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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, 1997
OR
X 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
Depositary 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
WESTMORELAND COAL COMPANY
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
Item Page
PART I
1 Business 1
2 Properties 8
3 Legal Proceedings 9
4 Submission of Matters to a Vote of Security Holders 10
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters 11
6 Selected Financial Data 13
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
8 Financial Statements and Supplementary Data 20
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 64
PART III
10 Directors and Executive Officers of the Registrant 65
11 Executive Compensation 70
12 Security Ownership of Certain Beneficial Owners and
Management 74
13 Certain Relationships and Related Transactions N/A
PART IV
14 Exhibits, Financial Statement Schedule, and Reports
on Form 8-K 78
Signatures 81
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 April 1, 1998 is estimated to be $34,119,000. 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 April 1, 1998.
There were 2,300,000 depository shares, each representing one
quarter of a share of the registrant's Preferred Stock, $1.00 Par
Value per preferred share, outstanding as of April 1, 1998.
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 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
Westmoreland Resources, Inc. ("WRI") 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 7,051,000 tons, 4,668,000
tons, and 4,426,000 tons, of coal in 1997, 1996 and 1995,
respectively. The Company received no dividends from WRI in 1997
due to Bankruptcy Code restrictions regarding the payment of
dividends. The Company received cash dividends from WRI of
$2,222,000, and $1,650,000 in 1996 and 1995, 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 preparation plant
and one transloading facility. The Virginia Division shipped
8,000 tons, 553,000 tons, and 2,007,000 tons of coal in 1997,
1996 and 1995, respectively, including coal produced by
independent contractors and purchased coal. The Company idled
the Virginia Division in 1995, has sold various assets during
1997 and 1996, and is currently marketing the few remaining
assets held for sale. Asset sales in 1997 resulted in proceeds,
before selling costs, of approximately $5,812,000. Additional
asset sales could result in further recoveries.
The following tables show, for each of the past five years, tons
sold and revenues derived from Company and unaffiliated
production as well as revenues from domestic and export
activities. Included in Company tonnages below are amounts
purchased from non-Company properties, but processed through
Company-owned facilities.
Coal Sales in Tons (tons in 000's)
- ----------------------------------------------------------------
Company Sold for
Year Total Produced Others
- ----------------------------------------------------------------
1997 7,059 7,059 -
1996 5,221 4,668 553
1995 7,063 6,590 473
1994 14,815 12,031 2,784
1993 16,687 11,551 5,136
- ----------------------------------------------------------------
Coal Revenues ($'s in 000's)
- ----------------------------------------------------------------
Company Sold for
Year Total Produced Others
- ----------------------------------------------------------------
1997 47,182 47,182 -
1996 44,152 32,554 11,598
1995 109,114 92,992 16,122
1994 370,166 286,970 83,196
1993 465,256 307,468 157,788
- ----------------------------------------------------------------
Coal Revenues ($'s in 000's)
- ----------------------------------------------------------------
Year Total Domestic Export
- ----------------------------------------------------------------
1997 47,182 47,182 -
1996 44,152 44,152 -
1995 109,114 109,114 -
1994 370,166 340,489 29,677
1993 465,256 365,429 99,827
- ----------------------------------------------------------------
Approximately 97% of the tonnage sold by the Company in 1997 was
pursuant to contracts at WRI calling for deliveries over a period
longer than one year ("long-term contracts"). The table below
presents the amount of coal tonnage sold under long-term
contracts for the last five years:
-------------------------------
Sales Under Long-Term
Contracts Tons (000s) %
-------------------------------
1997 97%
1996 89%
1995 60%
1994 81%
1993 77%
-------------------------------
WRI's customers accounted for $47,044,000 in coal revenues in
1997 from the sale of 7,051,000 tons of coal, which represents
virtually all of the Company's total 1997 coal revenues and total
tons sold in 1997.
The following 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)
--------------------------------
1998 6,200
1999 6,200
2000 3,700
2001 3,700
2002 3,700
--------------------------------
In 1997, the three largest customers of the Company accounted for
86% of its coal revenues. Northern States Power, Otter Tail
Power and Western Fuels Association accounted for 44%, 24% and
18%, respectively, of the Company's coal revenues. No other
customer accounted for as much as 10% of the Company's 1997 coal
revenues. The long-term contract with WRI's largest customer,
Northern States Power, expires in 2005 and accounted for 40% of
the tons sold in 1997.
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 . 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 $3,128,000, $3,067,000 and $3,014,000 during
1997, 1996 and 1995, respectively, relative to the option
agreement. No coal has been delivered under the option
agreement.
INDEPENDENT POWER OPERATIONS
Westmoreland Energy, Inc. ("WEI") 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. 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 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 shifted 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 aggressive toward
independent power operators, other than their own unregulated
subsidiaries. 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. Many
independent power producers are now primarily focused on the
international market place 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 primarily on maximizing
the cash return on its existing investments.
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 1997, DTA loaded 14,075,000 tons, including 2,682,000
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 and provides
related support services. Refer to Note 6 of the Consolidated
Financial Statements for further information regarding DTA.
GENERAL
Employees and Labor Relations
The Company, including subsidiaries, employed 40 people on
December 31, 1997 compared with 70 on December 31, 1996.
Included in these figures are 4 employees represented by the
United Mine Workers of America ("UMWA") at December 31, 1997, as
compared to 10 such employees at December 31, 1996.
The Independent Bituminous Coal Bargaining Alliance ("IBCBA"), an
alliance of four coal companies, including Westmoreland Coal
Company, was formed in 1992 to negotiate wage agreements with the
UMWA which became effective on December 16, 1993 (the "1993
Agreement"). The effect of the existing UMWA contract should be
minimal due to the relatively small number of covered employees
and short duration. The 1993 Agreement expires on August 1,
1998.
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 1997.
Coal-fired generation was responsible for nearly 60% of all
electricity generated within the United States in 1997.
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 from unregulated affiliates of utility companies,
affiliates of fuel and equipment suppliers and other independent
developers. The Company has essentially curtailed development
efforts in independent power for the time being and is now
focused primarily on maximizing returns on its existing assets.
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 all of
WEI's operations except ROVA I which is an Exempt Wholesale
Generator ("EWG"). The QF or EWG status 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 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, which began in December, 1990, with its mining
contractor, Morrison Knudsen Company, Inc. (a stockholder), that
calls for the Company to pay approximately $1,700,000 over a 15
year period, the Company's maximum liability for reclamation
costs associated with final mine closure. All remaining
liability is that of Morrison Knudsen and 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 1997 amounted to $257,000, all of which costs were
incurred in the Virginia Division. The Company recorded a
provision for reclamation of $108,000 in the Virginia Division
during 1997. Reclamation fees imposed by the Federal Surface
Mining Control and Reclamation Act of 1977 (the "Surface Mining
Act") at WRI amounted to approximately $2,201,000, $1,634,000 and
$1,538,000 in 1997, 1996 and 1995 respectively. Reclamation fees
incurred at the Virginia Division amounted to $3,000, $73,000,
and $217,000, in 1997, 1996 and 1995 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 1998 due to the idle status
of the Virginia Division operations. The reduction in overall
charges, exclusive of idling costs for environmental purposes, is
largely due to the asset dispositions that have taken place
since 1994 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 $5,381,000 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 required 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 required 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 within the United States. Export sales during
the last three years have been insignificant.
ITEM 2 - PROPERTIES
As of December 31, 1997, 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, 1997 in Montana were 638,484,000 tons and in
Virginia were 87,000 tons. Properties located in Montana are
leased by WRI from the Crow Tribe of Indians, which leases run to
exhaustion of the coal reserves. Nearly all of the Company's
remaining eastern reserves are under lease from Penn Virginia
Coal Company ("Penn Virginia") a wholly-owned subsidiary of Penn
Virginia Corporation. All leases with Penn Virginia run to
exhaustion of the coal reserves. Certain reserves are owned in
fee. In May 1996, the Company relinquished back to Penn Virginia
Coal Company 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.
The following table shows the Company's estimated demonstrated
coal reserve base and production in 1997. 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 and
uneconomic reserves.
Summary of Demonstrated Coal Reserve Base and Production Tons
as of December 31, 1997
(in thousands except sulfur percentages)
- -------------------------------------------------------------------------------
1997 Total Demonstrated
Production Sulfur(1) Assigned (2) Coal Reserve Base
- -------------------------------------------------------------------------------
Western Operations
Montana Steam 7,051 .63 638,484 638,484
Eastern Operations
Virginia Steam 8 1.05/1.24 87 87
Total All
Operations 7,059 - 638,571 638,571
===============================================================================
(1) Percent Sulfur applies to the 1997 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 232,000,000 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. 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,
1997 the Company owns coal preparation and loading facilities in
Virginia. All of the Company's Virginia operations have been
idled and the Company has no intention of resuming operations
there.
WRI owns and operates a dragline and coal crushing and loading
facilities at its mine in Montana.
ITEM 3 - LEGAL PROCEEDINGS
On February 2, 1998, the Debtor corporations filed a plan of
reorganization and an accompanying disclosure statement, and the
UMWA Health and Retirement Funds (the "Funds") filed a competing
plan and disclosure statement on that same date. The Bankruptcy
court has established April 15, 1998 as the date for filing all
amendments and supplements to plans of reorganization and
disclosure statements. Following that date, the Court will hold
hearings to determine the adequacy of the disclosure statements
and if either or both of the statements is deemed adequate,
approval solicitation will take place. If either plan is
approved by those eligible to vote, confirmation hearings will
take place. Neither round of hearings has been scheduled,
although the Court has expressed a desire to move the process
along expeditiously. Several entities, including the Funds and
the States of West Virginia and Virginia on behalf of their
workers compensation funds, as well as insurance companies who
had posted workers compensation bonds, have filed proofs of claim
in the Chapter 11 proceeding. The Debtor Corporations have
objected to many of these claims and will object to others in the
near future, and intend to contest their size and allowability
vigorously. Refer to Note 1 of Notes to Consolidated Financial
Statements for additional information regarding liabilities
subject to compromise as a result of the bankruptcy filing.
Westmoreland Energy, Inc.
WEI owns a 50% partnership interest in Westmoreland-LG&E Partners
(the "ROVA Partnership"). The ROVA Partnership's principal
customer, Virginia Power, contracted to purchase the electricity
generated by ROVA I, one of two units within the ROVA
Partnership, 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 1997, Virginia Power withheld
approximately $14,000,000 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, The
ROVA Partnership 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 the 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 Virginia Power's second summary judgment motion and
effectively dismissed the complaint. The ROVA Partnership
appealed the Court's decision granting summary judgment to the
Virginia Supreme Court. On June 6, 1997 the Virginia Supreme
Court reversed the trial Court's decision to grant the customer's
summary judgment motion and remanded the matter for trial. The
case is set to be tried on October 26, 1998. Regardless of the
outcome, the Company believes ROVA I will operate profitability
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 1997, 1996, and 1995, 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 of directors'
fees as follows: 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 closing prices for the
Common Stock and Depositary Shares of the Company. Each
Depositary Share represents one quarter of a share of Preferred
Stock. The stock traded on the New York Stock Exchange for the
calendar quarters in 1996 as 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 trading was halted.
Public trading for the Common Stock and the Depositary Shares
resumed in February, 1997, via the Over the Counter Bulletin
Board, and quarterly bid prices during 1997 are shown below as
reported by the National Association of Securities Dealers
Composite Feed or other qualified interdealer medium.
The two issues were removed from listing and registration on the
NYSE on April 15, 1997.
- -----------------------------------------------------------
Closing Prices
Common Stock Depositary Shares
- -----------------------------------------------------------
High Low High Low
- -----------------------------------------------------------
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
1997
- ----
First Quarter 7/8 1/2 5 3/4 2
Second Quarter 15/16 17/32 5 1/2 5
Third Quarter 2 1/8 15/16 6 3/4 5 1/8
Fourth Quarter 2 7/16 1 1/16 7 3/8 4 7/8
- -----------------------------------------------------------
Approximate Number of Equity Security Holders:
- ----------------------------------------------------------------
Number of Record Holders
Title of Class (as of February 25, 1998)
- ----------------------------------------------------------------
Common Stock ($2.50 par value) 1,757
Depositary Shares ($0.25 par value) 63
- ----------------------------------------------------------------
Dividends:
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. Common stock dividend payments were not permitted under
the covenants contained in those agreements from January 1993
through December 22, 1994. 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 resulting shareholders' deficit. The thirteen quarterly
preferred stock 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, April 1,
1997, July 1, 1997, October 1, 1997, and January 1, 1998) amount
to $15,884,000 in the aggregate ($27.63 per preferred share or
$6.91 per depositary 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, 1997 of $28,393,000.
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 during the pending of the case.
ITEM 6 - SELECTED FINANCIAL DATA
Westmoreland Coal Company and Subsidiaries
Debtor-in-Possession
Five Year Review
- -------------------------------------------------------------------------------------
1997(1) 1996 1995 1994 1993
- -------------------------------------------------------------------------------------
Consolidated Income (in thousands except per share data)
Statement Information
Revenue - Coal $ 47,182 $ 44,152 $ 109,114 $ 368,715 $ 465,256
- Independent Power
and other 18,650 16,162 15,886 5,443 4,642
- -------------------------------------------------------------------------------------
Total revenues 65,832 60,314 125,000 374,158 469,898
Cost and expenses 66,383 80,104 156,732 391,476 485,878
Pension benefit (5,547) (3,601) (2,440) - -
Unusual charges (credits) (27,214) (11,896) 66,623 (2,100) 79,250
Doubtful accounts recoveries (1,410) (3,449) (967) - -
- -------------------------------------------------------------------------------------
Operating income (loss) 33,620 (844) (94,948) (15,218) (95,230)
Gains on the sales of assets 969 24,238 9,088 41,130 2,000
Interest expense (320) (400) (1,164) (5,425) (4,936)
Minority interest (1,092) (890) (1,368) (583) (748)
Interest and other income 713 3,491 3,761 2,540 2,755
- -------------------------------------------------------------------------------------
Income (loss) before
reorganization items and
income taxes 33,890 25,595 (84,631) 23,027 (95,411)
Reorganization legal and
consulting fees (2,484) - - - -
Reorganization interest income 1,552 - - - -
Income taxes - (575) (1,488) (2,291) (1,487)
- -------------------------------------------------------------------------------------
Income (loss) from
continuing operations 32,958 25,020 (86,119) 20,153 (97,646)
Discontinued operations:
Operating loss (1,284) (1,049) (267) - -
Impairment and loss on
disposal (3,518) - - - -
- -------------------------------------------------------------------------------------
Loss from discontinued
operations (4,802) (1,049) (267) - -
- -------------------------------------------------------------------------------------
Cumulative effect of change
in accounting for
pneumoconiosis benefits - 14,372 - - -
- -------------------------------------------------------------------------------------
Net income (loss) 28,156 38,343 (86,386) 20,153 (97,646)
Less preferred stock dividends:
Declared - - 2,444 1,222 4,888
In arrears 4,888 4,888 2,444 3,666 -
- -------------------------------------------------------------------------------------
Net income (loss) applicable
to common shareholders $ 23,268 33,455 (91,274) 15,265 (102,534)
=====================================================================================
Net income (loss) per share
applicable to common
shareholders $ 3.34 $ 4.80 $ (13.11) $ 2.19 $ (14.74)
Dividends declared per
common share $ - $ - $ - $ - $ -
Weighted average number
of common and common
equivalent shares 6,965 6,965 6,965 6,956 6,954
- -------------------------------------------------------------------------------------
Balance Sheet Information
Working capital (deficit) $ 38,512 $ 10,185 $ (16,458) $ (1,481) $ (6,839)
Net property, plant
and equipment 35,687 42,700 59,868 89,728 146,450
Total assets 181,997 153,971 167,107 229,739 265,498
Total debt 458 1,324 4,593 15,931 44,034
Liabilities subject to
compromise 132,667 136,191 - - -
Shareholders' equity (deficit) 28,393 237 (38,106) 50,724 31,790
- -------------------------------------------------------------------------------------
(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.
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, 1997, 1996 and 1995
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 charges and terms
associated with the United Mine Workers of America Health and
Retirement Funds ("the Funds") , 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 the liabilities to the Funds in the
amounts and on the terms they demand and that substantial value
would be lost if the Company liquidated, including 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 Company believes that different assumptions and methodologies
other than generally accepted accounting principles will be used
by the Bankruptcy Court to determine the amount paid to settle
liabilities and contingencies that will be allowed in the
Chapter 11 reorganization.
Westmoreland has sought to structure a consensual plan of
reorganization and in mid-April, 1997, the Company presented a
settlement proposal to the Funds upon which a consensual plan of
reorganization could be based. While the Company subsequently
had discussions with and provided extensive backup information to
the Funds' financial advisor, and was assured of a prompt reply,
no response or counter proposal was received until October 14,
1997. On that date a meeting between representatives of the
parties was held in Denver, Colorado during which the Funds
presented an entirely different settlement approach to the
Company. The Funds' proposal came after nearly two years' effort
by Westmoreland and the submission of numerous proposals by the
Company over that period. It also followed a September 5, 1997
ruling by the U.S. Bankruptcy Court that denied a motion for
summary judgment filed by the 1992 Benefit Plan and held that the
1992 Benefit Plan's claims are general, unsecured pre-petition
claims, and not entitled to administrative priority. The Company
rejected this opening proposal from the Funds, but attempted to
use certain features of that proposal as a basis for further
discussions with financial advisors to the Funds. These
discussions continued until December 7, 1997 when, at a meeting
between representatives of Westmoreland and representatives of
the Funds, Westmoreland was advised that the financial advisors
to the Funds had no authority to negotiate and that their
statements did not reflect the views of counsel or the trustees
of the Funds, who had not even been briefed on these discussions.
The Funds' counsel demanded that any further negotiations be
between counsel and solely pursuant to the exchange of formal
written proposals. On January 7, 1998, Westmoreland made a
further and written proposal to the Funds and two weeks later
counsel to the Funds informed the Company that the proposal was
unacceptable, declining to provide any explanation or analysis or
whether any elements of the proposal might form the basis for
further discussion. The Funds stated that further discussions
were not likely to be fruitful and that the Funds intended to
file their own plan of reorganization.
On February 2, 1998, the Debtor Corporations filed a plan of
reorganization which provides for, among other things, the
payment in full (or substantially in full) of all allowed claims
entitled to satisfaction ahead of the Company's shareholders
(including the Funds, to the extent they hold allowed claims).
The final plan of reorganization may differ from the plan
currently filed with the Bankruptcy Court.
On February 2, 1998, the Funds filed a competing plan of
reorganization (the "Fund Plan"). Among other things, the Fund
Plan provides for the elimination of all preferred and common
shareholder interests. The Company intends to vigorously oppose
the Fund Plan.
The Bankruptcy Court has established April 15, 1998 as the date
for filing all amendments and supplements to the plans of
reorganization and disclosure statements. Following that date,
the Court will hold hearings to determine the adequacy of the
disclosure statements and if either or both of the statements is
deemed adequate, approval solicitation will take place. If
either plan is approved by those eligible to vote, confirmation
hearings will take place. Neither round of hearings has been
scheduled, although the Court has expressed a desire to move the
process along expeditiously. 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 provided by operating activities was $19,931,000 and
$8,174,000 in 1997 and 1995, respectively. Cash used by
operating activities totaled $14,949,000 in 1996. The increase
of $34,880,000 in cash provided by operations in 1997 compared to
1996 is mainly a result of the following: increased operating
revenues at WRI, decreased expenses relating to heritage costs as
a result of the automatic stay associated with the bankruptcy;
and increased cash distributions from independent power projects.
The reduction in cash provided by operations in 1996 as compared
to 1995 is principally due to the curtailment of eastern mining
operations.
Cash provided by investing activities in 1997, 1996 and 1995 was
$2,093,000, $14,684,000 and $1,868,000, respectively. The
reduction in cash provided from investing activities in 1997 as
compared to 1996 is a result of a decrease in proceeds from sales
of investments and assets in 1997. In 1997, the Company sold
various assets of the Virginia Division for aggregate net
proceeds of $2,757,000. 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
purchase of an additional interest in WRI in 1996. 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 these cash inflows 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.
Cash used in financing activities in 1997, 1996 and 1995 totaled
$151,000, $2,655,000 and $13,784,000, respectively. Cash used in
1997 and 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.
Consolidated cash and cash equivalents at December 31, 1997
totaled $30,664,000. As a result of the Chapter 11 bankruptcy
filings, the Company is not permitted to consolidate the
individual subsidiary cash balances but continues to manage those
balances on their behalf. As of December 31, 1997, the cash
balances at the filed subsidiaries were: Westmoreland Resources,
Inc. ("WRI") - $11,378,000; Westmoreland Coal Sales Company -
$388,000; Westmoreland Terminal Company - $1,594,000; and
Westmoreland Energy, Inc. - $15,817,000. The cash balance for
Westmoreland Coal Company was $1,487,000. At December 31, 1996,
cash and cash equivalents totaled $8,791,000 (including
$3,095,000 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. Such dividends may not be paid while the
Company is in the bankruptcy proceedings. In addition, the
Company had restricted cash, which was not classified as cash or
cash equivalents, of $6,665,000 at December 31, 1997 and
$17,960,000 at December 31, 1996. The $6,665,000 represents an
interest-bearing cash deposit account, which collateralizes the
Company's outstanding surety bonds for its workers compensation
self-insurance programs. The $17,960,000 was comprised of two
items: a $9,960,000 interest-bearing cash deposit account, which
collateralized 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 represented 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 were
restricted as to use and were invested in certificates of deposit
of the bank issuing the letters of credit. The certificates of
deposit collateralized the letters of credit. During the first
quarter of 1997, the letters of credit were rescinded by the
bank. The certificates of deposit were redeemed and the
$8,000,000 was returned to the debt reserve accounts. This
amount continues to be classified as an investment in independent
power projects. The difference in cash collateralizing Workers'
Compensation surety bonds reflects amounts drawn in 1997 to pay
claims pursuant to an approved order of the bankruptcy court.
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 thirteen 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, January 1,
1997, April 1, 1997, July 1, 1997, October 1, 1997 and January 1,
1998) amount to $15,885,000 in the aggregate ($27.63 per
preferred share or $6.91 per depositary 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, 1997 of $28,393,000.
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 recognizes the need to ensure its operations will not
be adversely impacted by Year 2000 software failures. Software
failures due to processing errors potentially arising from
calculations using the Year 2000 date are a known risk. The
Company has made a determination that all of its significant
software applications are Year 2000 compliant.
Results of Operations
1997 Compared to 1996
- -----------------------------------------------------------------
Coal Operations. Coal revenues for 1997 were $47,182,000 as
compared to $44,152,000 in 1996. This increase is a direct
result of an increase of 2,391,000 in tons produced and sold at
Westmoreland Resources, Inc. Expenses associated with coal
revenues decreased as a result of the winding down of operations
at the Virginia Division in 1996 and the subsequent reduction of
costs associated with idle properties.
Independent Power Operations. Equity in earnings of independent
power projects in 1997 were $17,770,000 compared to $15,335,000
in 1996. This 14% increase is attributable to an increase in
project earnings as a result of increased capacity payments, and
reductions in operating and maintenance expenses.
Terminal Operations. The equity in earnings of DTA of $880,000
in 1997 was comparable to the equity in earnings of $827,000 in
1996.
Selling and administrative costs decreased $4,287,000 or 42% as a
result of the continued wind-down of Virginia Division
operations, a further Company wide reduction in personnel and
related expenses, and lower travel, legal and consulting
expenses. All expenses relating to the Company's reorganization
under the Bankruptcy Code are classified separately.
Heritage costs expensed for 1997 were $16,673,000 compared to
$16,686,000 in 1996. The majority of these liabilities are
subject to compromise and will be determined in the bankruptcy
process.
In 1997, the Company recorded an unusual credit of $27,214,000
which included a curtailment gain of $14,199,000 associated with
the anticipated expiration of the 1993 Wage Agreement and a
benefit of $13,015,000 due to a change in the estimated liability
for pneumoconiosis benefits. In 1996, the Company recorded an
unusual credit of $11,896,000, representing an adjustment of
$5,896,000 to the liability for post-retirement medical benefits
recorded 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.
In September, 1997, the Company completed the sale of the Corona
Group which provided technical repair and maintenance services to
the power generating industry. The impairment and loss on
disposal of $3,518,000 in 1997 and the operating losses of
$1,284,000 in 1997, $1,049,000 in 1996 and $267,000 in 1995, have
been reflected as discontinued operations.
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 coal sales from the Virginia Division were
insignificant 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 were $15,335,000 in
1996 compared to $16,968,000 in 1995.
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 is
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 $19,689,000 from
the sale of Virginia Division assets in nine separate
transactions. The gain on these transactions was $24,238,000
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.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Contents
Consolidated Balance Sheets 21
Consolidated Statements of Operations 23
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, 1997 1996
- -------------------------------------------------------------------------------
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 30,664 $ 8,791
Receivables:
Trade 4,483 4,667
Terminated pension plan, net 13,040 -
Other 1,026 2,218
- -------------------------------------------------------------------------------
18,549 6,885
Inventories - 688
Other current assets 402 726
- -------------------------------------------------------------------------------
Total current assets 49,615 17,090
- -------------------------------------------------------------------------------
Property, plant and equipment:
Land and mineral rights 11,684 11,028
Plant and equipment 94,265 137,873
- -------------------------------------------------------------------------------
105,949 148,901
Less accumulated depreciation and depletion 70,262 106,201
- -------------------------------------------------------------------------------
35,687 42,700
Investment in independent power projects 54,152 51,386
Investment in Dominion Terminal Associates (DTA) 18,680 19,841
Workers' compensation bond 6,665 9,960
Prepaid pension cost 3,528 11,021
Excess of trust assets over pneumoconiosis
benefit obligation 11,700 -
Other assets 1,970 1,973
- -------------------------------------------------------------------------------
Total Assets $ 181,997 $ 153,971
===============================================================================
See accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
December 31, 1997 1996
- -------------------------------------------------------------------------------
(in thousands)
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 51 $ 443
Accounts payable and accrued expenses:
Trade 2,894 847
Taxes, other than income taxes 5,208 3,437
Reorganization expenses 1,645 -
Other accrued expenses 1,205 1,588
Reclamation costs 100 590
- -------------------------------------------------------------------------------
Total current liabilities 11,103 6,905
- -------------------------------------------------------------------------------
Liabilities subject to compromise 132,667 136,191
Long-term debt, less current installments 407 881
Accrual for reclamation costs, less current portion 3,182 4,216
Accrual for pneumoconiosis benefits - 127
Other liabilities - 261
Minority interest 6,245 5,153
Commitments and contingent liabilities
Shareholders' equity
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued 575,000 shares 575 575
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued 6,965,328 shares 17,402 17,402
Other paid-in capital 94,641 94,641
Accumulated deficit (84,225) (112,381)
- -------------------------------------------------------------------------------
Total shareholders' equity 28,393 237
- -------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 181,997 $ 153,971
===============================================================================
See accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
Westmoreland Coal Company and Subsidiaries
Debtor-in-Possession
Consolidated Statements of Operations
- -------------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
(in thousands)
Revenues:
Coal $ 47,182 $ 44,152 $ 109,114
Independent power projects -
equity in earnings 17,770 15,335 16,968
Dominion Terminal Associates -
equity in earnings (share of losses) 880 827 (1,082)
- -------------------------------------------------------------------------------------
65,832 60,314 125,000
- -------------------------------------------------------------------------------------
Cost and expenses:
Cost of sales - coal 42,063 50,863 104,120
Depreciation, depletion and amortization 1,715 2,336 14,903
Selling and administrative 5,932 10,219 17,865
Heritage costs 16,673 16,686 19,844
Pension benefit (including termination gain
of $1,512,000 in 1997) (5,547) (3,601) (2,440)
Unusual charges (credits) (27,214) (11,896) 66,623
Doubtful accounts recoveries (1,410) (3,449) (967)
- -------------------------------------------------------------------------------------
32,212 61,158 219,948
- -------------------------------------------------------------------------------------
Operating income (loss) 33,620 (844) (94,948)
Other income (expense):
Gains on sales of assets (including
$10,700,000 from Penn Virginia
Corporation in 1996) 969 24,238 9,088
Interest expense (320) (400) (1,164)
Interest income - 1,455 2,600
Minority interest (1,092) (890) (1,368)
Other income 713 2,036 1,161
- -------------------------------------------------------------------------------------
270 26,439 10,317
- -------------------------------------------------------------------------------------
Income from continuing operations before
reorganization items and income taxes 33,890 25,595 (84,631)
Reorganization Items:
Legal and consulting fees (2,484) - -
Interest income 1,552 - -
- -------------------------------------------------------------------------------------
Income before income taxes 32,958 25,595 (84,631)
Income tax expense - (575) (1,488)
- -------------------------------------------------------------------------------------
Income (loss) from continuing operations 32,958 25,020 (86,119)
Discontinued operations:
Operating loss (1,284) (1,049) (267)
Impairment and loss on disposal (3,518) - -
- -------------------------------------------------------------------------------------
Loss from discontinued operations (4,802) (1,049) (267)
Cumulative effect of change in
accounting for pneumoconiosis benefits - 14,372 -
- -------------------------------------------------------------------------------------
Net income (loss) 28,156 38,343 (86,386)
Less preferred stock dividends:
Declared - - 2,444
In arrears 4,888 4,888 2,444
- -------------------------------------------------------------------------------------
Net income (loss) applicable
to common shareholders $ 23,268 $ 33,455 $ (91,274)
=====================================================================================
(Continued)
Westmoreland Coal Company and Subsidiaries
Debtor-in-Possession
Consolidated Statements of Operations (Continued)
- -------------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------
(in thousands except
per share data)
Income (loss) per share applicable
to common shareholders:
Continuing operations $ 4.03 $ 2.88 $ (13.11)
Discontinued operations (0.69) (.14) -
Cumulative effect of change in
accounting principle - 2.06 -
- -------------------------------------------------------------------------------------
$ 3.34 $ 4.80 $ (13.11)
=====================================================================================
Pro forma amounts assuming the change in the
method of accounting for pneumoconiosis
benefits is applied retroactively:
Net income (loss) applicable
to common shareholders - $ 19,083 $ (96,405)
Income (loss) per share applicable
to common shareholders - $ 2.74 $ (13.84)
=====================================================================================
Weighted average number of common
shares outstanding - basic and diluted 6,965 6,965 6,965
See accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
Westmoreland Coal Company and Subsidiaries
Debtor-in-Possession
Consolidated Statements of Shareholders' Equity (Deficit)
Years Ended December 31, 1995, 1996, and 1997
- ------------------------------------------------------------------------------------------
Class A
Convertible Total
Exchangeable Shareholders'
Preferred Common Paid-In Accumulated Equity
Stock Stock Capital Deficit (Deficit)
(in thousands)
Balance at January 1, 1995 $ 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
Net income - - - 28,156 28,156
- ------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 575 17,402 94,641 (84,225) 28,393
==========================================================================================
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, 1997 1996 1995
- ----------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income (loss) $ 28,156 $ 38,343 $ (86,386)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Equity in earnings of independent power projects (17,770) (15,335) (12,968)
Deferred development fees earned from
independent power projects - - (4,000)
Cash distributions from independent
power projects 14,995 12,971 10,370
Equity earnings from Dominion
Terminal Associates (880) (827) 1,082
Cash generated by Dominion Terminal
Associates facility 4,865 3,786 1,842
Cash contributions to Dominion Terminal
Associates (2,883) (3,187) (2,282)
Depreciation, depletion and amortization 1,715 2,336 14,903
Gain on termination of pension plan (1,512) - -
Unusual charges (credits) (27,214) (11,896) 90,126
Gains on sales of assets (969) (24,238) (9,088)
Minority interest in WRI's income 1,092 890 1,368
Deferred income tax benefit - (579) (404)
Impairment and loss on disposition of
discontinued operations 3,518 - -
Cumulative effect of change in accounting for
pneumoconiosis benefits - (14,372) -
Other 96 2,747 6,786
Changes in assets and liabilities:
Accounts receivable, net of allowance for
doubtful accounts 1,392 (1,331) 16,390
Inventories 660 252 4,389
Accounts payable and accrued expenses 880 (9,037) (26,263)
Income taxes payable - (2,905) (1,058)
Prepaid pension asset (4,035) - -
Accrual for workers' compensation - (6,285) (267)
Accrual for postretirement medical costs - 7,250 5,008
Accrual for pneumoconiosis benefits 1,188 127 (1,133)
Other liabilities 15 (914) (241)
- ----------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities
before reorganization items 3,309 (22,204) 8,174
- ----------------------------------------------------------------------------------------
Changes in reorganization items:
Trade and other liabilities subject to compromise 14,977 7,255 -
Liabilities not subject to compromise 1,645 - -
- ----------------------------------------------------------------------------------------
Net change in reorganization items 16,622 7,255 -
- ----------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 19,931 (14,949) 8,174
- ----------------------------------------------------------------------------------------
(Continued)
Cash flows from investing activities:
Additions to property, plant and equipment (174) (664) (2,923)
Equity funding of independent power projects - - (4,611)
(Increase) decrease in notes receivable - (141) 3,145
Purchase of additional interest in WRI - (4,200) -
Westmoreland Coal Company and Subsidiaries
Debtor-in-Possession
Consolidated Statements of Cash Flows (Continued)
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------
Purchase of subsidiary - - (2,771)
Hampton lease buyout - - (1,103)
Net proceeds from sales of investments and assets 2,757 19,689 10,131
Cash held by subsidiary disposed of (490) - -
- ----------------------------------------------------------------------------------------
Net cash provided by investing activities 2,093 14,684 1,868
- ----------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term debt (151) (1,662) (10,240)
Dividends paid to preferred shareholders - - (2,444)
Dividends paid to minority shareholders
of subsidiary - (993) (1,100)
- ----------------------------------------------------------------------------------------
Net cash used in financing activities (151) (2,655) (13,784)
- ----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 21,873 (2,920) (3,742)
Cash and cash equivalents, beginning of year 8,791 11,711 15,453
- ----------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 30,664 $ 8,791 $ 11,711
========================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 31 $ 228 $ 1,106
Income taxes - 1,140 1,432
In September 1997, the Company completed the sale of the Corona
Group Inc. ("Corona"). Corona was sold for $895,000 in notes
receivable, the Company retained a 15% interest in Corona, and
the purchaser assumed a contingent liability.
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
collateralize the letters of credit and are classified on the
Company's Condensed Consolidated Balance Sheets as an investment
in independent power projects.
See accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements.
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 pay 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 UMWA represented union employees who retired prior to
1976, the Company, prior to the bankruptcy described in Note 1,
provided 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. The Company had no revenue
pertaining to coal sold for others during 1997. Coal revenues
pertaining to coal sold for other companies amounted to
$11,598,000 in 1996 and $16,122,000 in 1995.
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
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("SFAS 128"), which specifies the computation,
presentation and disclosure requirements for earnings per share.
SFAS 128 is effective for periods ending after December 15, 1997
and requires retroactive restatement of earnings per share for
prior periods. The statement replaces the calculation of
"primary earnings per share" with "basic earnings per share" and
redefines the "diluted earnings per share" computation. Adoption
of SFAS 128 did not effect the reported income or loss per common
share for the years ended December 31, 1997, 1996 or 1995.
Reclassifications
Certain prior year amounts have been reclassified to conform to
the current year presentation.
Westmoreland Coal Company and Subsidiaries
Debtor-in-Possession
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
- -----------------------------------------------------------------
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 the Powder River Basin in Eastern Montana; (ii)
the ownership of interests in cogeneration and other non-
regulated independent power plants; and (iii) 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. On February 2, 1998, the Company submitted a
plan of reorganization, which is subject to Bankruptcy Court
review, 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 $2,484,000 in 1997.
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") liabilities subject
to compromise are segregated from those that are not, in the
accompanying balance sheet. The following table sets forth the
liabilities of the Company that are subject to compromise as of
December 31, 1997 and 1996:
December 31, 1997 1996
- -----------------------------------------------------------
Trade and other liabilities $ 7,035,000 $ 7,255,000
Long-term debt 1,607,000 1,607,000
1974 UMWA Pension Plan 13,800,000 13,800,000
Workers' compensation 24,341,000 27,339,000
1992 UMWA Benefit Plan 40,469,000 28,115,000
1993 Wage Agreement Plan 32,067,000 44,619,000
UMWA Combined Benefit Fund - -
Salaried Plan 12,175,000 12,500,000
SERP 1,173,000 956,000
- -----------------------------------------------------------
Total $132,667,000 $136,191,000
===========================================================
The liabilities subject to compromise include obligations to pay
future pension, workers' compensation, health care and other post
retirement benefits ("future benefit obligations"). The
estimates of the present value of these future benefit
obligations are actuarially determined. The actuarial
assumptions underlying these calculations are not subject to
precise estimation. Accordingly, these estimates are subject to
change as new information becomes available.
In determining future benefit obligations for purposes of
preparing financial statements in accordance with generally
accepted accounting principles and the related disclosures,
certain assumptions and methodologies must be used with respect
to some actuarial factors. For other factors, there is a range
of actuarial assumptions that would be considered reasonable.
While the Company believes that the assumptions used in
estimating the present value of these liabilities for future
benefits fall within this acceptable range, there are other
reasonable assumptions which, if used, would reduce those
estimates.
The Company believes that different assumptions and methodologies
will be used by the Bankruptcy Court to determine the amount of
the allowed claims relating to these future benefit obligations,
including a requirement by the Court that the actuarial
calculations give effect to the implementation of the managed
care and cost containment provisions required by the Coal Act.
The Company believes that those assumptions and methodologies
will result in allowed claims significantly less than the
estimated present value of the benefit obligations used in
preparing these financial statements and disclosures.
Long-Term Debt. The Company maintains that to the extent
unsecured long-term debt pertains to transactions arising prior
to the Petition Date, such liabilities constitute liabilities
subject to compromise. The Company believes that substantially
all of its liability for unsecured long-term debt arose and was
incurred prepetition and constitute prepetition claims. A number
of proofs of claim have been filed in the Chapter 11 case in
connection with this liability.
1974 UMWA Pension Plan. The Company maintains that for
bankruptcy purposes, to the extent any withdrawal liability will
be assessed under the Multiemployer Pension Plan Act ("MPPA"),
that liability would be in respect of consideration furnished by
employees of the Company prior to the Petition Date, and that any
such liability was incurred prior to the Petition Date and
constitutes a liability subject to compromise. The Company
believes that except for a small percentage (i.e., 2% to 3%) of
the aggregate withdrawal liability of $13,800,000 estimated by
the 1974 UMWA Pension Plan as of June 30, 1996, and in their proof of
claim, such liability is in respect of consideration furnished by
employees of the Company prior to the Petition Date.
The Company maintains that a withdrawal will not occur until the
completion of certain reclamation work at the Company's Virginia
Division, which is to be performed by UMWA represented employees
and is expected to be completed sometime in the second quarter of
1998. Accordingly, the Company believes that the withdrawal
liability will be determined using an asset valuation date of
June 30, 1997, in accordance with the provisions of MPPA. The
1974 UMWA Pension Plan has not provided the Company with an
updated actuarial estimate of the withdrawal liability calculated
as of June 30, 1997. Accordingly, the amount of the liability
subject to compromise at December 31, 1997 reflects the actuarial
estimate of the withdrawal liability calculated as of June 30, 1996.
The 1974 UMWA Pension Plan and its Trustees have filed a total of
ten proofs of claim against the Debtor Corporations asserting, as
against each of the Debtors: (i) an administrative "priority"
claim in the amount of $13,775,912, based upon an assessment of
withdrawal liability under MPPA; and (ii) an administrative
"priority" claim in the amount of $64,398, which allegedly is
subject to the protections of Bankruptcy Code section 1113. The
Debtor Corporations have filed objections before the Bankruptcy
Court with respect to each of these claims disputing this
liability in its entirety. No hearing has been scheduled on the
Company's objection.
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 for workers'
compensation benefits arose and was incurred prepetition and
constitute prepetition claims.
A number of proofs of claim have been filed in the Chapter 11
case in connection with this liability, including: (i) the
state of West Virginia has filed an unsecured priority proof of
claim in the amount of $55,314,265; (ii) the Commonwealth of
Virginia has filed a secured proof of claim in the amount of
$7,000,000 and an unsecured priority claim in the amount of
$10,000,000; (iii) Travelers Casualty & Surety, formerly known as
the Aetna Casualty & Surety Company, member of Travelers Group,
has filed a secured claim in the amount of $7,015,255 and an
unsecured non-priority claim in the amount of $19,720,988; and
(iv) Safeco Insurance Company of America has filed an unsecured
non-priority claim in the amount of $11,452,473. The Company
currently is evaluating these proofs of claim. The Company
believes that certain of these claims relate to the same
underlying liability and therefore are duplicative, and that
other claims are overstated and should be disallowed, at least in
part.
1992 UMWA Benefit Plan. Until shortly before the Petition Date,
the Company provided health care benefits under its individual
employer plan for beneficiaries (and their dependents) who were
age- and service-eligible to receive benefits under the Coal
Industry Retiree Health Benefits Act ("Coal Act") as of February
1, 1993, and who retired before October 1, 1994. 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
obligations to the 1992 Plan is approximately $114,406,000, not
including any reduction attributable to implementation of the
managed care and cost containment provisions required by the Coal
Act. The liability recorded at December 31, 1997 of $40,469,000,
represents the aggregate amount of the liability, less the
unamortized transition obligation of $59,632,000 and the
unrecognized net loss of $14,305,000 at that date. The Company
believes that for bankruptcy purposes the total amount of
$114,406,000 represents the present value of the liability
subject to compromise at December 31, 1997. Pursuant to
Bankruptcy Code section 502(b), the Bankruptcy Court will be
required to determine the allowed amount of the claims of the
1992 Plan. The preceding estimate does not take into account any
reductions resulting from claims objections, the allowance
process and the litigation described below.
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 Coal Act 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 to the 1992 Plan as and when statements
are submitted by the Trustees. The Company filed answers and
counterclaims in the Bankruptcy Court vigorously opposing this
requested relief.
The Trustees of the 1992 Plan filed a motion with the Bankruptcy
Court requesting that the Bankruptcy Court enter summary judgment
in its favor with respect to substantially all of the relief
requested in the above-referenced adversary proceeding. The
Company filed pleadings in the Bankruptcy Court opposing this
motion. The Bankruptcy Court held a hearing on May 8, 1997 and
took the matter under advisement. On September 5, 1997, the
Bankruptcy Court held that the 1992 Plan's claims related to
Westmoreland's liability to pay for health benefits and the 1992
Plan's claims for pre-funding premiums were prepetition claims,
not entitled to administrative priority. The Bankruptcy Court
also held that Westmoreland was not required to reinstate its IEP
because doing so would effectively elevate the 1992 Plan's claims
above those of other unsecured creditors.
The Bankruptcy Court designated the order on the summary judgment
motion as final, thereby allowing an immediate appeal and the
1992 Plan has appealed. The Bankruptcy Court has set aside June
1, 2 and 3, 1998 for trial of the remaining issues, comprised of
the Company's other defenses and counter claims, not resolved by
the summary judgment ruling. The Company has moved to dismiss
without prejudice certain counterclaims previously asserted by
the Company in the adversary proceedings alleging that the 1992
Plan received a prepetition preference and alleging that the
terms of the Pledge Agreement (described in the next paragraph
below) are ambiguous. In addition, the Company has augmented the
counterclaims to assert that if the 1992 Plan is correct in
contending that the 1992 Plan premiums should be deemed "taxes,"
then those provisions of the Coal Act mandating the payment of
such premiums are an unconstitutional direct tax that is not
apportioned among the states, in violation of the Direct Tax
Clause of Article I of the United States Constitution.
In an effort to reach an accommodation with the Funds prior to
the Petition Date, on or about August 21, 1996, the Company
entered into an Interim Agreement and "Pledge Agreement" with the
1992 Plan and the "Combined Benefit Plan" under which, among
other things, the Company pledged its interest in certain
subsidiaries to secure certain obligations specified therein. 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 disputed 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 this adversary
proceeding.
The 1992 Plan has filed a total of fifteen proofs of claim
against the Debtor Corporations: (i) an unsecured claim (without
designation of an entitlement to priority or security) in the
amount of $1,103,384 based upon alleged "tax assessments" and
liabilities under the Coal Act; (ii) a "protective" proof of
claim (without designation of an entitlement to priority or
security) in the amount of $154,156,912 based upon alleged "tax
assessments" and liabilities arising under the Coal Act; and
(iii) a secured claim against Westmoreland (and an unsecured
claim in each of the subsidiary Debtors) in the amount of
$20,870,000 allegedly based upon liabilities arising under the
Coal Act. The Company has objected to all of these claims. The
allowability of the 1992 Plan's claims also has been raised in
this adversary proceeding.
1993 Wage Agreement Plan. The 1993 Wage Agreement between the
Company and the UMWA requires the Company to establish and
provide health care benefits under an individual employer plan
for certain additional retirees. The Company currently provides
benefits through its individual employer plan to age and service
eligible retirees (and their dependents) who retire prior to the
termination or expiration of the 1993 Wage Agreement. The UMWA
1993 Benefit Plan ("the 1993 Benefit Plan") is a multiemployer
benefit plan providing health care benefits to specified
beneficiaries entitled to such benefits under a UMWA Wage
Agreement where such benefits are not provided by former
employers through individual employer plans. The Company's
liabilities under the 1993 Wage Agreement , whether provided
under the Company's individual employer plan or by the 1993
Benefit Plan, are shown as subject to compromise, by virtue of
the provisions of Bankruptcy Code section 1113, which authorizes
the rejection of collective bargaining agreements. The Company
maintains that any obligation of the Company to provide benefits
under the 1993 Wage Agreement pursuant to its individual employer
plan or to make contributions to the 1993 Plan extend only through
the scheduled expiration of the 1993 Wage Agreement. The preceding
estimate does not take into account any reductions resulting from
claims objection and the litigation discussed below.
The Company estimates that the present value of the Company's
obligation under the 1993 Wage Agreement is approximately
$33,418,000, not including any reduction attributable to
implementation of the managed care and cost containment
provisions required by the Coal Act. The liability recorded
at December 31, 1997 of $32,067,000, represents the aggregate
amount of such a liability, less the unrecognized net loss of
$1,351,000 at that date. The Company believes that for
bankruptcy purposes the total of these amounts represents the
present value of the liability subject to compromise at
December 31, 1997. Pursuant to Bankruptcy Code section
502(b), the Bankruptcy Court is required to determine the
allowed amount of any claims of the UMWA under the 1993 Wage
Agreement.
The UMWA has filed a proof of claim against the Debtor
Corporations, asserting an unsecured non-priority claim in the
amount of $62,189,106. The proof of claim allegedly seeks to
recover the estimated costs of providing medical benefits for
life of former Westmoreland employees who retired during the term
of the 1993 Wage Agreement. The Company believes this claim
covers only the period of time following expiration of the 1993
Wage Agreement on August 1, 1998. The Debtor Corporations have
filed objections to this proof of claim on the ground that none
of the Debtor Corporations has liability under the 1993 Wage
Agreement after August 1, 1998. In addition, the Debtor
Corporations have asserted counterclaims against the UMWA and the
1993 Benefit Plan. In their counterclaims, the Debtor
Corporations seek a declaration (i) that Westmoreland's
obligations to provide medical benefits for certain of its recent
retirees and to make contributions to the 1993 Benefit Plan were
established by and expire with the 1993 Wage Agreement (ii) that
Westmoreland's subsidiaries are not liable for any obligations
created by the 1993 Wage Agreement; and (iii) that the 1993
Benefit Plan was established to provide medical benefits to
retirees who no longer receive benefits from their former
employer, and is therefore required to provide medical benefits
to Westmoreland's recent retirees after expiration of the 1993
Wage Agreement.
UMWA Combined Benefit Plan. The UMWA Combined Benefit Plan is a
multiemployer plan established by the Coal Act for purposes of
providing health care benefits 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 to the Combined Benefit Plan. The Company maintains
that any liability of the Company to the Combined Benefit Plan
arose and was incurred pre-petition and constitutes a pre-
petition liability subject to compromise. The Company has not
recorded a liability for the Combined Benefit Plan, as payments
to this multiemployer plan are accounted for on a "pay-as-you-go"
basis under the provisions of FAS 106. The Company estimates
that the present value of the Company's obligation to the
Combined Benefit Plan is approximately $41,800,000 not including
any reduction attributable to implementation of the managed care
and cost containment provisions required by the Coal Act. The
Company believes that for bankruptcy purposes this amount
represents the present value of the liability subject to
compromise at December 31, 1997. Pursuant to Bankruptcy Code
502(b), the Bankruptcy Court will be required to determine the
allowed amount of any claims of the Combined Benefit Plan. The
preceding estimate does not take into account any reductions
resulting from claims objections and the litigation discussed
below.
On November 3, 1997, the Combined Benefit Plan filed a motion for
allowance and ongoing payment of the premiums as administrative
claims and to withdraw the reference of this issue from the
District Court to the Bankruptcy Court. The Company has opposed
this motion as well as the efforts of the Combined Benefit Plan
to have the matter resolved by the District Court rather than the
Bankruptcy Court. The matter is still pending.
The Combined Benefit Plan has filed two proofs of claim asserting
liability against all of the Debtor Corporations based upon
alleged "tax assessments" and liabilities arising under the Coal
Act: (i) an unsecured non-priority claim in the amount
$63,554,715 plus unliquidated "secured and priority" claims; and
(ii) an unsecured non-priority claim in the amount of $8,583,175
plus unliquidated "secured and priority" claims. The Combined
Benefit Plan asserts liability under Bankruptcy Code section
1114. In a statement accompanying the proof of claim,
the Combined Fund also asserts a secured claim against
Westmoreland in the amount of $4,522,000 allegedly based upon
certain prepetition agreements. Finally, the Combined Benefit
Plan has asserted an "unliquidated" priority claim for
"contributions" to an employee benefit plan under Bankruptcy Code
section 507(a)(4). The Debtor Corporations have objected to each
of these claims. No hearing has been scheduled on the Company's
objections.
Proofs of Claims. The nature of the Chapter 11 cases is to have
all claims against and interests in the Company resolved. In
September, 1997 the Bankruptcy Court set December 1, 1997 as the
deadline for shareholders and non-employee/retiree creditors of
the Company to file proofs of claims and interests. Accordingly,
on September 30, 1997, the Company's Claims Administrator, sent
claim forms to shareholders and non-employee/retiree creditors.
The Company's estimate of liabilities subject to compromise is
subject to change based upon the Company's review of the proofs
of claims which were timely filed.
Salaried Plan and SERP. The Company maintains that to the extent
salaried retiree and SERP 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 for salaried
retiree and SERP benefits arose and was incurred prepetition and
constitute prepetition claims. A number of proofs of claim have
been filed in the Chapter 11 case in connection with these
liabilities.
2. ACQUISITIONS
Westmoreland Resources, Inc.
During 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% minority owner of WRI 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, increasing Westmoreland's ownership to
80%. The transactions were accounted for as purchases 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.
3. DISPOSITIONS
The Corona Group
On September 9, 1997 the Company completed the sale of the Corona
Group which provides technical repair and maintenance services to
the power generating industry. Revenues for the discontinued
operations were $3,814,000, $7,800,000 and $1,458,000 in 1997,
1996 and 1995, respectively. The Company recorded a loss on
disposition of $418,000 during the third quarter of 1997. The
Company previously recorded an impairment of $3,100,000 relating
to its investment in Corona in the second quarter of 1997.
Consideration received from the sale included secured promissory
notes receivable of $895,000, of which $570,000 was paid in 1997.
The remaining $325,000 is due no later than September 10, 1999.
The Company also retained a 15% interest in the Corona Group.
The UMWA 1974 Pension Plan has attempted to assert liability
against the purchaser for the Company's alleged withdrawal
liability under MPPA, on the theory that the purchaser is jointly
and severally liable for that alleged liability. The Company
contests this assertion because, among other things, the sale of
Corona was concluded in September of 1997, before Westmoreland
withdrew from the 1974 UMWA Pension Plan. The determination of
which affiliated companies are part of the withdrawing employer's
"control group" is determined as to the date of the employer's
withdrawal, which has not yet occurred. If, however, the 1974
UMWA Pension Plan were successful in asserting liability against
the purchaser, such imposition of liability could negatively
affect the Company's ability to realize upon its secured
promissory note or its equity interest in the Corona Group.
Virginia Division
In 1997, the Company sold various assets of the Virginia Division
for aggregate net proceeds of $2,757,000 and recorded a gain of
$969,000.
In May 1996, the Company completed a transaction with Penn
Virginia Corporation involving the relinquishment of certain coal
reserves back to Penn Virginia. The Company received a cash
payment of $10,700,000 and recorded a gain in the same amount.
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
of 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 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.
4. UNUSUAL CHARGES (CREDITS)
1995
In the third quarter of 1995, the Company incurred $66,623,000 in
unusual charges (which is net of a $23,500,000 gain on an early
buyout of a coal sales agreement) 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.
The severance and early retirement costs and other costs were
paid in 1995 and 1996 and no liabilities are recorded for such
costs at December 31, 1997. These charges were partially offset
by a $23,500,000 gain realized from the settlement of a coal
sales agreement with the Virginia Division's major coal
customer.
Idling of the Virginia Division resulted in the termination of
740 employees. Of those who were terminated, 624 were UMWA
represented employees involved in all aspects of mining
operations. The remaining 116 employees were salaried and
supervisory personnel.
1996
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 recorded 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. See Notes 10
and 11.
1997
In 1997, the Company recorded an unusual credit of $14,199,000 for
a curtailment gain relating to the 1993 Wage Agreement.
See Note 10. In 1997, the Company also recorded an unusual
credit of $13,015,000 due to a change in the estimated liability
for pneumoconiosis benefits. See Note 9.
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 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.
Roanoke Roanoke
Ft. Valley Valley
Project Ft. Drum Altavista Hopewell Southampton Lupton Rensselaer I II
- -------------------------------------------------------------------------------------------------
Ft. Weldon Weldon
Watertown Altavista Hopewell Southampton Lupton Rensselaer North North
Location: New York Virginia Virginia Virginia Colorado New York Carolina Carolina
- -------------------------------------------------------------------------------------------------
Opera- Opera- Opera- Opera- Opera- Opera- Opera-
Status: tional tional tional Operational tional tional tional tional
- -------------------------------------------------------------------------------------------------
Gross
Megawatt
Capacity: 55.5 MW 70 MW 70 MW 70 MW 290 MW 81 MW 180 MW 50 MW
- -------------------------------------------------------------------------------------------------
WEI
Equity
Ownership 1.25% 30.0% 30.0% 30.0% 4.49% 50.0% 50.0% 50.0%
- -------------------------------------------------------------------------------------------------
Public
Elec- Service
tricity Niagara Virginia Virginia Virginia of Niagara Virginia Virginia
Purchaser Mohawk Power Power Power Colorado Mohawk Power Power
- -------------------------------------------------------------------------------------------------
Fire-
stone Rocky
The Lane Tire Mtn. Patch Patch
Steam Company, & Rubber Hercules, Produce, Rubber Rubber
Host: US Army Inc. Co. Inc. Ltd BASF Company Company
- -------------------------------------------------------------------------------------------------
Fuel Natural Natural
Type: Coal Coal Coal Coal Gas Gas Coal Coal
- -------------------------------------------------------------------------------------------------
Western
Cyprus Westmore- United Thermo Gas TECO TECO
Fuel Amax Coal land Coal Coal United Coal Fuels, Marketing, Coal/ Coal/
Supplier: Co. Company Company Company Inc. Ltd CONSOL CONSOL
- -------------------------------------------------------------------------------------------------
Commercial
Operations
Date: 1989 1992 1992 1992 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 Sheets
December 31, 1997 1996
- -----------------------------------------------------------------
(in thousands)
Assets
Current assets $ 140,510 $ 126,389
Property, plant and equipment, net 670,090 691,928
Other assets 76,238 70,491
- -----------------------------------------------------------------
Total assets $ 886,838 $ 888,808
=================================================================
Liabilities and equity
Current liabilities $ 50,107 $ 51,268
Long-term debt and other liabilities 648,000 677,861
Equity 188,731 159,679
- -----------------------------------------------------------------
Total liabilities and equity $ 886,838 $ 888,808
=================================================================
WEI's share of equity $ 53,803 $ 42,864
Restricted cash - 8,000
Acquisition cost in excess of fair
market value of assets acquired,
net of amortization 1,012 1,060
Other, net (663) (538)
- -----------------------------------------------------------------
WEI's investment in independent
power operations $ 54,152 $ 51,386
=================================================================
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 Statements
For years ended December 31, 1997 1996 1995
- -------------------------------------------------------------
(in thousands)
Revenues $ 270,887 $ 271,237 $ 237,693
Operating income 136,226 137,872 130,192
- -------------------------------------------------------------
Net income $ 54,423 $ 55,382 $ 39,416
=============================================================
WEI's share of earnings $ 17,770 $ 15,335 $ 12,968
=============================================================
WEI performs project development and venture and asset management
services for the partnerships and has recognized related revenues
of $531,000, $499,000 and $454,000 for the years ended December
31, 1997, 1996 and 1995, respectively. Management fees, net of
related costs, are recorded as other income 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.
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.
The ultimate resolution of this matter can not yet be 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 can not 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, Virginia Power contracted to
purchase the electricity generated by ROVA I, one of two units
included in the ROVA partnership, 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 allowed annual number. The customer asserts
that it is not required to do so.
From May 1994 through December 1997, Virginia Power withheld
approximately $14,000,000 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, The
ROVA Partnership 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 the 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 Virginia Power's second summary judgment motion and
effectively dismissed the complaint. The ROVA partnership
appealed the Court's decision granting summary judgment to the
Virginia Supreme Court. On June 6, 1997 the Virginia Supreme
Court reversed the trial Court's decision to grant the customer's
summary judgment motion and remanded the matter for trial. The
case is set to be tried on October 26, 1998. Regardless of the
outcome, the Company believes Roanoke Valley I will operate
profitability and generate positive cash flows.
Rensselaer - LG&E - Westmoreland Rensselaer (LWR), in which the
Company has a 50% interest through an indirect subsidiary, has
executed a master restructuring agreement with Niagara Mohawk
Power Corporation (NIMO) and 15 other independent power companies
(IPPs) effective July 9, 1997. Under this agreement, LWR has an
obligation to attempt to restructure the Rensselaer Cogeneration
Project. Upon completion of a restructuring and satisfaction of
conditions precedent, including all IPPs receiving necessary
approvals and NIMO successfully arranging financing, LWR would
receive consideration from NIMO for terminating its Power
Purchase Agreement. There can be no assurance that the
restructuring will be consummated.
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 Sheets
December 31, 1997 1996
- ----------------------------------------------------------------
(in thousands)
Assets
Current assets $ 5,705 $ 5,488
Non-current assets 89,484 93,140
- ----------------------------------------------------------------
Total assets $ 95,189 $ 98,628
================================================================
Liabilities and partners' deficit
Current liabilities $ 1,760 $ 2,127
Long-term debt and other liabilities 116,109 116,556
Partners' deficit (22,680) (20,055)
- ----------------------------------------------------------------
Total liabilities and partners' deficit $ 95,189 $ 98,628
================================================================
WTC's share of partners' deficit $ (9,667) $ (9,229)
DTA Bonds 26,560 26,560
Goodwill, net of amortization 1,249 1,309
Other, net 538 1,201
- ----------------------------------------------------------------
Investment in DTA $ 18,680 $ 19,841
================================================================
The Company is amortizing the goodwill using the straight-line
method over 30 years.
Income Statements
For the Years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------
(in thousands)
Contribution from Partners $20,164 $ 21,354 $17,922
Total expenses 22,789 24,294 22,582
- -------------------------------------------------------------------
Excess of expenses over
partners' contributions $(2,625) $ (2,940) $(4,660)
===================================================================
Equity in earnings (share
of losses) from DTA $ 880 $ 827 $(1,082)
===================================================================
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 amount at December 31,
1997 and 1996). 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 equity in earnings (share
of losses) from DTA represents the revenue received net of
expenses incurred attributable to 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 and capital expenditures. WTC's total cash
funding requirements, were $2,883,000, $3,187,000 and $2,282,000
for 1997, 1996 and 1995 respectively.
7. DEBT
Long term debt subject to compromise consists of an unsecured
installment contract payable by WRI in the amount of $1,607,000,
including $122,000 due in 1998.
The Company's debt, excluding long-term debt subject to
compromise, is summarized as follows:
December 31, 1997 1996
(in thousands)
Capital lease obligations payable in
installments through
1997 with variable interest rate $ - $ 2
WRI:
Contracts for deed and mortgage notes
payable with interest rates
ranging from 4% to 7%, net of
unamortized discount of $220,000
in 1997 and $273,000 in 1996, secured
by property plant and equipment 458 504
WCI:
Notes Payable (unsecured) - payable to
former Corona shareholders and due
January 1, 1998 with interest at 7.4% - 818
- ----------------------------------------------------------------
Total debt 458 1,324
Less current installments 51 443
- ----------------------------------------------------------------
Long-term debt, less current installments $ 407 $ 881
- ----------------------------------------------------------------
The secured 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, 1997.
Principal payments due on long-term debt, excluding long-term
debt subject to compromise, for the next five years and
thereafter are as follows:
Year Ending Amount
--------------------------------------------------
(in thousands)
December 31, 1998 $ 51
December 31, 1999 55
December 31, 2000 60
December 31, 2001 66
December 31, 2002 72
After December 31, 2002 154
--------------------------------------------------
8. WORKERS' COMPENSATION BENEFITS
The Company was self-insured for workers' compensation benefits
through December 31, 1995. The amount charged to expense for
workers' compensation benefits was $12,890,000 for 1995. Based on
updated actuarial and claims data, $753,000 was charged to
earnings in 1997 and $1,300,000 was credited to earnings during
1996. The cash payments for workers' compensation benefits were
$3,752,000, $5,010,000 and $6,505,000 in 1997, 1996 and 1995,
respectively.
The Company was required to obtain surety bonds in connection
with its self-insured workers' compensation plan. The Company's
surety bond underwriter required cash collateral for such
bonding. As of December 31, 1997 and 1996, $6,665,000 and
$9,960,000 respectively, was held in the cash collateral account.
Beginning in 1996, the Company is covered by insurance for new
workers' compensation claims and is no longer self-insured.
The workers compensation benefits obligation is classified as a
liability subject to compromise. See Note 1 for additional
information.
9. PNEUMOCONIOSIS BENEFITS
The Company is self-insured for federal and state pneumoconiosis
benefits for current and former employees and has established an
independent trust to pay these benefits.
The following table sets forth the funded status of the Company's
obligation:
December 31, 1997 1996
--------------------------------------------------------------
(in thousands)
Actuarial present value of benefit
obligation:
Terminated employees $ 11,900 $ 20,200
Claimants 17,900 20,100
--------------------------------------------------------------
Total present value of benefit obligation 29,800 40,300
Plan assets at fair value, primarily
government-backed securities 41,500 40,173
--------------------------------------------------------------
Excess of trust assets over
pneumoconiosis benefit obligation
(accrual for pneumoconiosis benefits) $ 11,700 $ (127)
==============================================================
The discount rate used in determining the accumulated
pneumoconiosis benefit as of December 31, 1997 and 1996 was 7.0%
and 7.5%, respectively.
As a result of the closing down 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 aforementioned change in circumstances.
In 1997 the Company recorded a benefit of $13,015,000 due to a
change in the estimated liability for pneumoconiosis benefits,
which has been recorded as a component of unusual credits in 1997.
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
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.
During 1995, as a result of the events described in Note 4, the
number of employees and employees accumulating benefits under the
single employer plan, was 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 in 1995.
Prior to 1997, the calculation of the present value of the
Company's obligation under the 1993 Wage Agreement assumed that
the Company would enter into successor wage agreements to the
1993 Wage Agreement and would thereby continue to provide retiree
health benefits to such beneficiaries. During 1997, the Company
determined that it had no intention of entering into a successor
wage agreement. Accordingly, the Company reduced the liability
for the 1993 Wage Agreement and recorded a curtailment gain of
$14,199,000 in 1997, which has been recorded as a component of
unusual credits.
The following table sets forth the actuarial present value of
postretirement benefit obligations and amounts recognized in the
Company's financial statements:
1992 Plan 1993 Wage Agreement Salaried Plan
X----------------------X----------------------X--------------------X
December 31, 1997 1996 1997 1996 1997 1996
--------------------------------------------------------------------------------------------
(in thousands)
Accumulated
postretirement
benefit obligation:
Current retirees and
beneficiaries $(114,406) $(100,078) $(33,418) $(48,386) $(9,932) $(7,876)
Other active plan
participants - - - - (573) (716)
--------------------------------------------------------------------------------------------
Total accumulated
benefit obligation (114,406) (100,078) (33,418) (48,386) (10,505) (8,592)
Unrecognized net
transition obligation 59,632 63,623 - - 1,856 1,980
Unrecognized net loss
or (gain) 14,305 8,340 1,351 3,767 (3,526) (5,888)
--------------------------------------------------------------------------------------------
Accrued postretirement
benefit cost $ (40,469) $ (28,115) $(32,067) $(44,619) $(12,175) $(12,500)
============================================================================================
The discount rate used in determining the accumulated
postretirement benefit obligations was 7.0% and 7.5% at December
31, 1997 and 1996, respectively.
The health care cost trend rate assumed ranges from 6.5% 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 aggregate accumulated postretirement benefit obligation as
of December 31, 1997 by $19,600,000 and the service and interest
cost components of the aggregate net periodic postretirement
benefit cost for 1997 by $1,300,000.
The components of net periodic postretirement benefit cost are as
follows:
1992 Plan 1993 Wage Salaried Plan
Agreement
X---------------------X-----------------------X----------------------X
December 31, 1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------
(in thousands)
Service
cost of
benefits
earned $ - $ - $ - $ - $ - $ 138 $ 48 $ 66 $ 115
Interest
cost on
projected
benefit
obligation 7,893 7,103 6,836 2,250 3,469 2,766 737 614 773
Net
amortization
and deferral 4,461 4,175 3,928 - 109 476 (72) (142) 227
- -------------------------------------------------------------------------------------
Net periodic
Postretire-
ment
benefit
cost $12,354 $11,278 $10,764 $ 2,250 $ 3,578 $ 3,380 $ 713 $ 538 1,115
=====================================================================================
Cash payments for medical and life insurance benefits were
$1,823,000, $8,929,000 and $9,722,000 in 1997, 1996 and 1995,
respectively.
Multiemployer Plan
Until shortly before the commencement of the Chapter 11 cases for
the Debtor Corporations, the Company made payments to the
Combined Benefit Plan, which is a multiemployer health plan
neither controlled nor administered by the Company. The Combined
Benefit Plan is designed to pay benefits to UMWA workers (and
dependents) who retired prior to 1976. 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 Act to make monthly
premium payments into the Combined Benefit Plan. These payments
were based on the number of beneficiaries assigned to the
Company, the Company's UMWA employees who retired prior to 1976
and the Company's pro-rata assigned share of UMWA retirees whose
companies are no longer in business. The Company expenses
payments to the Combined Benefit Plan when they are made.
As a result of the bankruptcy, no payments were made during 1997.
Payments of $2,805,000 and $5,368,000 were made in 1996 and 1995,
respectively.
All of the postretirement medical and life insurance benefit
obligations discussed above are classified as liabilities subject
to compromise. See Note 1 for additional information.
11. RETIREMENT PLANS
Defined Benefit Pension Plans
During 1997 the Company elected to terminate its over-funded non-
contributory defined benefit pension plan. Pension income for
1997 included a gain on termination of approximately $1,512,000.
Upon termination of the plan, the excess fund assets reverted to
the Company. The reversion to the Company was approximately
$13,040,000, net of excise taxes payable of $3,135,000. The
Company received $12,500,000 of the funds and paid the excise
taxes in February, 1998.
Simultaneous with the termination of this plan, the Company
adopted a new plan that provides for essentially the same
benefits as the old plan for current employees. For the purpose
of the benefit calculation under the new plan, credited service
under the old plan is combined with credited service under the
new plan and a benefit amount is calculated. The amount of the
accrued benefit under the old plan, calculated as of the old plan
termination date, is subtracted to arrive at the benefit amount
payable under the new plan.
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 following table sets forth the funded status of the Company's
new plan as of December 31, 1997 and the funded status of the
Company's old plan as of December 31, 1996 and the amounts
recognized in the Company's financial statements:
December 31, 1997 1996
- ---------------------------------------------------------------
(in thousands)
Actuarial present value of
benefit obligations:
Total vested and accumulated
benefit obligations $ (205) $(54,166)
- ---------------------------------------------------------------
Projected benefit obligation (1,429) (55,563)
Plan assets at fair value, primarily
listed stocks and fixed
income investments 5,225 84,177
- ---------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 3,796 28,614
Unrecognized transition assets (42) (2,192)
Unrecognized prior service cost 264 309
Unrecognized net gain (490) (15,710)
- ---------------------------------------------------------------
Prepaid pension cost $ 3,528 $ 11,021
===============================================================
The components of net periodic
pension income for
years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------
(in thousands)
Service cost for benefits earned
during the period $ 185 $ 267 $ 516
Interest cost on projected benefit
obligation 3,959 4,103 4,307
Actual return on plan assets (7,393) (7,082) (18,286)
Net amortization and deferral (786) (889) 11,023
- --------------------------------------------------------------------
Net periodic pension income $ (4,035) $ (3,601) $ (2,440)
====================================================================
Projected benefits have been discounted using a rate of 7.0% and
7.5% at December 31, 1997 and 1996, respectively. The rate of
increase in future compensation levels for the SERP was 5.0% at
December 31, 1997 and 1996. The expected long-term rate of
return on assets was 9.0% at December 31, 1997 and 1996.
During 1995, as a result of the events described in Note 4, the
number of employees, and employees accumulating benefits under
the plan, was significantly reduced. The impact of these events
has been accounted for as a plan curtailment. A charge of
$34,285,000 was included in unusual charges in 1995 as a result
of the curtailment.
Supplemental Executive Retirement Plan
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.
The following table sets forth funded status of the SERP and
amounts recognized in the Company's financial statements.
December 31, 1997 1996
- -----------------------------------------------------------------
(in thousands)
Actuarial present value of
benefit obligations:
Accumulated benefit
obligations, including
vested benefits of $712,000
and $677,000 in 1997 and
1996, respectively $ (1,015) $ (955)
- -----------------------------------------------------------------
Projected benefit obligation (1,328) (1,266)
Unrecognized prior service cost 810 810
Unrecognized net gain (655) (500)
- -----------------------------------------------------------------
Accrued pension cost included
in other liabilities $ (1,173) $ (956)
=================================================================
The components of net periodic SERP
expense for year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------
(in thousands)
Service cost for benefits earned
during this period $ 59 $ 59 $ 54
Interest cost on projected
benefit obligation 86 79 94
Net amortization and deferral 71 73 77
- ---------------------------------------------------------------
Net periodic SERP cost $ 216 $ 211 $ 225
===============================================================
Projected benefits have been discounted using a rate of 7.0% and
7.5% at December 31, 1997 and 1996, respectively. The rate of
increase in future compensation levels for the SERP was 5.0% for
1997 and 1996.
1974 UMWA Pension Plan
The Company is required under the 1993 Wage Agreement to pay
amounts based on hours worked or tons processed (depending on the
source of the coal) in the form of contributions to the 1974 UMWA
Pension Plan with respect to UMWA represented employees. The
1974 UMWA Pension Plan is neither controlled nor administered by
the Company. The amount charged to expense, including payments
made by the Company on behalf of certain contract miners, was
$19,800,000, for the year ended December 31, 1995.
Under MPPA, a company contributing to a multiemployer plan is
liable for its share of unfunded vested liabilities upon
withdrawal from the plan. In connection with the cessation of
mining operations described in Note 4, the Company recorded an
estimate of the liability the Company would incur upon withdrawal
from the 1974 UMWA Pension plan. Unusual charges in 1995
included $19,800,000 relating to this liability. The actuarial
estimate of this obligation decreased by $6,000,000 in 1996,
which was reflected as an unusual credit to earnings in 1996. The
1974 UMWA Pension Plan has not provided the Company with an updated
acturial estimate of the withdrawal liability calculated as of
June 30, 1997, the date of the asset valuation the Company believes
will be used to determine the actual withdrawal liability, in
accordance with the provisions of MPPA.
Early Retirement Incentive Program
The Board of Directors approved the establishment of a voluntary
Early Retirement Incentive Program during the first quarter of
1995. The program was implemented during the third quarter
of 1995 and is now complete. Senior Management and employees of
WEI were not eligible to participate in this program.
Participating employees who received benefits under the program
were not eligible for benefits under the severance policies of
the Company or its subsidiaries. The Company recorded a charge
of $9,069,000 for benefits paid to employees participating in the
program in 1996 and 1995.
The SERP and the 1974 UMWA Pension Plan obligations discussed
above are classified as liabilities subject to compromise. See
Note 1 for additional information.
12. INCOME TAXES (BENEFIT)
As discussed in Note 2, on October 1, 1996, the Company increased
its ownership in WRI to 80%, the threshold for including WRI in
the Company's consolidated income tax return. WRI filed a
separate tax return for the nine months ended September 30, 1996
and for 1995 and the Company was not able to offset the Company's
net operating loss carryforwards against WRI's taxable income.
Income tax expense attributable to income (loss) before income
taxes consists of:
1997 1996 1995
------------------------------------------------------
(in thousands)
Federal:
Current $ - $ 1,150 $ 1,863
Deferred - (579) (334)
------------------------------------------------------
- 571 1,529
State:
Current - 4 29
Deferred - - (70)
------------------------------------------------------
- 4 (41)
------------------------------------------------------
Income taxes $ - $ 575 $ 1,488
======================================================
Income tax expense attributable to income (loss) before income
taxes differed from the amounts computed by applying the
statutory Federal income tax rate of 34% to pretax income (loss)
from continuing operations as a result of the following:
1997 1996 1995
----------------------------------------------------------------
(in thousands)
Computed tax expense (benefit)
at statutory rate $ 9,059 $ 13,036 $ (28,400)
Increase (decrease) in tax
expense resulting from:
Percentage depletion (402) (206) (131)
State income taxes, net - - (70)
Change in valuation
allowance for net deferred
tax assets ( 8,657) (12,255) 30,004
Other - - 85
----------------------------------------------------------------
Income tax expense (benefit) $ - $ 575 $ 1,488
================================================================
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1997 and 1996 are presented below:
1997 1996
---------------------------------------------------------------
Deferred tax assets: (in thousands)
Net operating loss carryforwards $ 76,484 $ 77,148
Investment tax credit carryforwards 4,500 4,500
Accounts receivable, due to allowance
for doubtful accounts 6,667 6,667
Deferred income 117 117
Accruals for the following:
Workers' compensation 8,028 9,295
Postretirement benefit obligation 28,979 29,075
Pneumoconiosis benefits 4,926 4,692
Reclamation costs 1,436 1,634
Other (2,346) 3,678
---------------------------------------------------------------
Total gross deferred assets 128,791 136,806
Less valuation allowance (112,629) (118,985)
---------------------------------------------------------------
Net deferred tax assets $ 16,162 $ 17,821
---------------------------------------------------------------
Deferred tax liabilities:
Plant and equipment, differences due to
depreciation and amortization $ (13,983) $ (13,924)
Prepaid pension cost (1,966) (3,684)
Advanced royalties, capitalized for
financial purposes (110) (110)
Unamortized discount on long-term debt
for financial purposes (103) (103)
---------------------------------------------------------------
Total gross deferred tax liabilities (16,162) (17,821)
---------------------------------------------------------------
Net deferred tax liability $ - $ -
===============================================================
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. Following
are the expiration date and amounts of the net operating loss
carryforwards for both regular and alternative minimum tax
purposes:
Expiration
Date Regular Tax Minimum Tax
-----------------------------------------
(in thousands)
1998 $ 1,735 -
1999 8,316 -
2000 8,314 -
2001 21,618 -
after 2001 184,239 104,163
-----------------------------------------
Total $ 224,222 $ 104,163
=========================================
The Company has investment tax credit carryforwards of
$4,500,000 which expire over the period from 1998 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, 1997 and 1996, the Company had outstanding
6,965,328 shares of Common Stock and 575,000 shares of Series A
Convertible Exchangeable Preferred Stock (the "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 Depositary Shares, each
representing one quarter of a share of Preferred Stock. The
Preferred Stock has a liquidation preference equivalent to $25
per Depositary Share and dividends accumulate on the Preferred
Stock at 8.5% per annum, equivalent to $2.125 per year per
Depositary Share. There are no mandatory sinking fund
requirements on the Preferred Stock.
The Preferred Stock is convertible at the option of the holder at
any time, unless previously redeemed, into shares of Common Stock
of the Company at a rate equivalent to 1.708 shares of Common
Stock for each Depositary Share. The Preferred Stock 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 Depositary Share, if redeemed during the twelve month period
beginning July 1, 1996, and thereafter at prices declining
annually to an amount equivalent to $25 per Depositary Share on
and after July 1, 2002, plus, in each case, an amount equal to
the sum of all accrued and unpaid dividends.
The Preferred Stock may be exchanged at the option of the
Company, as a whole only, on any dividend payment date commencing
July 1, 1996, for 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 thirteen quarterly preferred stock
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, January 1, 1997, April 1, 1997, July 1,
1997, October 1, 1997, and January 1, 1998) amount to $15,884,000
in the aggregate ($27.63 per preferred share or $6.91 per
depositary 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, 1997 of $28,393,000.
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 on either
its common or preferred shares.
14. INCENTIVE STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS
As of December 31, 1997, 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 of those plans. Information for
1997, 1996 and 1995 with respect to the Plans is as follows:
Stock Weighted
Issue Stock Apprecia- Average
Price Restricted Option tion Exercise
Range Stock Shares Rights Price
- -------------------------------------------------------------------------------------
5.75-
Outstanding at December 31, 1994 18.50 - 411,855 15,269 10.97
Granted on December 5, 1995 2.63 5,000 255,000 - 2.63
5.75-
Expired or forfeited in 1995 18.50 - (120,956) (12,503) 11.81
- -------------------------------------------------------------------------------------
2.63-
Outstanding at December 31, 1995 18.50 5,000 545,899 2,766 6.89
2.63-
Expired or forfeited in 1996 18.50 - (56,342) - 6.93
- -------------------------------------------------------------------------------------
Outstanding as of $ 2.63-
December 31, 1996 18.50 5,000 489,557 2,766 6.88
$ 2.63-
Expired or forfeited in 1997 14.50 - (140,471) (2,766) 6.10
- -------------------------------------------------------------------------------------
Outstanding as of $ 2.63-
December 31, 1997 18.50 5,000 349,086 - 7.20
=====================================================================================
Over the periods in which the SARs become exercisable, the
Company accrued as expense the amount by which the market price
exceeds the various grant prices of the SARs outstanding. This
amount was adjusted in subsequent periods for increases or
decreases in the market price of the stock. In 1997, 1996 and
1995 no adjustments were recorded.
The Company applies APB 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:
1997 1996 1995
----------------------------------------------------------------
(in thousands, except
per share data)
Net Income (loss):
As reported $23,268 $33,455 $(91,274)
Pro forma $23,189 $33,376 $(91,412)
Basic and diluted earnings
(loss) per share:
As reported $ 3.34 $ 4.80 $ (13.11)
Pro forma $ 3.33 $ 4.79 $ (13.12)
The fair value of each option grant was 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. There were
no options granted in 1997 or 1996.
15. BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into three
segments: coal, independent power operations and other. 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 independent power operations includes
the ownership of interests in cogeneration and other non-
regulated independent power plants. The other segment consists
of the leasing of capacity at Dominion Terminal Associates, a
coal storage and vessel loading facility. Summarized financial
information by segment for 1997, 1996 and 1995 is as follows:
1997 1996 1995
- -------------------------------------------------------------------
(in thousands)
Revenues:
Coal $ 47,182 $ 44,152 $ 109,114
Independent power operations 17,770 15,335 16,968
Other 880 827 (1,082)
- -------------------------------------------------------------------
$ 65,832 $ 60,314 $ 125,000
===================================================================
Operating income (loss):
Coal $ 2,593 $ (1,305) $ (92,969)
Independent power operations 15,126 13,569 16,148
Other (615) (611) (262)
Corporate 16,516 (12,497) (17,865)
- -------------------------------------------------------------------
$ 33,620 $ (844) $ (94,948)
===================================================================
Total assets:
Coal $ 53,420 $ 46,495 $ 63,587
Independent power operations 70,546 53,276 57,031
Other 20,683 20,636 20,055
Corporate 37,348 25,786 20,075
Discontinued operations - 7,778 6,359
- -------------------------------------------------------------------
$ 181,997 $153,971 $ 167,107
===================================================================
Depreciation, depletion
and amortization:
Coal $ 1,499 $ 1,687 $ 14,712
Independent power operations 96 100 93
Other 60 73 4
Corporate 60 129 94
Discontinued operations 139 347 -
- -------------------------------------------------------------------
$ 1,854 $ 2,336 $ 14,903
===================================================================
Capital expenditures:
Coal $ 151 $ 338 $ 2,228
Independent power operations 8 28 149
Other - - -
Corporate 15 85 456
Discontinued operations - 213 90
- -------------------------------------------------------------------
$ 174 $ 664 $ 2,923
===================================================================
16. COMMITMENTS AND CONTINGENCIES
Protection of the Environment
The Company believes its mining operations are 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 calls for the Company to pay
approximately $1,700,000 over a 15 year period which began in
December 1990, determines the Company's maximum liability for
reclamation costs associated with final mine closure. 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 not exceed 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 such charges
against earnings in 1997 or 1996. The entire charge in 1995
related to idling of the Company's Virginia Division and Pine
Branch operations. The Company estimates the total cost for the
reclamation of its Virginia Division properties is $2,871,000,
all of which has been accrued as of December 31, 1997. No
assurance can be given that the amount accrued accurately
reflects the actual cost of reclamation activities that may be
required. Costs incurred to perform reclamation in 1997, 1996,
and 1995 amounted to $257,000, $148,000 and $895,000
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 $2,204,000,
$1,707,000 and $1,755,000 in 1997, 1996 and 1995, respectively.
In the event final reclamation is not performed in accordance
with state and federal regulations, the Company has $12,000,000
and $5,381,000 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 $4,804,000 and are collateralized by
first and subordinated liens on certain assets of Adventure.
Cash payments of $1,410,000 were received during 1997 and the
Company is seeking to recover certain remaining amounts. As of
December 31, 1997, all remaining claims against Adventure have
been fully reserved due to the uncertainty of collection.
Lease Obligations
The Company leases coal lands from 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 reserves are exhausted.
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
$3,742,000, $3,438,000 and $5,844,000 in 1997, 1996 and 1995,
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, 1997 are
as follows:
---------------------------
(in thousands)
1998 $ 350
1999 344
2000 251
2001 129
---------------------------
Long-Term Sales Commitments
The following 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)
----------------------------------
1998 6,200
1999 6,200
2000 3,700
2001 3,700
2002 3,700
----------------------------------
17. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company leases coal lands from Penn Virginia Coal Company
whose parent company, Penn Virginia Corporation ("Penn Virginia")
held a 10.85% voting interest in the Company at December 31,
1996. In January, 1997 Penn Virginia reduced its ownership
interest in the Company to an insignificant level and is no
longer considered an affiliate. Amounts paid to Penn Virginia
for royalties on coal were $1,301,000 and $5,325,000 for the
years ended December 31, 1996 and 1995 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
$24,295,000, $16,552,000 and $15,719,000 in 1997, 1996 and 1995,
respectively.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 are as
follows:
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------
(in thousands except per share data)
1997
Revenues $ 16,534 $ 16,688 $ 18,994 $ 13,616
Costs and expenses (1) (14,216) (14,226) (14,172) 10,402
---------------------------------------------
Operating income 2,318 2,462 4,822 24,018
Gain (loss) on sale
of assets (2) (905) 732 99 1,043
Income from continuing
operations before
reorganization items
and income taxes 2,478 3,542 4,978 22,892
Reorganization items:
Legal and consulting fees (750) (1,034) (900) 200
Interest income 324 327 403 498
Income from continuing
operations 1,880 2,766 4,320 23,992
Loss from discontinued
operations (521) (3,320) (813) (148)
Net income (loss) 1,359 (554) 3,507 23,844
Less preferred stock
dividends in arrears (1,222) (1,222) (1,222) (1,222)
-----------------------------------------------
Net income applicable to
common shareholders $ 137 $ (1,776) $ 2,285 $ 22,622
===============================================
Net income (loss) per
share applicable to
common shareholders:
Continuing operations .09 .22 .45 3.27
Discontinued operations (.07) (.48) (.12) (.02)
-----------------------------------------------
$ .02 $ (.26) $ .33 $ 3.25
===============================================
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)
1996
Revenues $ 13,752 $ 13,627 $ 14,835 $ 18,100
Costs and expenses (1) (20,452) (21,242) (19,786) 322
-----------------------------------------------
Operating income (loss) (6,700) (7,615) (4,951) 18,422
Gain on sale of assets (2) 2,441 14,740 3,081 3,976
Income from continuing
operations 822 11,403 2,544 24,623
Income (loss) from
discontinued operations (366) (338) (383) 38
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
pneumoconiosis benefits 14,372 - - -
As adjusted 12,668 10,447 1,543 13,685
Less preferred stock
dividends in arrears 1,222 1,222 1,222 1,222
-----------------------------------------------
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------
(in thousands except per share data)
1996 Continued
Net income applicable to
common shareholders $ 11,446 $ 9,225 $ 321 $ 12,463
==============================================
Net income (loss)
applicable to common
shareholders:
Continuing operations (.37) 1.37 .11 1.78
Discontinued operations (.05) (.05) (.06) .01
Cumulative effect of
change in accounting
principle 2.06 - - -
-----------------------------------------------
$ 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
===============================================
(1)Refer to Note 4 to the Consolidated Financial Statements for
information related to the unusual charges which are included
in costs and expenses.
(2)Refer to Note 3 to the Consolidated Financial Statements for
information on the sale of assets.
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,
1997 and 1996, 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,
1997. 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements,
the Company changed its method of accounting for pneumoconiosis
benefits in 1996.
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 matters 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
April 2, 1998
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
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. Information in the following
table, other than the identity of Directors, is as of March 1,
1998.
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. Due to the Company's ongoing Chapter 11 proceeding, an
annual meeting of shareholders was not held in 1997. No family
relationships exist among the Directors.
- ----------------------------------------------------------------
Business
Experience During Director
Past Five Years of the
and Other Company Committee
Name Directorships Age Since Memberships (1)
- ----------------------------------------------------------------
Pemberton Chairman of the 66 1977 Executive;
Hutchinson (2) 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
and Teleflex, Inc.
- -----------------------------------------------------------------
Robert E. Chairman of the 57 1996
Killen (2) 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. Retired Partner 72 1973 Executive;
Klaus (2) with Pepper, Compensation
Hamilton & and Benefits
Scheetz, (Chairman);
attorneys. Audit;
Independent
Directors
- ------------------------------------------------------------------
Thomas W. Managing Director, 47 1995 Audit;
Ostrander (2) Salomon Smith Independent
Barney 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. Chairman of the 51 1992 Executive
Seglem (2) 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. Director of United 42 1995 Audit;
Sight (2) 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. Director of 70 1978 Executive;
Tuttle (2) 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
The following table shows the executive officers of the Company,
their ages as of March 1, 1998, 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. 51 Chairman of the 1996
Seglem Board 1992
President and 1993
Chief Executive
Officer
(2) Theodore E. 57 Senior Vice
Worcester President of 1995
Law and 1992
Administration, 1996
General Counsel and
Corporate Secretary
(3) R. Page 62 Senior Vice 1997
Henley, Jr. President-
Acquisition and 1992
Development,
Senior Vice 1995
President-Government
Affairs and
President
Westmoreland Coal
Sales Company.
(4) Robert J. Jaeger 49 Senior Vice 1996
President of Finance
and Treasurer
- -------------------------------------------------------------------
___________________________
(1)Mr. Seglem was elected President and Chief Operating Officer
of the Company in June 1992, and a Director of the Company in
December 1992. In June 1993, he was elected Chief Executive
Officer, 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. Worcester was elected Senior Vice President in June 1992
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.
(3)Mr. Henley was elected Senior Vice President-Government
Affairs in June 1992. In 1993, Mr. Henley was 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. In
1997, Mr. Henley's duties were expanded to include
acquisitions, and his title was revised accordingly. He is a
member of the bars of West Virginia and Virginia.
(4)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 and relinquished the position of
Controller in January 1998. Mr. Jaeger is a certified public
accountant.
Information About the Board and Committees
The Board of Directors held seven meetings during 1997. 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 one
time during 1997. 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, did not meet during 1997. 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 1997.
The Committee of Independent Directors, composed of Messrs.
Ostrander (Chairman), Tuttle, Klaus and Sight during this period,
did not meet during 1997. 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 between the Company and any affiliated entities, 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 1997 were timely filed.
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth information for 1997, 1996 and
1995 as to the person who held the position of Chief Executive
Officer during 1997 and as to the other three most highly
compensated executive officers at the end of 1997 whose total
salary and bonus for 1997 exceeded $100,000.
SUMMARY COMPENSATION TABLE (3)
Long Term Compensation
Annual Compensation Awards
X--------------------------X-----------------------X
Other Restricted Stock
Annual Stock Options
Name and Compen- Award(4) (#Common All Other
Principal Year Salary Bonus(1) sation ($) Shares) Compen-
Positions sation(2)
- ---------------------------------------------------------------------------------------
Christopher K. 1997 334,802 - - - - 21,655
Seglem, 1996 334,802 - 22,000 - - 13,200
Chairman of 1995 290,004 162,402 - - 75,000 99,973
the Board,
Chief
Executive
Officer and
President
- ---------------------------------------------------------------------------------------
R. Page 1997 175,000 - - - - 39,834
Henley, 1996 175,000 - - 12,731 - 3,750
Senior Vice 1995 156,169 74,961 - - - 5,195
President -
Government
Relations,
President,
Westmoreland
Coal Sales
Company, Inc.
- ---------------------------------------------------------------------------------------
Robert J. 1997 161,805 - - - - 5,011
Jaeger, 1996 156,000 - 1,393 - - 83,864
Senior Vice 1995 38,016 - - 20,000 4,206
President - 84,175(4)
Finance and
Treasurer
- ---------------------------------------------------------------------------------------
Theodore E. 1997 179,644 - - - - 11,356
Worcester, 1996 179,644 - 4,839 - - 3,750
Senior Vice 1995 156,208 74,980 - - 20,000 40,476
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, subject to certain
alternative conditions, one of which was the realization by
the Company of a positive cash flow from operations in any
fiscal year. The deferred portion became payable in 1998 upon
satisfaction of this condition in 1997, but has not been paid
as a result of the Company's Chapter 11 proceeding.
(2)All Other Compensation for the named executive officers in 1997
consisted of directors' fees, Company contributions to the
401(k) salary savings plan (the "Plan"), insurance premiums
and financial planning fees paid by the Company, one month's
salary for relocation and moving and temporary living
expenses. Mr. Seglem received directors' fees of $10,000.
The Company contributed $4,000 to the Plan during 1997 on
behalf of each of Messrs. Seglem, Henley, Jaeger and
Worcester. One month's salary in the amount of $14,583 and
reimbursement of moving and temporary living expenses of
$11,611 was paid Mr. Henley in 1997 under the Company's
relocation policy. The Company paid life insurance premiums
of $7,059, $9,640 and $6,527 for Messrs. Seglem, Henley and
Worcester, respectively, and paid financial planning fees of
$596, $1,011 and $829 for Messrs. Seglem, Jaeger and
Worcester, respectively.
(3)The Company has an Executive Severance Policy, amended with
the consent of the participants, which covers each 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. 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, 1997:
Aggregated Option/SAR Exercises in the last
Fiscal Year and FY-End Option/SAR Values
- ---------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1997 December 31, 1997
- ---------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------
Christopher K. Seglem 151,192 37,500 -0- -0-
R. Page Henley 24,192 0 -0- -0-
Robert J. Jaeger 10,000 10,000 -0- -0-
Theodore E. Worcester 55,000 10,000 -0- -0-
- ---------------------------------------------------------------------------------
No member of the named executive officer group exercised any
options during 1997, or held any unexercised SARs as of December
31, 1997.
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.
The Plan was adopted effective December 1, 1996 as a qualified
replacement plan for a previous plan (the "Previous Plan"), which
was terminated effective November 30, 1996 (the "Previous Plan
Termination Date"). 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. For the purpose of the benefit
calculation under the Plan, credited service under the Previous
Plan is included with credited service under the Plan and a
benefit amount is calculated using the above formula. Then the
amount of the accrued benefit under the Previous Plan, calculated
as of the Previous Plan Termination Date, is subtracted to arrive
at the benefit amount payable under the Plan.
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, 1997, no contribution is
required or permitted to this Plan for 1997, 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
-------------------------------------------------------
One year and one month of service has been credited under the
Plan subsequent to the Pension Plan Termination Date for each
Messrs. Seglem, Worcester, Henley, and Jaeger. Years of credited
service under the Previous Plan as of the Previous Plan
Termination Date for the following individuals and the amounts
received by them from the previous plans in December 1997 in
connection with the plan termination were: Mr. Seglem - 16
years, three months, $175,354, Mr. Worcester - five years, 11
months, $71,993, Mr. Henley - 12 years, 10 months, $261,589 and
Mr. Jaeger - one year, seven months, $10,603.
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 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 under the Plan.
Compensation of Directors
The attendance fee for the Chairman of the Board of Directors and
for each committee chairman attending a Board or committee
meeting was $1,250, and the attendance fee for all other
directors and committee members was $1,000 per meeting. The
attendance fees paid to Mr. Seglem are included in the All Other
Compensation column of the Summary Compensation Table.
For 1997, 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. Mr. Killen
elected to be paid in Company stock and the other Directors were
paid in cash. The stock has not yet been issued to Mr. Killen.
Mr. Hutchinson retired as an employee of the Company as of
December 31, 1993. Mr. Hutchinson was entitled to receive
benefit payments from the Company's SERP in 1997 (see discussion
under Retirement Plan, supra) although such payments were not
made as a result of the Company's Chapter 11 proceeding.
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions
No member of this Committee is a present or former 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.
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 any class
of the Company's voting securities as of December 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 407,200(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. 809,958(4) 11.6 %
1199 Lancaster Avenue
Berwyn, PA 19312
Riverside Capital Advisers, Inc. 641,000(5) 27.9 %
1650 SE 17th Street
Suite 204
Fort Lauderdale, FL 33316
Ryback Management Corp. 279,000(6) 12.1 %
7711 Carondelet Ave. Suite 700
P.O. Box 16900
St. Louis, Missouri 63105
James W. Sight 349,000(7) 5.0 %
8500 College Boulevard
Overland Park, KS 66210
Wynnefield Partners 691,700(8) 9.9 %
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 National 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. Mr. Hoffman also reports 141,500 common shares held
as a personal investment and 101,100 common shares held in
discretionary accounts for which he has shared dispositive
power, but no voting power. These common shares, together
with the 320,591 common shares issuable upon conversion of the
187,700 depositary shares, would represent 7.7% of the total
outstanding common shares (assuming conversion of such
depositary shares).
(4)Includes 2,000 shares owned by Robert E. Killen as a personal
investment. Mr. Killen serves as Chairman, CEO and sole
shareholder of The Killen Group, Inc., a registered investment
adviser. The Killen Group reports sole voting power over
591,378 shares and dispositive power over 752,958 shares. Mr.
Killen also reports that his spouse owns 50,000 shares of
common stock as a personal investment. Also see Notes 8, 9
and 11 to the following table.
(5)Shares held in 13 customer accounts for which Riverside
Capital Advisers, Inc. provides investment advice. These
shares are convertible into 1,094,828 common shares,
representing 13.6% of the total outstanding common shares
(assuming such conversion). Riverside reports that one
account, the Hoechst Celanese Corp. Employee Benefit Trust,
contains 446,250 depositary shares, representing 19.4% of the
total outstanding depositary shares, and which are convertible
into 762,195 common shares, representing 9.9% of the total
outstanding common shares (assuming such conversion).
(6)Shares held in a fiduciary capacity for its clients, including
shares held by Lindner Investment Series Trust, an affiliated
registered investment company. These depositary shares are
convertible into 476,532 common shares, representing 6.4% of
the total outstanding common shares (assuming such
conversion).
(7)Shares as reported on Securities and Exchange Commission Form
4 dated February, 1998. Also see Notes 6, 10 and 11 to the
following table.
(8)Includes 160,000 shares held by Wynnefield Partners Small Cap
Value Offshore Fund, Ltd. an exempted company formed under the
laws of the Cayman Islands whose investment manager is
Wynnefield Capital, Inc. Wynnefield Partners Small Cap Value,
L.P. reports that Messrs. Nelson Obus and Joshua Landes, as
general partners of that partnership, and sole stockholders of
Wynnefield Capital, Inc., hold sole voting and dispositive
power with respect to all 691,700 shares.
The following table sets forth information as of February 26,
1998 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 9,600(6)(11) - 3,200 -
Robert E. Killen 809,958(8)(11) 11.6 % 33,443(9) 1.5 %
William R. Klaus 12,500(6)(11) - - -
Thomas W. Ostrander 8,681(6)(11) - - -
Christopher K. Seglem 160,978(3)(5) 2.3 % 358(4) -
James W. Sight 349,000(6)(10)(11) 5.0 % - -
Edwin E. Tuttle 25,273(6)(11) - - -
R. Page Henley 39,956(3)(5)(7) - - -
Robert J. Jaeger 10,000(5) - - -
Theodore E. Worcester 69,124(3)(5) - - -
Directors and Executive
Officers of the Company
as a Group 1,495,070 21.5 % 37,001 1.6 %
- ------------------------------------------------------------------------------------------
(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, 1997 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. Henley-10,754, and Mr.
Worcester-14,124; shares vested in the directors and executive
officers as a group totaled 34,664.
(4)Represents shares held at December 31, 1997 by Mellon Bank as
Trustee of the Westmoreland Coal Company and Affiliated
Companies Employees' Savings/Retirement Plan.
(5)Includes shares which may be purchased under the 1982 and 1985
Westmoreland Incentive Stock Option and Stock Appreciation
Rights Plans and the 1995 Long Term Incentive Stock Plan as
follows: Mr. Seglem-151,192, Mr. Henley-24,192, Mr. Jaeger-
10,000 and Mr. Worcester-55,000; shares which may be purchased
under these Plans for the group as a whole totaled 240,384.
(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 2,000 shares owned by Mr. Killen as a personal
investment, 50,000 shares owned by Mr. Killen's spouse and
752,958 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 2,000 shares owned by Mr. Killen as a personal
investment, 28,915 shares held in managed accounts by The
Killen Group, Inc., and 2,528 shares held by Berwyn Income
Fund.
(10)Includes 7,500 shares held by Mr. Sight's spouse.
(11)Includes shares which may be purchased under the 1996
Nonemployee Directors' Stock Option Plan as follows: 5,000
shares each, Mr. Hutchinson, Mr. Klaus, Mr. Ostrander, Mr.
Sight, Mr. Killen, and Mr. Tuttle.
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, 1997 and December 31, 1996, 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, 1997 together with the
related Notes and the Summary of Significant Accounting
Policies, which are contained on pages 21 through 62
inclusive.
2. The following financial statement schedules are filed herewith:
Schedule I - Condensed Financial Information of Registrant
Schedule II - Valuation Accounts
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, filed as Exhibit
(3)(b).
(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 Lease 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)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.
(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 January 6, 1997, 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.
(2) On September 10, 1997, the Company filed a report on
Form 8-K. The Company announced that it had completed
the sale of Westmoreland - Corona, Inc.
(3) On February 3, 1998, the Company filed a report on Form
8-K. The Company announced it had filed a Plan of
Reorganization with the Bankruptcy Court.
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: April 15, 1998 By:/s/ Robert J. Jaeger
--------------------------
Robert J. Jaeger
Senior Vice President of
Finance and Treasurer
(Principal Financial
Officer)
Date: April 15, 1998 By:/s/ Larry W. Mikkola
--------------------------
Larry W. Mikkola
Controller
(Principal Accounting
Officer)
Signature Title Date
- ----------------------------------------------------------------------
Principal Executive Officer:
Chairman of the
Board, President,
/s/ Christopher K. Seglem and Chief April 15, 1998
- ----------------------------- Executive Officer
Christopher K. Seglem
Directors:
/s/ Pemberton Hutchinson Director April 15, 1998
- -----------------------------
Pemberton Hutchinson
/s/ William R. Klaus Director April 15, 1998
- -----------------------------
William R. Klaus
/s/ Robert E. Killen Director April 15, 1998
- -----------------------------
Robert E. Killen
/s/ Edwin E. Tuttle Director April 15, 1998
- -----------------------------
Edwin E. Tuttle
/s/ Thomas W. Ostrander Director April 15, 1998
- -----------------------------
Thomas W. Ostrander
/s/ James W. Sight Director April 15, 1998
- -----------------------------
James W. Sight
INDEPENDENT AUDITORS' REPORT
- -----------------------------------------------------------------
The Board of Directors and Shareholders
Westmoreland Coal Company:
Under date of April 2, 1998, we reported on the consolidated
balance sheets of Westmoreland Coal Company and subsidiaries as
of December 31, 1997 and 1996, 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,
1997, which report appears in the December 31, 1997, 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
schedules I and II. These financial statement schedules
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, 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
schedules included in the Annual Report on Form 10-K for 1997 do
not include any adjustments that might result from the outcome of
this uncertainty.
KPMG Peat Marwick LLP
Denver, Colorado
April 2, 1998
Westmoreland Coal Company Schedule I
Condensed Information as to the Financial Position of the
Registrant
- -----------------------------------------------------------------
December 31, 1997 1996
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 1,487 $ 3,028
Accounts receivable 16,572 1,377
Accounts receivable from subsidiaries
eliminated in consolidation 294 -
Other current assets 388 709
-------- --------
Total current assets 18,741 5,114
-------- --------
Property, plant and
equipment, at cost 36,883 76,907
Less accumulated depreciation 35,635 (73,367)
-------- --------
1,248 3,540
Investments in and advances to
consolidated subsidiaries -
eliminated upon consolidation:
Subsidiaries in bankruptcy:
Westmoreland Resources, Inc. 33,634 29,445
Westmoreland Coal Sales Company 5,909 6,348
Westmoreland Terminal Company 1 1
Westmoreland Energy, Inc. 52,662 40,978
Other subsidiaries:
Eastern Coal and Coke Company 19,566 19,566
Eastern Coal and Coke Leasing 460 460
Kentucky Criterion Coal Company 18,557 18,512
Cleancoal Terminal Company 2,602 2,602
Roda-Dendron (451) (451)
Pine Branch Mining Company (7,635) (7,635)
-------- --------
125,305 109,826
Long-term accounts receivable from
subsidiaries eliminated in
consolidation 6,199 13,435
Other assets 22,612 21,259
-------- --------
Total assets $174,105 $153,174
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and
accrued expenses $ 9,947 $ 6,482
Accounts payable to subsidiaries
eliminated in consolidation - 6,367
-------- --------
Total current liabilities 9,947 12,849
Liabilities subject to compromise 124,645 127,935
Other non-current liabilities 3,182 4,216
Long-term accounts payable to
subsidiaries eliminated in
consolidation (6,199) (13,435)
Shareholders' equity
Preferred stock 575 575
Common stock 17,412 17,412
Other paid-in capital 94,641 94,641
Accumulated deficit (76,297) (104,454)
-------- --------
Total shareholders' equity 36,331 8,174
-------- --------
Total Liabilities and
Shareholders' Equity $174,105 $153,174
======== ========
See accompanying independent auditors report.
The notes to the consolidated financial statements are an
integral part of these condensed financial statements.
Schedule I
(Continued)
Westmoreland Coal Company
Condensed Information as to the Operations of the Registrant
- -----------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
(in thousands)
Net sales $ 153 $ 6,002 $ 71,457
--------- --------- ---------
Costs and expenses:
Cost of sales 2,035 2,642 78,637
Depreciation, depletion and amortization 136 129 13,141
Selling and administration 1,868 5,420 15,152
Heritage costs 16,673 16,686 19,844
Pension benefit (5,547) (3,601) (2,440)
Unusual charges (credits) (27,214) (11,896) 66,623
Doubtful account recoveries (1,410) (3,449) (967)
--------- --------- ---------
(13,459) 5,931 189,990
Operating income (loss) 13,612 (71) (118,533)
Other income 2,449 24,706 11,207
Reorganization items (2,484) - -
--------- --------- ---------
Income (loss) before share of earnings
of consolidated subsidiaries 13,577 24,635 (107,326)
Share of earnings of consolidated
subsidiaries 14,579 13,708 20,940
--------- --------- ---------
Net earnings (loss) 28,156 38,343 (86,386)
Less preferred stock dividends:
Declared - - 2,444
In arrears 4,888 4,888 2,444
--------- --------- ---------
Net income (loss) applicable to
common shareholders $ 23,268 $ 33,455 $ (91,274)
========= ========= =========
See accompanying independent auditors report.
Schedule I
(Continued)
Westmoreland Coal Company
Condensed Information as to Cash Flows of the Registrant
- -----------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
(in thousands)
Cash (used in) operations $ (4,283) $(23,906) $(12,173)
--------- --------- ---------
Cash flows from investing activities:
Additions to property plant
and equipment (15) (85) (456)
Net proceeds from sales of investments
and assets 2,757 19,689 10,131
--------- --------- ---------
Net cash provided by investing activities 2,742 19,604 9,675
--------- --------- ---------
Cash flows from financing activities:
Dividends paid to preferred shareholders - - (2,444)
--------- --------- ---------
Net cash used in financing activities - - (2,444)
--------- --------- ---------
Net increase (decrease) in cash (1,541) (4,302) (4,942)
Cash at beginning of year 3,028 7,330 12,272
--------- --------- ---------
Cash at end of year $ 1,487 $ 3 ,028 $ 7,330
========= ========= =========
See accompanying independent auditors report.
Schedule II
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Valuation Accounts
Years ended December 31, 1997, 1996, and 1995
-----------------------------------------------------------------
Balance at Deductions Other Balance
beginning credited to additions at end
of year earnings (deductions) of year
(B)
- ----------------------------------------------------------------------------------------
(in thousands)
Year ended December 31, 1997:
Allowance for doubtful accounts $ 5,864 (1,410) 350 $ 4,804 (A)
========================================================================================
Year ended December 31, 1996:
Allowance for doubtful accounts $ 10,313 (3,449) (1,000) $ 5,864 (A)
========================================================================================
Year ended December 31, 1995:
Allowance for doubtful accounts $ 20,371 (967) (9,091) $ 10,313 (A)
========================================================================================
Amounts above include current and non-current valuation accounts.
(A) Includes reserves of $4,804,000, $5,864,000 and $7,798,000
as of December 31, 1997, 1996 and 1995 respectively, reported
as a reduction of Other Assets in the Company's Consolidated Balance
Sheets. Also includes reserves of $2,515,000 as of December
31, 1995 for doubtful notes receivable.
(B) Deductions represent the reserves associated with assets
sold to third parties. Additions represent a provision for
accrued interest.
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.
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 21
For the year ended December 31, 1997:
Subsidiary Name State of Incorporation
-------------------------------------------------------------
Kentucky Criterion Coal Company Delaware
Pine Branch Mining Co. Delaware
WEI - Fort Lupton, 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 - Corona, Inc. Delaware
Westmoreland - Fort Drum, Inc. Delaware
Westmoreland - Franklin, Inc. Delaware
Westmoreland - Hopewell, Inc. Delaware
Westmoreland Technical Service, Inc. 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 report dated April 2, 1998,
relating to the consolidated balance sheets of Westmoreland Coal
Company and subsidiaries as of December 31, 1997, and 1996, and
the related consolidated statements of operations, shareholders'
equity (deficit) and cash flows for each of the years in the
three-year period December 31, 1997, and all related
schedules, which report appears in the December 31, 1997, annual
report on Form 10-K of Westmoreland Coal Company.
Our report refers to a change in the method of accounting for
pneumoconiosis benefits in 1996.
Our report dated April 2, 1998, contains an explanatory
paragraph that states that the Company's filing under
Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court raises substantial doubt
about its ability to continue as a going concern. The
consolidated financial statements and financial statement
schedules do not include any adjustments that might result
from the outcome of that uncertainty.
KPMG Peat Marwick LLP
Denver, Colorado
April 13, 1998
EXHIBIT 99
Roanoke Roanoke
Ft. Valley Valley
Project Ft. Drum Altavista Hopewell Southampton Lupton Rensselaer I II
- -------------------------------------------------------------------------------------------------
Ft. Weldon Weldon
Watertown Altavista Hopewell Southampton Lupton Rensselaer North North
Location: New York Virginia Virginia Virginia Colorado New York Carolina Carolina
- -------------------------------------------------------------------------------------------------
Opera- Opera- Opera- Opera- Opera- Opera- Opera-
Status: tional tional tional Operational tional tional tional tional
- -------------------------------------------------------------------------------------------------
Gross
Megawatt
Capacity: 55.5 MW 70 MW 70 MW 70 MW 290 MW 81 MW 180 MW 50 MW
- -------------------------------------------------------------------------------------------------
WEI
Equity
Ownership 1.25% 30.0% 30.0% 30.0% 4.49% 50.0% 50.0% 50.0%
- -------------------------------------------------------------------------------------------------
Public
Elec- Service
tricity Niagara Virginia Virginia Virginia of Niagara Virginia Virginia
Purchaser Mohawk Power Power Power Colorado Mohawk Power Power
- -------------------------------------------------------------------------------------------------
Fire-
stone Rocky
The Lane Tire Mtn. Patch Patch
Steam Company, & Rubber Hercules, Produce, Rubber Rubber
Host: US Army Inc. Co. Inc. Ltd BASF Company Company
- -------------------------------------------------------------------------------------------------
Fuel Natural Natural
Type: Coal Coal Coal Coal Gas Gas Coal Coal
- -------------------------------------------------------------------------------------------------
Western
Cyprus Westmore- United Thermo Gas TECO TECO
Fuel Amax Coal land Coal Coal United Coal Fuels, Marketing, Coal/ Coal/
Supplier: Co. Company Company Company Inc. Ltd CONSOL CONSOL
- -------------------------------------------------------------------------------------------------
Commercial
Operations
Date: 1989 1992 1992 1992 1994 1994 1994 1995
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