Form 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report(Date of earliest event reported):
April 15, 1998
WESTMORELAND COAL COMPANY
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-752 23-1128670
-------- ----- ----------
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation or Number Identification
organization) No.)
2 North Cascade Avenue, 14th Floor, Colorado Springs, Colorado
- --------------------------------------------------------------
80903
- -----
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number,
including area code: 719-442-2600
------------
Item 5. Other Events
On April 15, 1998, the Company announced its 1997 results.
In addition, the Company filed its 1997 Form 10-K with the
Securities and Exchange Commission and an amended plan of
reorganization and disclosure statement related to its
Chapter 11 proceedings with the Bankruptcy Court.
Item 7. Financial Statements and Exhibits
(c)
No. Description
99.3 Press release dated April 15, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WESTMORELAND COAL COMPANY
Date: April 20, 1998 /s/ Robert J. Jaeger
--------------------------
By: Robert J. Jaeger
Senior Vice President-Finance
and Treasurer
<PAGE 1>
EXHIBIT 99.3
---------------------------------
Westmoreland Reports
1997 Net Income of $28.2 Million;
Files Amended Reorganization Plan
---------------------------------
Colorado Springs, CO -- April 15, 1998 -- Westmoreland Coal
Company (OTC Bulletin Board: WMCLQ) announced its 1997 results
today. Also today the Company filed its 1997 Form 10-K with the
Securities and Exchange Commission and an amended plan of
reorganization and disclosure statement related to its Chapter 11
proceedings with the Bankruptcy Court. The Company filed for
protection under Chapter 11 of the U.S. Bankruptcy Code in
December, 1996, and has operated as debtor-in-possession since
that time. All financial results should be read in conjunction
with the notes to the Company's financial statements contained in
the 1997 Form 10-K.
1997 FINANCIAL RESULTS
The Company's net income was $28.2 million for 1997 which
included a $4.8 million loss related to the disposition of the
Corona Group and an expense of $2.5 million for legal and
consulting fees related to the Chapter 11 proceedings. 1996 net
income was $38.3 million which included gains on sales of assets
totaling $24.2 million and an additional $14.4 million of income
recognized as a result of a change in the method of accounting
for black lung benefits.
Operating income for 1997 was $33.6 million compared to an
operating loss of $0.8 million for 1996. 1997 operating income
included $27.2 million of unusual credits due to reductions in
estimated black lung benefit liabilities and in actuarially
determined liabilities under the 1993 Wage Agreement with the
United Mine Workers of America ("UMWA"). 1996 operating income
included $11.9 million of unusual credits due to an adjustment of
accrued postretirement medical benefits charged when the Hampton
Division was sold in 1995, and updated actuarial data for UMWA
pension withdrawal liability. Positively affecting operating
income was the strong performance of the Company's independent
power, terminal and coal operations, highlighted by a new annual
production record of 7.051 million tons at Westmoreland
Resources, Inc. ("WRI"), breaking the previous record of 4.948
million tons set in 1979. Equity in earnings of independent
power projects increased 14% due to an increase in project
earnings. This was a result of fewer forced outage days and
reduced operating and maintenance expenses. Also contributing to
the improvement in operating income was a 42% reduction in
selling and administrative costs as a result of the ongoing
shutdown of the Virginia Division operations, a continuing
Company wide reduction in personnel, reduced travel expenses and
lower non-bankruptcy related legal and consulting expenses.
<PAGE 2>
Cash provided by operating activities was $19.9 million in 1997
compared to cash used by operating activities of $14.9 million in
1996. The increase is mainly the result of increased revenues at
WRI, increased distributions to Westmoreland Energy, Inc.
("WEI"), and a reduction in heritage costs due to the automatic
stay associated with the Chapter 11. Consolidated cash and cash
equivalents as of December 31, 1997 totaled $30.7 million,
however, as a result of the bankruptcy filings, the Company is
not permitted to consolidate the individual subsidiary cash
balances but continues to manage those balances on their behalf.
Net income applicable to common shareholders was $23.3 million or
income per share of $3.34 for 1997 compared to net income
applicable to common shareholders of $33.5 million, or income per
share of $4.80 for 1996. As of December 31, 1997, the Company
had shareholders' equity of $28.4 million compared to
shareholders' equity of $0.2 million as of December 31, 1996.
While in Chapter 11, the Company is prohibited from paying
dividends.
The attached financial statements have been prepared in
accordance with generally accepted accounting principles
applicable to a going concern and do not necessarily reflect or
provide for all of the possible consequences of the ongoing
Chapter 11 reorganization cases. Specifically, they do not
purport to present the settled amount of liabilities and
contingencies which the Company hopes may be allowed in the
Chapter 11 reorganization cases or the effect of any changes
which may be made in connection with the capitalization or
operations resulting from a plan of reorganization.
Because of the ongoing nature of the reorganization cases, the
outcome of which is not presently determinable, the attached
financial statements 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.
REORGANIZATION PLAN
On February 2, 1998, Westmoreland Coal Company and four
subsidiaries filed a Joint Plan of Reorganization in its
continuing effort to preserve and maximize the value of its
estate as a going concern for the benefit of all creditors,
including the UMWA Pension and Benefit Funds ("Funds"), as well
as all shareholders. On that same date the Funds filed a
competing plan of reorganization which provides for the
elimination of all preferred and common shareholder interests.
The Company intends to vigorously oppose the Funds' plan. April
15, 1998 was set by the Bankruptcy Court as the deadline for
filing all amendments and supplements to the plans of
reorganization and disclosure statements (addressing U.S. Trustee
comments with respect to the adequacy of these filings) and today
the Company filed an amended reorganization plan and disclosure
statement. It is expected that the Funds will also file an
amended plan.
The Company believes that the over $260 million in claims filed
by the Funds (The UMWA 1992 Benefit Plan, the UMWA Combined
Benefit Fund, and the UMWA 1974 Pension Trust) against the
Company are overstated and the Company intends to dispute these
claims through the claims objection process and/or litigation.
The Company will seek a determination of the appropriate
allowable amount of the Funds' claims.
<PAGE 3>
The Company's proposed amended plan provides that the Funds will
share in a distribution of up to $75 million in cash and notes or
bonds and up to 20% of the new common stock of the reorganized
Westmoreland. Other allowed claims will be resolved through
various methods including cash payments with interest. Under the
Company's plan, existing common and preferred shareholders will
retain 80% or more of the reorganized Company to be allocated 80%
to existing preferred shareholders (in recognition of their
liquidation preference in bankruptcy) and 20% to existing common
shareholders.
THE COMPANY'S PLAN HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT.
The Company is prohibited from soliciting support for its plan
until the Court has approved the disclosure statement. The Court
will hold hearings to determine the adequacy of the disclosure
statements (the Company's and/or the Funds' if filed). Creditors
and shareholders will receive a notice of the disclosure
statement adequacy hearing date(s), however, no date(s) have been
set by the Court. If either (or both) of the statements are
deemed adequate, approval solicitation, including voting, will
take place. If either plan is approved by those eligible to
vote, confirmation hearings will take place. Although no
schedule has been set, the Court has expressed a desire to move
the process along expeditiously.
1997 FORM 10-K AND ANNUAL REPORT
Westmoreland has filed its 1997 Form 10-K with the Securities and
Exchange Commission. In recognition that the Company is in
bankruptcy, that it has filed a plan of reorganization, and also
to minimize costs, the Company does not plan to produce and
distribute an Annual Report to shareholders while in Chapter 11.
Shareholders are invited to request a Form 10-K which provides
certain information that is typically found in the Annual Report
to shareholders. Shareholders and others interested in receiving
a copy of the Form 10-K can request a copy by writing to the
Company at the following address: Westmoreland Coal Company,
Shareholder Relations Department, 2 North Cascade Avenue, 14th
Floor, Colorado Springs, CO, 80903. The Form is available
electronically through the Securities and Exchange Commission's
EDGAR system (http://www.sec.gov/cgi-bin/srch-edgar).
Westmoreland Coal Company, headquartered in Colorado Springs,
Colorado, is engaged in Powder River Basin coal mining,
independent power and coal shipping and terminal facility
operations.
THE ATTACHED FINANCIAL RESULTS CONTAIN ONLY SELECTED NOTES TO THE
COMPANY'S FINANCIAL STATEMENTS. ALL FINANCIAL RESULTS SHOULD BE
READ IN CONJUNCTION WITH THE COMPLETE NOTES TO THE COMPANY'S
FINANCIAL STATEMENTS CONTAINED IN THE 1997 FORM 10-K.
#
For further information contact Diane Jones (719) 448-5814.
<PAGE 4>
Westmoreland Coal Company and Subsidiaries
Debtor-in-Possession
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
<TABLE>
December 31, 1997 1996
- -------------------------------------------------------------------------------
(in thousands)
<CAPTION>
<S> <C> <C>
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 Selected Notes to Consolidated Financial Statements.
<PAGE 5>
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 Selected Notes to Consolidated Financial Statements.
</TABLE>
<PAGE 6>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Debtor-in-Possession
Consolidated Statements of Operations
- -------------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
(in thousands)
<CAPTION>
<S> <C> <C> <C>
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)
=====================================================================================
<PAGE 7>
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 Selected Notes to Consolidated Financial Statements.
</TABLE>
<PAGE 8>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Debtor-in-Possession
Consolidated Statements of Cash Flows
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
<S> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------
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) -
<PAGE 9>
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
</TABLE>
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 Selected Notes to Consolidated Financial
Statements.
<PAGE 10>
SELECTED NOTES TO DECEMBER 31, 1997 FINANCIAL STATEMENTS
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.
<PAGE 11>
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.
<PAGE 12>
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.
<PAGE 13>
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,
which contention is now the subject of litigation. The estimate
set forth herein does not take into account any reductions
resulting from claims objection or 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. The liability recorded at December 31, 1997 of
$32,067,000, represents the aggregate amount of 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.
<PAGE 14>
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.
<PAGE 15>
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(1) 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.
(1)The Company and a committee appointed by the Bankruptcy Court
to represent the salaried retirees have reached an agreement
on a revision of the salaried retiree benefit plan. The
revisions to the salaried retiree benefit plan will only
become effective if the Company's plan of reorganization is
confirmed.
