 shares held by The Berwyn Fund, 35,000
shares held by Focus Limited Partners and 376,505 shares held
in managed accounts by The Killen Group, Inc. In addition,
20,300 and 34,367 depositary shares are held by Berwyn Income
Fund and in managed accounts by The Killen Group, Inc.,
respectively, which shares are convertible into 34,672 and
58,698 common shares, respectively. The Killen Group, Inc.
reports that it does not hold voting power over the shares it
holds in managed accounts. Robert E. Killen, the President
and sole shareholder of The Killen Group, Inc. also reports
that his spouse owns 50,000 shares common stock as a personal
investment.
(5) Includes 82,800 shares over which Lawndale Capital
Management, LLC and Mr. Andrew E. Shapiro report having shared
voting and dispositive power, 6,900 shares over which Mr.
Shapiro reports having sole voting and dispositive power, and
71,600 and 11,200 shares over which affiliated partnerships
Diamond A Partners, L.P. and Diamond A Investors, L.P.,
respectively, report having shared voting and dispositive
power.
(6) Shares held in customer accounts for which Riverside Capital
Advisers, Inc. provides investment advice.
(7) Shares held in a fiduciary capacity for its clients,
including shares held by Lindner Investment Series Trust, an
affiliated registered investment company.
(8) See Notes 6 and 11 to following table.
(9) Includes 10,000 shares held by Channel Partnership II, L.P.,
an affiliated partnership. Wynnfield Partners Small Cap
Value, L.P. reports that Messrs. Nelson Obus and Joshua
Landes, as general partners of that partnership, hold sole
voting and dispositive power with respect to 482,7000 of such
shares and that Mr. Obus holds the same such powers with
respect to the 10,000 shares held by Channel Partnership II,
L.P.
The following table sets forth information as of February 14,
1997 unless otherwise indicated concerning stock ownership of
individual directors and named executive officers, and of the
executive officers and directors of the Company as a group:
Number of Shares and Nature of Beneficial Ownership (1)
Names of Directors,
Named Executive Officers Percentage of Depositary Percentage of
and Persons as a Group Common Stock Common Stock(2) Shares Depositary Shares(2)
Pemberton Hutchinson 4,600 (6) - 3,200 -
Robert E. Killen 963,905 (8) 13.8 % 54,667 (9) 2.4 %
William R. Klaus 7,500 (6) - - -
Thomas W. Ostrander 3,681 (6) - - -
Christopher K. Seglem 139,773 (3)(5) 2.0 % 358 (4) -
James W. Sight 379,000 (6)(10) 5.4 % - -
Edwin E. Tuttle 20,273 (6) - - -
R. Page Henley 43,550 (3)(5)(7) - - -
Robert J. Jaeger 5,000 (5) - - -
Ronald W. Stucki 43,833 (3)(5) - 300 (4) -
Theodore E. Worcester 50,279 (3)(5) - - -
Directors and Executive Officers
of the Company as a Group 1,661,412(3)(5)(6)(7) 23.9 % 58,525 2.5 %
(1) This information is based on information furnished to the
Company by individual directors and executive officers.
Except as indicated below, the Company is informed that the
respective beneficial owners have sole voting power and sole
dispositive power with respect to the shares opposite their
names.
(2) Percentages of less than 1% are indicated by a dash.
(3) Includes shares held at December 31, 1996 by Mellon Bank as
Trustee of the Westmoreland Coal Company and Affiliated
Companies Employees' Savings/Retirement Plan vested as
follows: Mr. Seglem-9,786, Mr. Stucki-333, Mr. Henley-10,754,
and Mr. Worcester-6,779; shares vested in the directors and
executive officers as a group totaled 27,652.
(4) Represents shares held at December 31, 1996 by Mellon Bank as
Trustee of the Westmoreland Coal Company and Affiliated
Companies Employees' Savings/Retirement Plan. Shares vested
in the directors and executive officers as a group totaled
658.
(5) Includes shares which may be purchased under the 1982 and
1985 Westmoreland Incentive Stock Option and Stock
Appreciation Rights Plans as follows: Mr. Seglem-129,947, Mr.
Stucki-43,500, Mr. Henley-27,796, Mr. Jaeger-5,000 and Mr.
Worcester-43,500; shares which may be purchased under these
Plans for the group as a whole totaled 249,743.
(6) Includes shares which may be purchased under the 1991 Non-
Qualified Stock Option Plan for Non-Employee Directors as
follows: Messrs. Klaus and Tuttle-7,500 each; Mr. Hutchinson-
3,000; Messrs. Ostrander and Sight-1,500 each; in total -
21,000.
(7) Includes 5,000 shares of restricted common stock granted to
Mr. Henley under the Westmoreland Coal Company 1995 Long-Term
Incentive Stock Plan. These shares are treated like other
shares of common stock for the purpose of payment of
dividends. They ceased to be restricted on January 1, 1997.
(8) Includes 50,000 shares owned by Mr. Killen's spouse and
922,558 shares owned by The Killen Group, Inc., of which Mr.
Killen is President and sole shareholder, and affiliated
investment funds and partnerships. Of the 922,558 shares,
376,505 shares are held in managed accounts over which The
Killen Group, Inc. does not have voting power.
(9) Includes 34,367 shares held in managed accounts by The Killen
Group, Inc., over which The Killen Group, Inc. does not have
voting power, and 20,300 shares held by Berwyn Income Fund.
(10)Includes 7,500 shares held by Mr. Sight's spouse.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases coal reserves and land on which the Company
has built coal preparation plants and other structures from Penn
Virginia Resources Corporation ("PVRC"), a wholly-owned
subsidiary of Penn Virginia Corporation, of which Mr. Black (who
served on the Company's Board until May 10, 1996) is Chairman of
the Board and, through May 7, 1996, was also Chief Executive
Officer. During 1996 the Company paid royalties under these
leases in the amount of $1,314,964. The Company believes that at
the time the leases of coal reserves and land were entered into
with PVRC, and when certain of their terms were renegotiated
pursuant to the provisions thereof, the leases were on terms fair
and reasonable to the Company and no less favorable to the
Company than if the leases were from unaffiliated companies.
In May 1996, the Company relinquished certain coal reserves to
Penn Virginia Corporation for which it received a cash payment of
$10,700,000 and an 18-month option to purchase Penn Virginia's
16% ownership interest in Westmoreland Resources, Inc. for
$3,000,000. That option was exercised by the Company on October
1, 1996. The Company also received assignable access rights from
Penn Virginia to the Company's Stone Mountain reserves, a tract
of underground reserves owned in fee by the Company. In
concurrent transactions, unaffiliated parties assumed certain of
the Company's environmental reclamation and remediation
obligations in exchange for coal reserves. These transactions
were on terms considered fair and reasonable to the Company and
no less favorable than if negotiated with an unaffiliated
company.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
a) 1. The financial statements filed herewith are the
Consolidated Balance Sheets of the Company and subsidiaries
as of December 31, 1996 and December 31, 1995, and the
related Consolidated Statements of Operations, Shareholders'
Equity (Deficit) and Cash Flows for each of the years in the
three-year period ended December 31, 1996 together with the
related Notes and the Summary of Significant Accounting
Policies which are contained on pages F-1 through F-40,
inclusive.
2. The financial statement schedule (Schedule II) - Valuation
Accounts filed herewith is included at the end of this
report.
3. The following exhibits are filed herewith as required
by Item 601 of Regulation S-K:
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession
(a)Westmoreland's Plan of Reorganization was confirmed by
an order of the United States Bankruptcy Court for the
District of Delaware on December 16, 1994, and upon
complying with the conditions of the order,
Westmoreland emerged from bankruptcy on December 22,
1994. A copy of the confirmed Plan of Reorganization
was filed as an Exhibit to Westmoreland's Report on
Form 8-K filed December 30, 1994, which is incorporated
herein by reference thereto.
(3)(a)Articles of Incorporation: Restated Certificate of
Incorporation, filed with the Office of the Secretary
of State of Delaware on February 21, 1995 and filed as
Exhibit 3(a) to Westmoreland's 10-K for 1994 which
Exhibit is incorporated herein by reference.
(b) Bylaws, as amended on June 11, 1996.
(4) Instruments defining the rights of security
holders
(a)Certificate of Designation of Series A Convertible
Exchangeable Preferred Stock of the Company defining
the rights of holders of such stock, filed July 8, 1992
as an amendment to the Company's Certificate of
Incorporation, and filed as Exhibit 3(a) to
Westmoreland's Form 10-K for 1992 and which Exhibit is
incorporated herein by reference.
(b)Form of Indenture between Westmoreland and Fidelity
Bank, National Association, as Trustee relating to the
Exchange Debentures. Reference is hereby made to
Exhibit 4.1 to Form S-2 Registration 33-47872 filed May
13, 1992, and Amendments 1 through 4 thereto, which
Exhibit is incorporated herein by reference.
(c)Form of Exchange Debenture Reference is hereby made to
Exhibit 4.2 to Form S-2 Registration 33-47872 filed May
13, 1992, and Amendments 1 through 4 thereto, which
Exhibit is incorporated herein by reference.
(d)Form of Deposit Agreement among Westmoreland, First
Chicago Trust Company of New York, as Depository and
the holders from time to time of the Depository
Receipts. Reference is hereby made to Exhibit 4.3 to
Form S-2 Registration 33-47872 filed May 13, 1992, and
Amendments 1 through 4 thereto, which Exhibit is
incorporated herein by reference.
(e)Form of Certificate of Designation for the Series A
Convertible Exchangeable Preferred Stock. Reference is
hereby made to Exhibit 4.4 to Form S-2 Registration 33-
47872 filed May 13, 1992, and Amendments 1 through 4
thereto, which Exhibit is incorporated herein by
reference.
(f)Specimen certificate representing the common stock of
Westmoreland, filed as Exhibit 4(c) to Westmoreland's
Registration Statement on Form S-2, Registration No. 33-
1950, filed December 4, 1985, is hereby incorporated by
reference.
(g)Specimen certificate representing the Preferred Stock.
Reference is hereby made to Exhibit 4.6 to Form S-2
Registration 33-47872 filed May 13, 1992, and
Amendments 1 through 4 thereto, which Exhibit is
incorporated herein by reference.
(h)Form of Depository Receipt. Reference is hereby made
to Exhibit 4.7 to Form S-2 Registration 33-47872 filed
May 13, 1992, and Amendments 1 through 4 thereto, which
Exhibit is incorporated herein by reference.
(I)In accordance with paragraph (b)(4)(iii) of Item 601 of
Regulation S-K, Westmoreland hereby agrees to furnish
to the Commission, upon request, copies of all other
long-term debt instruments.
(10)Material Contracts
(a)On January 5, 1982, the Board of Directors of
Westmoreland adopted a Management by Objectives Plan
("MBO Plan") for senior management. A description of
this MBO Plan is set forth on page 9 of Westmoreland's
definitive proxy statement dated March 31, 1982, which
description is incorporated herein by reference
thereto.
(b)Westmoreland Coal Company 1982 Incentive Stock Option
and Stock Appreciation Rights Plan--Reference is hereby
made to Exhibit 10(b) to Westmoreland's Annual Report
on Form 10-K for 1981 (SEC File #0-752), which Exhibit
10(b) is incorporated herein by reference thereto.
(c)Westmoreland Coal Company 1985 Incentive Stock Option
and Stock Appreciation Rights Plan--Reference is hereby
made to Exhibits 10(d) to Westmoreland's Annual Report
on Form 10-K for 1984 (SEC File #0-752), which Exhibit
10(d) is incorporated herein by reference thereto.
(d)In 1990, the Board of Directors established an
Executive Severance Policy for certain executive
officers, which provides a severance award in the event
of termination of employment. Reference is hereby made
to Exhibit 10(h) to Westmoreland's Annual Report on
Form 10-K for 1990 (SEC File #0-752), which Exhibit
10(h) is incorporated herein by reference thereto.
(e)Westmoreland Coal Company 1991 Non-Qualified Stock
Option Plan for Non-Employee Directors - Reference is
hereby made to Exhibit 10(i) to Westmoreland's Annual
Report on Form 10-K for 1990 (SEC File #0-752), which
Exhibit 10(i) is incorporated herein by reference
thereto.
(f)Effective January 1, 1992, the Board of Directors
established a Supplemental Executive Retirement Plan
("SERP") for certain executive officers and other key
individuals, to supplement Westmoreland's Retirement
Plan by not being limited to certain Internal Revenue
Code limitations. A description of this SERP is set
forth on page 11 of Westmoreland's definitive proxy
statement dated June 9, 1992, which description is
incorporated herein by reference thereto.
(g)Amended Coal Mining Agreement between Westmoreland
Resources, Inc. and Crow Tribe of Indians, dated
November 26, 1974, as further amended in 1982, filed as
Exhibit (10)(a) to Westmoreland's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1992, is
incorporated by reference thereto.
(h)Amendment and Restatement of Virginia Lease between
Penn Virginia Resources Corporation and Westmoreland,
effective as of July 1, 1988, as further amended May 6,
1992, filed as Exhibit 10(b) to Westmoreland's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992, is incorporated by reference thereto.
(i)Acquisition Agreement, dated May 6, 1992 by and among
Westmoreland, Penn Virginia Resources Corporation and
Penn Virginia Equities Corporation, including as
Exhibit A thereto, a form of agreement to be executed
by the parties on the Closing Date described therein,
filed as Exhibit 10(d) to Westmoreland's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1992, is incorporated by reference thereto.
(j)Agreement dated July 9, 1992 by and among Westmoreland,
Penn Virginia Resources Corporation and Penn Virginia
Equities Corporation, with respect to (i) registration
rights granted to Penn Virginia, (ii) the number of
directors which Penn Virginia for a period of two years
may designate to be elected to Westmoreland's Board of
Directors and (iii) other conditions, as set forth
therein, which is discussed in Item 13 of
Westmoreland's Form 10-K for 1992.
(k)Agreement dated October 9, 1992 by and among
Westmoreland, Penn Virginia Resources Corporation and
Penn Virginia Equities Corporation amending and
modifying prior agreements by and among the parties as
set forth therein, which is discussed in Item 13 of
Westmoreland's Form 10-K for 1992 which is incorporated
herein by reference.
(l)Effective February 1, 1995, the Board of Directors
established a Long-Term Incentive Stock Plan for
officers and other salaried employees of Westmoreland
and its subsidiaries, subject to shareholder approval.
A description of this Plan is set forth in
Westmoreland's definitive proxy to be dated on or
before April 28, 1995, which description is
incorporated herein by reference thereto.
(m)On July 28, 1994, the Company reached a definitive
agreement to sell the assets of its wholly-owned
subsidiary, Criterion Coal Company and its affiliates
to CONSOL of Kentucky, Inc. The sale was consummated
on December 22, 1994, upon complying with the order of
the Bankruptcy Court for the District of Delaware, on
which date the Company emerged from bankruptcy.
Reference is hereby made to an Exhibit to
Westmoreland's Annual Report on Form 10-K for 1994,
which Exhibit is incorporated herein by reference
thereto.
(n)Agreement dated June 29, 1995 by and among Westmoreland
and Penn Virginia Equities with respect to amending the
Termination date of the July 9, 1992 agreement among
the same parties regarding registration rights.
Reference is hereby made to Exhibit 10(n) to
Westmoreland's Annual Report on Form 10-K for 1995,
which Exhibit 10(n) is incorporated herein by reference
thereto.
(18) Letter Re: Change in Accounting Principle
(21) Subsidiaries of the Registrant
(23) Consent of Independent Certified Public Accountants
(27) Financial Data Schedule
(99) WEI Project Chart
b) Reports on Form 8-K.
(1) On October 1, 1996, the Company filed a report on Form
8-K. The report announced completion of a non-cash
transaction for the transfer of ownership of several of
its Virginia Division operations. The Company also
announced that it had increased its ownership in
Westmoreland Resources, Inc. from 60% to 80% through
completion of separate transactions with Morrison
Knudsen and Penn Virginia Corp.
(2) On December 20, 1996, the Company filed a report on
Form 8-K. The report contained several items with
include: (i) Announcement that the Company had been
unable to reach agreement with the UMWA Benefits Funds
(the "Funds") over settlement of long term obligations
to those entities. (ii) Announcement of an emergency
hearing in Virginia on November 29, 1996 where the UMWA
Benefits Funds were denied their request for a
temporary restraining order requiring the Company to
immediately resume paying 1992 Benefit Plan beneficiary
expenses. (iii) Announcement that a Federal District
Court in Virginia denied the 1992 Benefit Plans'
request for a preliminary injunction to cause the
Company to resume paying 1992 Benefit Plan beneficiary
expenses. (iv) Announcement that Sheffield, Olson &
McQueen, Inc. ("SOMI") had been retained as the third
party administrator to process medical claims on behalf
of certain of its retirees, active employees and
dependents. (v) Announcement that since Company
initiated discussions with UMWA Pension and Benefit
Funds remain unsuccessful the Company was forced to
examine alternatives, including Court protection under
Chapter 11 of the U.S. Bankruptcy Code.
(3) On December 23, 1996, the Company filed a report on
Form 8-K. The Company announced that it and four of
its subsidiaries had filed for protection under Chapter
11 of the Federal Bankruptcy Code in Colorado.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WESTMORELAND COAL COMPANY
Date: March 26, 1997 By: /s/ Robert J. Jaeger
------------------------
Robert J. Jaeger
Senior Vice President of
Finance, Treasurer and
Controller
(Principal Financial and
Accounting Officer)
Signature Title Date
- -----------------------------------------------------------------------
Principal Executive
Officer:
Chairman of the
Board,
President, and
/s/ Christopher K. Seglem Chief Executive
- ------------------------- Officer March 26, 1997
Christopher K. Seglem
Directors:
/s/ Pemberton Hutchinson Director March 26, 1997
- ------------------------
Pemberton Hutchinson
/s/ William R. Klaus Director March 26, 1997
- ------------------------
William R. Klaus
/s/ Robert E. Killen Director March 26, 1997
- ------------------------
Robert E. Killen
/s/ Edwin E. Tuttle Director March 26, 1997
- ------------------------
Edwin E. Tuttle
/s/ Thomas W. Ostrander Director March 26, 1997
- ------------------------
Thomas W. Ostrander
/s/ James W. Sight Director March 26, 1997
- ------------------------
James W. Sight
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Westmoreland Coal Company:
Under date of March 17, 1997, we reported on the consolidated
balance sheets of Westmoreland Coal Company and subsidiaries as
of December 31, 1996 and 1995, and the related statements of
operations, shareholders' equity (deficit), and cash flows for
each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996, Annual
Report on Form 10-K of Westmoreland Coal Company. In connection
with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement
schedule II - Valuation Accounts. This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
The audit report on the consolidated financial statements of
Westmoreland Coal Company and subsidiaries referred to above
contains an explanatory paragraph that states that the Company's
bankruptcy filing under Chapter 11 of the United States
Bankruptcy Code raises substantial doubt about the entity's
ability to continue as a going concern. The financial statement
schedule included in the Annual Report on Form 10-K for 1996 does
not include any adjustments that might result from the outcome of
this uncertainty.
KPMG Peat Marwick LLP
Denver, Colorado
March 17, 1997
Schedule II
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Valuation Accounts
Years ended December 31, 1996, 1995, and 1994
- -------------------------------------------------------------------------
Balance at Deductions Other Balance at
beginning credited deductions end of
of year to earnings (B) year
- -------------------------------------------------------------------------
(in thousands)
Year ended December 31, 1996:
Allowance for $ 10,313 (3,449) (1,000) $ 5,864 (A)
doubtful accounts
- -------------------------------------------------------------------------
Year ended December 31, 1995:
Allowance for $ 20,371 (967) (9,091) $ 10,313 (A)
doubtful accounts
- -------------------------------------------------------------------------
Year ended December 31, 1994:
Allowance for $ 28,530 (2,738) (5,421) $ 20,371 (A)
doubtful accounts
- -------------------------------------------------------------------------
Amounts above include current and non-current valuation accounts.
(A) Includes reserves of $5,864,000, $7,798,000 and $17,054,000
as of December 31, 1996, 1995 and 1994, respectively, netted
against Other Assets in the Company's Consolidated Balance
Sheets. Also includes reserves of $2,515,000 and $3,317,000
as of December 31, 1995 and 1994, respectively for doubtful
notes receivable.
(B) These deductions represent the reserves associated with
assets sold to third parties.
EXHIBIT (3) (3)B
WESTMORELAND COAL COMPANY
(DELAWARE CORPORATION)
BYLAWS
ARTICLE I
SHAREHOLDERS
SECTION 1. Meetings
(a) Annual Meeting. Unless otherwise fixed by the
Board of Directors, the annual meeting of
shareholders for the election of Directors and for
other business shall be held on the first Tuesday
of May in each year, or, if that day is a legal
holiday, on the next following business day.
(b) Special Meetings. Special meetings of the
shareholders may be called at any time by the
chief executive officer, or a majority of the
Board of Directors, or the holders of at least one-
fifth of the shares of stock of the Company
outstanding and entitled to vote.
(c) Place. Meetings of the shareholders shall be held
at such place in Colorado Springs, Colorado (where
the company will maintain an office at which it
may keep its books to the extent permitted by law)
as may be fixed by the Board of Directors in the
notice of meeting.
SECTION 2. NOTICE
Written notice of the time and place of all
meetings of shareholders and of the purpose of each
special meeting of shareholders shall be given to
each shareholder entitled to vote thereat at least
ten days before the date of the meeting, unless a
greater period of notice is required by law in a
particular case.
SECTION 3. VOTING
(a) Voting Rights. Except as otherwise provided
herein, or in the Certificate of Incorporation, or
by law, every shareholder shall have the right at
every shareholders' meeting to one vote for every
share standing in his name on the books of the
Company which is entitled to vote at such meeting.
Every shareholder may vote either in person or by
proxy.
(b) Number of Directors. The number of directors shall
be six, provided, however, that upon the
occurrence of a Director Event and the resignation
of any director with whom a Director Service
Agreement exists, the number of directors shall be
reduced accordingly (not including directors that
are elected or are to be elected by the vote of a
separate class or series of the Company's capital
stock). A "Director Event" shall mean the
following events: (1) an announcement by the
Company that it will exchange its 8 and 1/2%
Convertible Subordinated Exchange Debentures due
July 1, 2012 for the Company's outstanding Series
A Convertible Exchangeable Preferred Stock (the
"Preferred Stock"); (2) a reduction in the
aggregate liquidation preference of outstanding
Preferred Stock to an amount of less than
$5,000,000, whether by reason or redemption,
exchange, purchase, conversion or otherwise; or
(3) if the Company shall have failed to declare
and pay or set apart for payment in full the
dividends accumulated on the outstanding shares of
Preferred Stock for any six quarterly dividend
payment periods, whether or not consecutive.
1
SECTION 4. QUORUM AND REQUIRED VOTE
The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of
stock of the Company entitled to vote at a meeting
shall constitute a quorum. If a quorum is not
present no business shall be transacted except to
adjourn to a future time. Except as may otherwise
be provided in these Bylaws, in the Certificate of
Incorporation or by law, directors shall be elected by
the affirmative votes of a plurality of the votes
of the shares present in person or by proxy at the
meeting, and in all other matters, the affirmative
vote of a majority of the shares present in person or
by proxy at the meeting shall be the act of the
shareholders.
ARTICLE II
DIRECTORS
SECTION 1. TERM OF OFFICE
Each director elected at an annual meeting of the
shareholders shall hold office until his successor is
elected and has qualified or until his earlier
resignation or proper removal.
SECTION 2. POWERS
The business of the Company shall be managed by the
Board of Directors which shall have all powers
conferred by law and these bylaws. The Board of
Directors shall elect, remove and suspend officers,
determine their duties and compensations, and require
security in such amounts as it may deem proper.
SECTION 3. MEETINGS
(a) Regular Meetings. Regular meetings shall be held
at such times as the Board shall designate by
resolution. Notice of the regular meetings need
not be given.
(b) Special Meetings. Special meetings of the Board
may be called at any time by the chief executive
officer and shall be called by him upon the
written request of one-third of the directors.
Written notice of the time, place and the general
nature of the business to be transacted at each
special meeting shall be given to each director at
least three days before such meeting.
(c) Place. Meetings of the Board of Directors shall
be held at such place in or out of Delaware as the
Board may designate or as may be designated in the
notice calling the meeting.
SECTION 4. QUORUM
A majority of all the directors in office (but not less
than one-third of the number fixed by these bylaws)
shall constitute a quorum for the transaction of
business at any meeting. The vote of the majority of
the directors present at any meeting at which a quorum
is present shall be the act of the Board of Directors.
SECTION 5. VACANCIES
Vacancies in the Board of Directors shall be filled by
vote of a majority of the remaining members of the
Board though less than a quorum. Such election shall
be for the balance of the unexpected term or until a
successor is duly elected by the shareholders and has
qualified.
ARTICLE III
EXECUTIVE COMMITTEE
The Board of Directors by resolution of a majority of the number
of directors fixed by these bylaws may designate three or more
directors to constitute an executive committee, which, to the
extent provided in such resolution, shall have and may exercise
all the authority of the Board of Directors except to amend the
Company's bylaws. If an executive committee is so designated, it
will elect one of its members to be its chairman.
ARTICLE IV
OFFICERS
SECTION 1. ELECTION
At its first meeting after each annual meeting of the
shareholders, the Board of Directors shall elect a
President, Treasurer, and Secretary, and such other
officers as it deems advisable. Any two or more
offices may be held by the same person except for the
offices of President and Secretary.
SECTION 2. CHAIRMAN AND PRESIDENT
(a) If the Board in its discretion determines that
there shall be a Chairman, he may be the chief
executive officer of the Company and shall preside
at all meetings of the Board and of the
shareholders. In such event the President shall
be the chief operating officer, responsible to the
Chairman, with such duties as the Board of
Directors or the Chairman shall from time to time
prescribe, and he shall exercise the powers and
perform the duties of the Chairman during the
Chairman's absence or inability to act.
(b) When the office of Chairman is not filled, or when
the Chairman is not the chief executive officer,
the President shall be the chief executive
officer.
(c) In the event the President shall be the chief
executive officer, the Board may designate an
Executive Vice President or Senior Vice President
as chief operating officer. In the absence of
such designation, the President shall also be the
chief operating officer.
(d) Except as the Board of Directors may otherwise
prescribe by resolution, the chief executive
officer shall have general supervision over the
business and operations of the Company and may
perform any act and execute any instrument for the
conduct of such business and operations.
SECTION 3. OTHER OFFICERS
The duties of the other officers shall be those usually
related to their offices, except as otherwise
prescribed by resolution of the Board of Directors.
SECTION 4. GENERAL
(a) In the absence of the Chairman and President, any
officer designated by the Board shall exercise the
powers and perform the duties of the chief
executive officer or the chief operating officer
or both.
(b) Except as otherwise determined by resolution of
the Board of Directors, the Vice Chairman,
President or any Executive Vice President or
Senior Vice President may execute any instrument
for the conduct of the Company's business and
operations.
SECTION 5. AGENTS
The chief executive officer or any officer or employee
authorized by him may appoint, remove or suspend agents
or employees of the Company and may determine their
duties and compensation.
ARTICLE V
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION
The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or
proceeding, either civil, criminal, administrative or
investigative, by reason of the fact that he is or was
a director, officer or supervisor or manager of the
corporation or a constituent corporation absorbed in a
consolidation or merger, or while a director, officer
or supervisor or manager of the corporation is or was
serving at the request of the corporation or a
constituent corporation absorbed in a consolidated or
merger, as a director, officer or supervisor or manager
of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding,
whether or not the indemnified liability arises or
arose from any threatened, pending or completed action
by or in the right of the corporation to the extent
that such person is not otherwise indemnified and to
the extent such indemnification is not prohibited by
applicable law.
SECTION 2. ADVANCE OF EXPENSES
Expenses incurred by a director, officer or
supervisor or manager of the corporation in defending a
civil or criminal action, suit or proceeding, shall be
paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the
director, officer or supervisor or manager to repay
such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the
corporation.
SECTION 3. PROCEDURE FOR DETERMINING PERMISSIBILITY
The procedure for determining the permissibility of
indemnification under the standards contained in this
Article V (including the advance of expenses) shall be
that set forth in Section 145(d) of the Delaware
General Corporation Law, provided that, if there has
been a change in control of the corporation between the
time of the action or failure to act giving rise to the
claim for indemnification and such claim, and at the
option of the person seeking indemnification, the
permissibility of indemnification shall be determined
by independent legal counsel selected jointly by the
corporation and the person seeking indemnification.
The reasonable expenses of any director, officer or
supervisor or manager in prosecuting a successful claim
for indemnification, and the fees and expenses of any
special legal counsel engaged to determine
permissibility of indemnification, shall be borne by
the corporation.
SECTION 4. CONTRACTUAL OBLIGATION
The obligations of the corporation to indemnify a
director, officer or supervisor or manager under this
Article V, including the duty to advance expenses,
shall be considered a contract between the corporation
and such director, officer or supervisor or manager and
no modification or repeal of any provision of this
Article V shall affect, to the detriment of the
director, officer or supervisor or manager, such
obligations of the corporation in connection with a
claim based on any act or failure to act occurring
before such modification or repeal.
SECTION 5. INDEMNIFICATION NOT EXCLUSIVE: INURING OF BENEFIT
The indemnification and advance of expenses provided by
this Article V shall not be deemed exclusive of any
other right to which one indemnified may be entitled,
both as to action in his official capacity and as to
action in another capacity while holding such office,
and shall inure to the benefit of the heirs, executors
and administrators of any such person.
SECTION 6. INSURANCE AND OTHER INDEMNIFICATION
The Board of Directors shall have the power to (i)
authorize the corporation to purchase and maintain, at
the corporation's expense, insurance on behalf of the
corporation and on behalf of others to the extent that
power to do so has not been prohibited by applicable
law, and (ii) give other indemnification to the extent
permitted by law.
ARTICLE VI
CERTIFICATES OF STOCK
SECTION 1. SHARE CERTIFICATES
Every shareholder of record shall be entitled to a
share certificate representing the shares held by him.
Every share certificate may bear the corporate seal and
the signature of the Chairman or President or a Vice
President, and Secretary or Assistant Secretary, or the
Treasurer or an Assistant Treasurer of the Company, or
may bear a facsimile corporation seal, a facsimile
signature of the Chairman or President, the signature
of the Secretary or any Assistant Secretary, or
Treasurer or an Assistant Treasurer of the Company and
the signature of a transfer clerk.
SECTION 2. TRANSFERS
Shares of stock of the Company shall be transferable on
the books of the Company only by the registered holder
or by duly authorized attorney. A transfer shall be
made only upon surrender of the share certificate. The
Board of Directors may fix a record date to determine
the voting and other rights of shareholders to the
extent permitted by law.
ARTICLE VII
AMENDMENTS
These bylaws may be changed at any regular or special meeting of
the Board of Directors by the vote of a majority of all the
directors in office or at any annual or special meeting of
shareholders by the vote of the holders of a majority of the
outstanding stock entitled to vote. Notice of any such meeting
of the Board of Directors or of shareholders shall set forth the
proposed change or a summary thereof.
EXHIBIT 18
March 27, 1997
WESTMORELAND COAL COMPANY
2 North Cascade Avenue
14th Floor
Colorado Springs, CO 80903
Ladies and Gentlemen:
We have audited the consolidated balance sheets of Westmoreland
Coal Company and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations,
shareholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1996, and have
reported thereon under date of March 17, 1997. The
aforementioned consolidated financial statements and our audit
report thereon are included in the Company's annual report on
Form 10-K for the year ended December 31, 1996. As stated in
Note 9 to those financial statements, the Company changed its
method of accounting for Pneumoconiosis Benefits to recognize all
actuarial gains or losses related to the pneumoconiosis benefit obligation
in the period in which they occur. The note states the newly
adopted accounting method is preferable in the circumstances
because all impacted employees have been terminated from the Company and
it more appropriately reflects the funded status of the obligation.
In accordance with your request, we have reviewed and discussed
with Company officials the circumstances and business judgment
and planning upon which the decision to make this change in
the method of accounting was based.
With regard to the aforementioned accounting change,
authoritative criteria have not been established for evaluating
the preferability of one acceptable method of accounting over
another acceptable method. However, for purposes of Westmoreland
Coal Company's compliance with the requirements of the Securities
and Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's
business judgment and planning, we concur that the newly adopted
method of accounting is preferable in the circumstances.
Very truly yours,
KPMG Peat Marwick LLP
EXHIBIT 21
For the year ended December 31, 1996:
Subsidiary Name State of
Incorporation
---------------------------------------------
ECC Leasing Corp. Delaware
Kentucky Criterion Coal Company Delaware
Mountain Electric, Inc. Delaware
Pine Branch Mining Co. Delaware
Roda-Dendron Coal Company Delaware
Triport Tool Corporation Delaware
WEI - Fort Lupton, Inc. Delaware
WEI - Indiana, Inc. Delaware
WEI - Rensselaer, Inc. Delaware
WEI - Roanoke Valley, Inc. Delaware
Westmoreland Coal Company Delaware
Westmoreland Coal Sales Company Delaware
Westmoreland Energy, Inc. Delaware
Westmoreland Resources, Inc. Delaware
Westmoreland Terminal Company Delaware
Westmoreland - Altavista, Inc. Delaware
Westmoreland - Buena Vista, Inc. Delaware
Westmoreland - Corona, Inc. Delaware
Westmoreland - Covington, Inc. Delaware
Westmoreland - Fort Drum, Inc. Delaware
Westmoreland - Franklin, Inc. Delaware
Westmoreland - Greeley, Inc. Delaware
Westmoreland - Hopewell, Inc. Delaware
Westmoreland - Metro East, Inc. Delaware
The Corona Group, Inc. Delaware
Corona Power Maintenance, Inc. Delaware
Corona Power Services, Inc. Delaware
Westmoreland Technical
Service, Inc. Delaware
Corona Energy Corp. Delaware
Cleancoal Terminal Co. Delaware
Criterion Coal Co. Delaware
Deane Processing Co. Delaware
Eastern Coal and Coke Co. Pennsylvania
EXHIBIT 23
Consent of Independent Certified Public Accountants
The Board of Directors
Westmoreland Coal Company:
We consent to incorporation by reference in the Registration
Statements (Nos. 2-90847 and No. 33-33620) on Form S-8 of
Westmoreland Coal Company of our reports dated March 17, 1997,
relating to the consolidated balance sheets of Westmoreland Coal
Company and subsidiaries as of December 31, 1996, and 1995, and
the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1996, and the related
schedule, which reports appear in the December 31, 1996, annual
report on Form 10-K of Westmoreland Coal Company.
Our report dated March 17, 1997, contains an explanatory
paragraph that states that the Company's bankruptcy filing under
Chapter 11 of the United States Bankruptcy Code raises
substantial doubt about its ability to continue as a going
concern. The consolidated financial statements and financial
statement schedule do not include any adjustments that might
result from the outcome of that uncertainty.
KPMG Peat Marwick LLP
Denver, Colorado
March 26, 1997
EXHIBIT 99
PROJECT STATUS SUMMARY
Project Ft. Drum Altavista Hopewell Southampton
- -----------------------------------------------------------------
Watertown Altavista Hopewell Southampton
Location: New York Virginia Virginia Virginia
- -----------------------------------------------------------------
Status: Operational Operational Operational Operational
- -----------------------------------------------------------------
Gross
Megawatt 55.5 MW 70 MW 70 MW 70 MW
Capacity:
- -----------------------------------------------------------------
WEI Equity
Ownership: 1.25% 30.0% 30.0% 30.0%
- -----------------------------------------------------------------
Electricity Niagara Virginia Virginia Virginia
Purchaser: Mohawk Power Power Power
- -----------------------------------------------------------------
The Lane Firestone
Steam Host: Company, Tire & Hercules,
US Army Inc. Rubber Co. Inc.
- -----------------------------------------------------------------
Fuel Type: Coal Coal Coal Coal
- -----------------------------------------------------------------
Fuel Cyprus Amax Westmoreland United Coal United Coal
Supplier: Coal Co. Coal Company Company Company
- -----------------------------------------------------------------
Commercial
Operations
Date: 1989 1992 1992 1992
- -----------------------------------------------------------------
Roanoke Roanoke
Project Ft. Lupton Rensselaer Valley I Valley II
- -----------------------------------------------------------------
Weldon Weldon
Location: Ft. Lupton Rensselaer North North
Colorado New York Carolina Carolina
- -----------------------------------------------------------------
Status: Operational Operational Operational Operational
- -----------------------------------------------------------------
Gross
Megawatt 290 MW 81 MW 180 MW 50 MW
Capacity:
- -----------------------------------------------------------------
WEI Equity
Ownership: 4.49% 50.0% 50.0% 50.0%
- -----------------------------------------------------------------
Public
Electricity Service of Niagara Virginia Virginia
Purchaser: Colorado Mohawk Power Power
- -----------------------------------------------------------------
Rocky Mtn. Patch
Steam Host: Produce, Patch Rubber Rubber
Ltd BASF Company Company
- -----------------------------------------------------------------
Fuel Type: Natural Gas Natural Gas Coal Coal
Thermo Western Gas
- -----------------------------------------------------------------
Fuel Fuels, Marketing, TECO Coal/ TECO Coal/
Supplier: Inc. Ltd CONSOL CONSOL
- -----------------------------------------------------------------
Commercial
Operations
Date: 1994 1994 1994 1995
- -----------------------------------------------------------------