-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UCzufazvFLRZEjn/is/ue3RzmbdDvx/HiUP4h0yfhETEPGXmN63ehSxjcQF7vf7R fvN6ru/w9c0dpl6t4u6iKw== 0000106455-98-000008.txt : 19980421 0000106455-98-000008.hdr.sgml : 19980421 ACCESSION NUMBER: 0000106455-98-000008 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980415 ITEM INFORMATION: FILED AS OF DATE: 19980420 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTMORELAND COAL CO CENTRAL INDEX KEY: 0000106455 STANDARD INDUSTRIAL CLASSIFICATION: BITUMINOUS COAL & LIGNITE MINING [1220] IRS NUMBER: 231128670 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11155 FILM NUMBER: 98596977 BUSINESS ADDRESS: STREET 1: 2 NORTH CASCADE AVENUE 14TH FLOOR STREET 2: 200 S BROAD ST CITY: COLORADO SPRINGE STATE: CO ZIP: 80903 BUSINESS PHONE: 7194422600 MAIL ADDRESS: STREET 1: 2 N CASCADE AVE STREET 2: # 14THFL CITY: COLORADO SPRINGS STATE: CO ZIP: 80903-1614 8-K 1 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 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. 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. 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. 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 Selected 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 Selected 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) ===================================================================================== 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.
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 - ---------------------------------------------------------------------------------------- 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 Selected Notes to Consolidated Financial Statements. 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. 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, 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. 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(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. -----END PRIVACY-ENHANCED MESSAGE-----