Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS
WESTMORELAND COAL COMPANY
Page | |
1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Westmoreland Coal Company
We have audited the accompanying consolidated balance sheets of Westmoreland Coal Company and subsidiaries (the "Company") as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ deficit, and cash flows for the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Westmoreland Coal Company and subsidiaries at December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February 28, 2014 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Denver, Colorado
February 28, 2014 (except for Note 18, as to which the date is August 6, 2014)
2
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2013 | December 31, 2012 | ||||||
(In thousands) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 61,110 | $ | 31,610 | |||
Receivables: | |||||||
Trade | 66,196 | 60,037 | |||||
Contractual third-party reclamation receivables | 8,487 | 10,207 | |||||
Other | 5,086 | 3,220 | |||||
79,769 | 73,464 | ||||||
Inventories | 39,972 | 37,734 | |||||
Restricted investments and bond collateral | 5,998 | — | |||||
Other current assets | 18,190 | 16,504 | |||||
Total current assets | 205,039 | 159,312 | |||||
Property, plant and equipment: | |||||||
Land and mineral rights | 278,188 | 261,741 | |||||
Plant and equipment | 657,696 | 635,720 | |||||
935,884 | 897,461 | ||||||
Less accumulated depreciation, depletion and amortization | 445,848 | 384,621 | |||||
Net property, plant and equipment | 490,036 | 512,840 | |||||
Advanced coal royalties | 7,311 | 4,316 | |||||
Reclamation deposits | 74,921 | 72,718 | |||||
Restricted investments and bond collateral | 69,235 | 87,209 | |||||
Contractual third-party reclamation receivables, less current portion | 88,303 | 84,158 | |||||
Intangible assets, net of accumulated amortization of $14.1 million and $12.4 million at December 31, 2013 and December 31, 2012, respectively | 1,520 | 3,203 | |||||
Other assets | 10,320 | 12,359 | |||||
Total Assets | $ | 946,685 | $ | 936,115 |
See accompanying Notes to Consolidated Financial Statements.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
December 31, 2013 | December 31, 2012 | ||||||
(In thousands) | |||||||
Liabilities and Shareholders’ Deficit | |||||||
Current liabilities: | |||||||
Current installments of long-term debt | $ | 44,343 | $ | 23,791 | |||
Accounts payable and accrued expenses: | |||||||
Trade | 57,507 | 52,093 | |||||
Production taxes | 41,905 | 33,228 | |||||
Workers’ compensation | 717 | 820 | |||||
Postretirement medical benefits | 13,955 | 14,068 | |||||
SERP | 390 | 390 | |||||
Deferred revenue | 14,068 | 12,822 | |||||
Asset retirement obligations | 23,353 | 22,238 | |||||
Other current liabilities | 16,790 | 11,462 | |||||
Total current liabilities | 213,028 | 170,912 | |||||
Long-term debt, less current installments | 295,494 | 337,198 | |||||
Workers’ compensation, less current portion | 6,744 | 8,710 | |||||
Excess of black lung benefit obligation over trust assets | 8,675 | 8,356 | |||||
Postretirement medical benefits, less current portion | 270,374 | 319,775 | |||||
Pension and SERP obligations, less current portion | 24,176 | 54,250 | |||||
Deferred revenue, less current portion | 46,567 | 56,891 | |||||
Asset retirement obligations, less current portion | 256,511 | 241,609 | |||||
Intangible liabilities, net of accumulated amortization of $12.4 million at December 31, 2013 and $11.4 million at December 31, 2012, respectively | 5,606 | 6,625 | |||||
Other liabilities | 7,389 | 18,020 | |||||
Total liabilities | 1,134,564 | 1,222,346 | |||||
Shareholders’ deficit: | |||||||
Preferred stock of $1.00 par value | |||||||
Authorized 5,000,000 shares; Issued and outstanding 159,960 shares at December 31, 2013 and 2012 | 160 | 160 | |||||
Common stock of $2.50 par value | |||||||
Authorized 30,000,000 shares; Issued and outstanding 14,592,231 shares at December 31, 2013 and 14,201,411 shares at December 31, 2012, respectively | 36,479 | 35,502 | |||||
Other paid-in capital | 134,861 | 130,852 | |||||
Accumulated other comprehensive loss | (63,595 | ) | (148,345 | ) | |||
Accumulated deficit | (295,784 | ) | (289,727 | ) | |||
Total Westmoreland Coal Company shareholders’ deficit | (187,879 | ) | (271,558 | ) | |||
Noncontrolling interest | — | (14,673 | ) | ||||
Total deficit | (187,879 | ) | (286,231 | ) | |||
Total Liabilities and Shareholders’ Deficit | $ | 946,685 | $ | 936,115 |
See accompanying Notes to Consolidated Financial Statements.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(In thousands, except per share data) | |||||||||||
Revenues | $ | 674,686 | $ | 600,437 | $ | 501,713 | |||||
Cost, expenses and other: | |||||||||||
Cost of sales | 535,320 | 466,521 | 392,787 | ||||||||
Depreciation, depletion and amortization | 67,231 | 57,145 | 45,594 | ||||||||
Selling and administrative | 50,721 | 49,908 | 40,276 | ||||||||
Heritage health benefit expenses | 13,418 | 13,388 | 18,575 | ||||||||
Loss (gain) on sales of assets | (74 | ) | 528 | 640 | |||||||
Restructuring charges | 5,078 | — | — | ||||||||
Other operating income | (22,370 | ) | (15,925 | ) | (6,785 | ) | |||||
649,324 | 571,565 | 491,087 | |||||||||
Operating income | 25,362 | 28,872 | 10,626 | ||||||||
Other income (expense): | |||||||||||
Interest expense | (39,937 | ) | (42,677 | ) | (29,769 | ) | |||||
Loss on extinguishment of debt | (64 | ) | (1,986 | ) | (17,030 | ) | |||||
Interest income | 1,366 | 1,496 | 1,444 | ||||||||
Other income (loss) | 364 | 723 | (2,572 | ) | |||||||
(38,271 | ) | (42,444 | ) | (47,927 | ) | ||||||
Loss before income taxes | (12,909 | ) | (13,572 | ) | (37,301 | ) | |||||
Income tax expense (benefit) | (4,782 | ) | 90 | (426 | ) | ||||||
Net loss | (8,127 | ) | (13,662 | ) | (36,875 | ) | |||||
Less net loss attributable to noncontrolling interest | (3,430 | ) | (6,436 | ) | (3,775 | ) | |||||
Net loss attributable to the Parent company | (4,697 | ) | (7,226 | ) | (33,100 | ) | |||||
Less preferred stock dividend requirements | 1,360 | 1,360 | 1,360 | ||||||||
Net loss applicable to common shareholders | $ | (6,057 | ) | $ | (8,586 | ) | $ | (34,460 | ) | ||
Net loss per share applicable to common shareholders: | |||||||||||
Basic and diluted | $ | (0.42 | ) | $ | (0.61 | ) | $ | (2.61 | ) | ||
Weighted average number of common shares outstanding: | |||||||||||
Basic and diluted | 14,491 | 14,033 | 13,192 |
See accompanying Notes to Consolidated Financial Statements.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(In thousands) | |||||||||||
Net loss | $ | (8,127 | ) | $ | (13,662 | ) | $ | (36,875 | ) | ||
Other comprehensive income (loss) | |||||||||||
Pension and other postretirement plans: | |||||||||||
Amortization of accumulated actuarial gains or losses, pension | 3,490 | 2,960 | 1,647 | ||||||||
Adjustments to accumulated actuarial losses, pension | 28,974 | (9,812 | ) | (15,798 | ) | ||||||
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit | 4,005 | 2,572 | (288 | ) | |||||||
Adjustments to accumulated actuarial gains, postretirement medical benefits | 53,230 | (22,342 | ) | (49,136 | ) | ||||||
Tax effect of other comprehensive income gains | (4,892 | ) | — | — | |||||||
Unrealized and realized gains and losses on available-for-sale securities | (57 | ) | (268 | ) | (200 | ) | |||||
Other comprehensive income (loss) | 84,750 | (26,890 | ) | (63,775 | ) | ||||||
Comprehensive income (loss) attributable to Westmoreland Coal Company | $ | 76,623 | $ | (40,552 | ) | $ | (100,650 | ) |
See accompanying Notes to Consolidated Financial Statements.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Deficit
Years Ended December 31, 2011, 2012 and 2013
Preferred Stock | Common Stock | Other Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Non-controlling Interest | Total Shareholders’ Equity (Deficit) | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||
(In thousands, except shares data) | |||||||||||||||||||||||||||||||||
Balance at December 31, 2010 | 160,129 | $ | 160 | 11,160,798 | $ | 27,901 | $ | 98,466 | $ | (57,680 | ) | $ | (226,740 | ) | $ | (4,462 | ) | $ | (162,355 | ) | |||||||||||||
Preferred dividends declared | — | — | — | — | — | — | (21,301 | ) | — | (21,301 | ) | ||||||||||||||||||||||
Common stock issued as compensation | — | — | 240,118 | 600 | 4,121 | — | — | — | 4,721 | ||||||||||||||||||||||||
Common stock options exercised | — | — | 31,200 | 78 | 344 | — | — | — | 422 | ||||||||||||||||||||||||
Conversion of convertible notes and securities | (169 | ) | — | 1,879,098 | 4,698 | 20,787 | — | — | — | 25,485 | |||||||||||||||||||||||
Common stock issued to pension plan assets | — | — | 450,000 | 1,125 | 3,132 | — | — | — | 4,257 | ||||||||||||||||||||||||
Issuance of restricted stock | — | — | 50,165 | 125 | (562 | ) | — | — | — | (437 | ) | ||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (33,100 | ) | (3,775 | ) | (36,875 | ) | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (63,775 | ) | — | — | (63,775 | ) | ||||||||||||||||||||||
Balance at December 31, 2011 | 159,960 | 160 | 13,811,379 | 34,527 | 126,288 | (121,455 | ) | (281,141 | ) | (8,237 | ) | (249,858 | ) | ||||||||||||||||||||
Preferred dividends declared | — | — | — | — | — | — | (1,360 | ) | — | (1,360 | ) | ||||||||||||||||||||||
Common stock issued as compensation | — | — | 323,432 | 808 | 5,232 | — | — | — | 6,040 | ||||||||||||||||||||||||
Issuance of restricted stock | — | — | 66,600 | 167 | (668 | ) | — | — | — | (501 | ) | ||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (7,226 | ) | (6,436 | ) | (13,662 | ) | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (26,890 | ) | — | — | (26,890 | ) | ||||||||||||||||||||||
Balance at December 31, 2012 | 159,960 | 160 | 14,201,411 | 35,502 | 130,852 | (148,345 | ) | (289,727 | ) | (14,673 | ) | (286,231 | ) | ||||||||||||||||||||
Preferred dividends declared | — | — | — | — | — | — | (1,360 | ) | — | (1,360 | ) | ||||||||||||||||||||||
Common stock issued as compensation | — | — | 224,129 | 560 | 4,762 | — | — | — | 5,322 | ||||||||||||||||||||||||
Assumption of noncontrolling interest of subsidiary | — | — | — | — | — | — | — | 18,103 | 18,103 | ||||||||||||||||||||||||
Issuance of restricted stock | — | — | 166,691 | 417 | (753 | ) | — | — | — | (336 | ) | ||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (4,697 | ) | (3,430 | ) | (8,127 | ) | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 84,750 | — | — | 84,750 | ||||||||||||||||||||||||
Balance at December 31, 2013 | 159,960 | $ | 160 | 14,592,231 | $ | 36,479 | $ | 134,861 | $ | (63,595 | ) | $ | (295,784 | ) | $ | — | $ | (187,879 | ) |
See accompanying Notes to Consolidated Financial Statements.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(In thousands) | |||||||||||
Cash flows from operating activities: | |||||||||||
Net loss | $ | (8,127 | ) | $ | (13,662 | ) | $ | (36,875 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
Depreciation, depletion and amortization | 67,231 | 57,145 | 45,594 | ||||||||
Accretion of asset retirement obligation and receivable | 12,681 | 12,189 | 10,878 | ||||||||
Non-cash tax benefits | (4,892 | ) | — | — | |||||||
Amortization of intangible assets and liabilities, net | 665 | 658 | 657 | ||||||||
Share-based compensation | 5,322 | 6,040 | 4,721 | ||||||||
Loss (gain) on sales of assets | (74 | ) | 528 | 640 | |||||||
Amortization of deferred financing costs | 3,731 | 4,358 | 2,515 | ||||||||
Other | (1,001 | ) | — | — | |||||||
Loss on extinguishment of debt | 64 | 1,986 | 17,030 | ||||||||
Gain on sales of investment securities | (3 | ) | (165 | ) | (150 | ) | |||||
Loss on derivative instruments | — | — | 3,079 | ||||||||
Changes in operating assets and liabilities: | |||||||||||
Receivables, net | (7,636 | ) | (12,855 | ) | 5,491 | ||||||
Inventories | (2,512 | ) | (2,164 | ) | (2,125 | ) | |||||
Excess of black lung benefit obligation over trust assets | 319 | 1,791 | 4,319 | ||||||||
Accounts payable and accrued expenses | 13,579 | 17,399 | 4,128 | ||||||||
Deferred revenue | (9,078 | ) | (8,198 | ) | (9,918 | ) | |||||
Income tax payable | (1 | ) | — | — | |||||||
Accrual for workers’ compensation | (2,069 | ) | (2,096 | ) | 1,248 | ||||||
Asset retirement obligations | (9,410 | ) | (6,943 | ) | (6,510 | ) | |||||
Accrual for postretirement medical benefits | 7,721 | 6,191 | (1,643 | ) | |||||||
Pension and SERP obligations | 2,388 | 2,802 | (1,278 | ) | |||||||
Other assets and liabilities | 11,819 | (7,860 | ) | 2,934 | |||||||
Net cash provided by operating activities | 80,717 | 57,144 | 44,735 | ||||||||
Cash flows from investing activities: | |||||||||||
Additions to property, plant and equipment | (28,591 | ) | (21,032 | ) | (27,594 | ) | |||||
Change in restricted investments and bond collateral and reclamation deposits | 1,434 | (33,892 | ) | (5,986 | ) | ||||||
Cash payments related to acquisitions | — | (72,522 | ) | (4,000 | ) | ||||||
Net proceeds from sales of assets | 902 | 480 | 687 | ||||||||
Proceeds from the sale of restricted investments | 8,287 | 4,106 | 3,350 | ||||||||
Receivable from customer for property and equipment purchases | (389 | ) | (674 | ) | (96 | ) | |||||
Other | (3,540 | ) | — | — | |||||||
Net cash used in investing activities | (21,897 | ) | (123,534 | ) | (33,639 | ) | |||||
Cash flows from financing activities: | |||||||||||
Change in book overdrafts | 310 | (253 | ) | (724 | ) | ||||||
Borrowings from long-term debt, net of debt discount | — | 119,364 | 142,500 | ||||||||
Repayments of long-term debt | (28,088 | ) | (44,846 | ) | (73,566 | ) |
8
Borrowings on revolving lines of credit | 7,000 | 16,500 | 87,200 | ||||||||
Repayments on revolving lines of credit | (7,000 | ) | (16,500 | ) | (105,600 | ) | |||||
Debt issuance costs and other refinancing costs | (182 | ) | (5,688 | ) | (15,019 | ) | |||||
Preferred dividends paid | (1,360 | ) | (1,360 | ) | (21,301 | ) | |||||
Exercise of stock options | — | — | 422 | ||||||||
Net cash provided by (used in) financing activities | (29,320 | ) | 67,217 | 13,912 | |||||||
Net increase in cash and cash equivalents | 29,500 | 827 | 25,008 | ||||||||
Cash and cash equivalents, beginning of year | 31,610 | 30,783 | 5,775 | ||||||||
Cash and cash equivalents, end of year | $ | 61,110 | $ | 31,610 | $ | 30,783 | |||||
Supplemental disclosures of cash flow information: | |||||||||||
Cash paid for interest | $ | 36,252 | $ | 34,380 | $ | 21,199 | |||||
Cash paid (received) for income taxes | 111 | (73 | ) | (250 | ) | ||||||
Non-cash transactions: | |||||||||||
Accrued purchases of property and equipment | 1,112 | 634 | 570 | ||||||||
Capital leases and other financing sources | 5,371 | 1,828 | 531 |
See accompanying Notes to Consolidated Financial Statements.
9
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of Operations
Westmoreland Coal Company, or the Company, Westmoreland, WCC, or the Parent, is an energy company. The Company’s current principal activities, all conducted within the United States, are the production and sale of coal from its mines in Montana, Wyoming, North Dakota and Texas; and the ownership of power plants in North Carolina. The Company’s activities are primarily conducted through wholly owned subsidiaries.
The Company's Kemmerer Mine is owned by its subsidiary Westmoreland Kemmerer, Inc., or Kemmerer. The Company’s Absaloka Mine is owned by its wholly owned subsidiary Westmoreland Resources, Inc., or WRI. The right to mine coal at the Absaloka Mine had been subleased to an affiliated entity whose operations the Company controls, under which the sublease expired December 31, 2013; and as a result the right to mine coal at the Absaloka Mine reverts to WRI beginning in 2014. The Rosebud, Jewett, Beulah and Savage Mines are owned through the Company’s wholly owned subsidiary Westmoreland Mining LLC, or WML.
Sherritt Acquisition
On December 24, 2013, the Company entered into an agreement to acquire the coal operations of Sherritt International Corporation, or Sherritt, which consist of its Prairie and Mountain coal mining operations. These operations included seven producing thermal coal mines in the Canadian provinces of Alberta and Saskatchewan, a 50% interest in an activated carbon plant and a Char production facility. The purchase price of $435.0 million will be made up of $293.0 million of cash consideration and the assumption of an estimated $142 million of capital lease liabilities, subject to certain adjustments provided for in the agreement, relating to, among other things, working capital, indebtedness, pension plan funding and coal inventory. Acquisition-related costs of $2.9 million have been expensed for the year ended December 31, 2013, and are included in Selling and administrative costs. The Company expects this acquisition to be completed by the end of the first quarter of 2014.
On February 7, 2014, the Company closed on a private offering of $425.0 million in aggregate principal amount of 10.75% Senior Secured Notes due 2018 at a price of 106.875% plus accrued interest from February 1, 2014; referred to as the New Notes. The net proceeds of the offering of the new notes will finance the approximately $293 million cash portion of the purchase price, an estimated $58 million to satisfy the cash bonding obligations for the Sherritt mines and cash transaction costs associated with the acquisition and this offering of new notes of approximately $26.0 million. The remaining balance of the proceeds will be used to fund the prepayment of the WML Notes and for other general corporate purposes. The proceeds will be held in escrow pending the completion of the acquisition.
In connection with the acquisition, the Company intends to amend the existing corporate revolving credit agreement to increase the maximum available borrowing amount to approximately $60 - $70 million (which the Company may increase to $100 million at their discretion), with a subfacility for letters of credit in an amount of up to $30 million. The acquisition is not contingent on the Company increasing such available borrowing capacity and it is possible that such increase will not be implemented until after the consummation of the acquisition.
Consolidation Policy
The Consolidated Financial Statements of Westmoreland Coal Company include the accounts of the Company and its controlled subsidiaries. The Company consolidates any variable interest entity, or VIE, for which the Company is considered the primary beneficiary. The Company provides for noncontrolling interests in consolidated subsidiaries, in which the Company’s ownership is less than 100 percent. All intercompany accounts and transactions have been eliminated.
A VIE is an entity that is unable to make significant decisions about its activities or does not have the obligation to absorb losses or the right to receive returns generated by its operations. If the entity meets one of these characteristics, then the Company must determine if it is the primary beneficiary of the VIE. The party exposed to the majority of the risks and rewards with the VIE is the primary beneficiary and must consolidate the entity.
The Company has determined for all periods presented, it was the primary beneficiary in Absaloka Coal LLC, a VIE, in which it held less than a 50% ownership through December 31, 2013. As a result, the Company has consolidated this entity within the coal segment. The investment in Absaloka Coal LLC by its outside partner did not continue after December 31, 2013, and beginning in 2014, Absaloka Coal LLC will be 100% owned by the Company, but will cease to have operations. As a result, the Company has unwound the transaction as of December 31, 2013 and concerning our balance sheet have decreased
10
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Other liabilities by $19.1 million and decreased Noncontrolling interest by $18.1 million. As a result, as of December 31, 2013, the noncontrolling interest was eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximate fair value. Cash equivalents consist of highly liquid investments with original maturities of three months or less.
Trade Receivables
Trade receivables are recorded at the invoiced amount and do not bear interest. The Company evaluates the need for an allowance for doubtful accounts based on a review of collectability. The Company has determined that no allowance is necessary for trade receivables as of December 31, 2013 and 2012.
Inventories
Inventories, which include materials and supplies as well as raw coal, are stated at the lower of cost or market. Cost is determined using the average cost method. Coal inventory costs include labor, supplies, equipment, operating overhead and other related costs.
Exploration and Mine Development
Exploration expenditures are charged to Cost of sales as incurred, including costs related to drilling and study costs incurred to convert or upgrade mineral resources to reserves.
At existing surface operations, additional pits may be added to increase production capacity in order to meet customer requirements. These expansions may require significant capital to purchase additional equipment, relocate equipment, build or improve existing haul roads and create the initial pre-production box cut to remove overburden for new pits at existing operations. If these pits operate in a separate and distinct area of the mine, the costs associated with initially uncovering coal for production are capitalized and amortized over the life of the developed pit consistent with coal industry practices. Once production has begun, mining costs are then expensed as incurred.
Where new pits are routinely developed as part of a contiguous mining sequence, the Company expenses such costs as incurred. The development of a contiguous pit typically reflects the planned progression of an existing pit, thus maintaining production levels from the same mining area utilizing the same employee group and equipment.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and includes long-term spare parts inventory. Expenditures that extend the useful lives of existing plant and equipment or increase productivity of the assets are capitalized. Maintenance and repair costs that do not extend the useful life or increase productivity of the asset are expensed as incurred. Coal reserves are recorded at cost, or at fair value originally in the case of acquired businesses.
Coal reserves, mineral rights and mine development costs are depleted based upon estimated recoverable proven and probable reserves. Plant and equipment are depreciated on a straight-line basis over the assets’ estimated useful lives as follows:
Years | |
Buildings and improvements | 15 to 30 |
Machinery and equipment | 3 to 36 |
Long-term spare parts inventory begins depreciation when placed in service.
The Company assesses the carrying value of its property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by
11
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
comparing estimated undiscounted cash flows expected to be generated from such assets to their net book value. If net book value exceeds estimated cash flows, the asset is written down to fair value. When an asset is retired or sold, its cost and related accumulated depreciation and depletion are removed from the accounts. The difference between the net book value of the asset and proceeds on disposition is recorded as a gain or loss. Fully depreciated plant and equipment still in use is not eliminated from the accounts. Amortization of capital leases is included in Depreciation, depletion and amortization.
Reclamation Deposits and Contractual Third-Party Reclamation Receivables
Certain of the Company’s customers have either agreed to reimburse the Company for reclamation expenditures as they are incurred or have pre-funded a portion of the expected reclamation costs. Amounts received from customers and held on deposit are recorded as reclamation deposits. Amounts that are reimbursable by customers are recorded as third-party reclamation receivables when the related reclamation obligation is recorded.
Financial Instruments
The Company evaluates all of its financial instruments to determine if such instruments are derivatives, derivatives that qualify for the normal purchase normal sale exception or instruments that contain features that qualify them as embedded derivatives. Except for derivatives that qualify for the normal purchase normal sale exception, all derivative financial instruments are recognized in the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or Accumulated other comprehensive income (loss) if they qualify for cash flow hedge accounting.
Held-to-maturity financial instruments consist of non-derivative financial assets with fixed or determinable payments and a fixed term, which the Company has the ability and intent to hold until maturity, and, therefore, accounts for them as held-to-maturity securities. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts calculated on the effective interest method. Interest income is recognized when earned.
The Company has securities classified as available-for-sale, which are recorded at fair value. The changes in fair values are recorded as unrealized gains (losses) as a component of Accumulated other comprehensive income (loss) in shareholders’ deficit.
The Company reviews its securities routinely for other-than-temporary impairment. The primary factors used to determine if an impairment charge must be recorded because a decline in value of the security is other than temporary include (i) whether the fair value of the investment is significantly below its cost basis, (ii) the financial condition of the issuer of the security, (iii) the length of time that the cost of the security has exceeded its fair value and (iv) the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. Other-than-temporary impairments are recorded as a component of Other income (expense).
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a given measurement date. Valuation techniques used must maximize the use of observable inputs and minimize the use of unobservable inputs.
Fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value and is defined as:
• | Level 1, defined as observable inputs such as quoted prices in active markets for identical assets. Level 1 assets include available-for-sale equity securities generally valued based on independent third-party market prices. |
• | Level 2, defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
• | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
The Company’s non-recurring fair value measurements include asset retirement obligations and the purchase price allocations for the fair value of assets and liabilities acquired through business combinations.
The Company determines the estimated fair value of its asset retirement obligations by calculating the present value of estimated cash flows related to reclamation liabilities using level 3 inputs. The significant inputs used to calculate such liabilities includes estimates of costs to be incurred, the Company’s credit adjusted discount rate, inflation rates and estimated
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
dates of reclamation. The asset retirement liability is accreted to its present value each period and the associated mineral rights are depleted using the units-of-production method.
The fair value of assets and liabilities acquired through business combinations is calculated using a discounted-cash flow approach using level 3 inputs. Cash flow estimates require forecasts and assumptions for many years into the future for a variety of factors.
See Notes 4, 7, 9, 10 and 11 for further disclosures related to the Company’s fair value estimates.
Intangible Assets and Liabilities
Identifiable intangible assets or liabilities acquired in a business combination must be recognized and reported separately from goodwill. The Company has determined that its most significant acquired identifiable intangible assets and liabilities are related to sales and purchase agreements. Intangible assets result from more favorable market prices than contracted prices in sales and purchase agreements as measured during a business combination. Intangible liabilities result from less favorable market prices than contracted prices in sales and purchase agreements as measured during a business combination. The majority of these intangible assets and liabilities are amortized on a straight-line basis over the respective period of the sales and purchase agreements, while the remainder are amortized on a unit-of-production basis.
Amortization of intangible assets recognized in Cost of sales was $1.7 million in 2013, 2012, and 2011. Amortization of intangible liabilities recognized in Revenues was $1.0 million in 2013, 2012, and 2011.
The estimated aggregate amortization amounts from intangibles assets and liabilities for each of the next five years as of December 31, 2013 are as follows:
Amortization Expense (Revenue) | |||
(In thousands) | |||
2014 | $ | 17 | |
2015 | (791 | ) | |
2016 | (953 | ) | |
2017 | (953 | ) | |
2018 | (953 | ) |
Workers’ Compensation Benefits
The Company is self-insured for workers’ compensation claims incurred prior to 1996. The liabilities for workers’ compensation claims are actuarially determined estimates of the ultimate losses incurred based on the Company’s experience. Adjustments to the probable ultimate liabilities are made annually based on subsequent developments and experience and are included in operations at the time of the revised estimate.
The Company insures its current employees through third-party insurance providers and state arrangements.
Pneumoconiosis (Black Lung) Benefits
The Company is self-insured for federal and state black lung benefits for former heritage employees and has established an independent trust to pay these benefits. The Company accounts for these benefits on the accrual basis. An independent actuary annually calculates the present value of the accumulated black lung obligation. The underfunded status in 2013 and 2012 of the Company’s obligation is included as Excess of black lung benefit obligation over trust assets in the accompanying consolidated balance sheets. Actuarial gains and losses are recognized in the period in which they arise.
The Company insures its current represented employees through arrangements with its unions and its current non-represented employees are insured through third-party insurance providers.
Postretirement Health Care Benefits
The Company accrues the cost to provide the benefits over the employees’ period of active service for postretirement benefits other than pensions. These costs are determined on an actuarial basis. The Company’s consolidated balance sheet reflects the unfunded status of postretirement benefit obligations.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Pension and SERP Plans
The Company accrues the cost to provide the benefits over the employees’ period of active service for the non-contributory defined benefit pension and SERP plans it sponsors. These costs are determined on an actuarial basis. The Company’s consolidated balance sheet reflects the unfunded status of the defined benefit pension and SERP plans.
Deferred Revenue
Deferred revenues represent funding received upon the negotiation of long-term contracts. The deferred revenues for coal will be recognized as deliveries of the reserved coal are made in accordance with the long-term coal contracts. Deferred power revenues are recognized on a pro rata basis, based on the payments estimated to be received over the remaining term of the power sales agreements.
Asset Retirement Obligations
The Company’s asset retirement obligation, or ARO, liabilities primarily consist of estimated costs to reclaim surface land and support facilities at its mines and power plants in accordance with federal and state reclamation laws as established by each mining permit.
The Company estimates its ARO liabilities for final reclamation and mine closure based upon detailed engineering calculations of the amount and timing of the future costs for a third party to perform the required work. These estimates are based on projected pit configurations at the end of mining and are escalated for inflation, and then discounted at a credit-adjusted risk-free rate. The Company records mineral rights associated with the initial recorded liability. Mineral rights are amortized based on the units of production method over the estimated recoverable, proven and probable reserves at the related mine, and the ARO liability is accreted to the projected settlement date. Changes in estimates could occur due to revisions of mine plans, changes in estimated costs, and changes in timing of the performance of reclamation activities.
Income Taxes
Deferred income taxes are provided for temporary differences arising from differences between the financial statement amount and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates anticipated to be in effect when the related taxes are expected to be paid or recovered. A valuation allowance is established if it is more likely than not that a deferred tax asset will not be realized. In determining the need for a valuation allowance, the Company considers projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies and its overall deferred tax position.
Accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under this guidance, a company can recognize the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Guidance is also provided on the derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company includes interest and penalties related to income tax matters in Income tax expense.
The tax effect of pretax income or loss from continuing operations is generally determined by a computation that does not consider the tax effects of items that are not included in continuing operations. The exception to that incremental approach is that all items (for example, items recorded in other comprehensive income, extraordinary items, and discontinued operations) be considered in determining the amount of tax benefit that results from a loss from continuing operations and that shall be allocated to continuing operations.
Deferred Financing Costs
The Company capitalizes costs incurred in connection with borrowings or establishment of credit facilities and issuance of debt securities. These costs are amortized as an adjustment to interest expense over the life of the borrowing or term of the credit facility using the effective interest method. These amounts are recorded in Other assets in the accompanying consolidated balance sheets.
Coal Revenues
The Company recognizes coal sales revenue at the time title passes to the customer in accordance with the terms of the underlying sales agreements and after any contingent performance obligations have been satisfied. Coal sales revenue is recognized based on the pricing contained in the contracts in place at the time that title passes.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Power Revenues
ROVA supplies power under long-term power sales agreements. Under these agreements, ROVA invoices and collects capacity payments based on kilowatt-hours produced if the units are dispatched or for the kilowatt-hours of available capacity if the units are not fully dispatched.
A portion of the capacity payments under the agreements is considered to be an operating lease. The Company is recognizing amounts invoiced under the power sales agreements as revenue on a pro rata basis, based on the weighted average per kilowatt hour capacity payments estimated to be received over the remaining term of the power sales agreements. Under this method of recognizing revenue, $8.7 million and $8.3 million of previously deferred revenue was recognized during 2013 and 2012, respectively.
On December 23, 2013, the Company entered into an agreement with Dominion Virginia Power, a subsidiary of Dominion, to restructure the remaining five years of the ROVA I and ROVA II contracts. From January 2014 through March 2019, the Company will keep ROVA ready to operate and expects to run the plants during high demand energy periods. The Company will additionally buy power from a power provider at a fixed price, and will supply Dominion that power. The Company can also operate the plant and sell power on the open market if it it chooses.
The Company incurred restructuring charges of $5.1 million for the year ended December 31, 2013 primarily related to legal and consulting fees. The restructuring plan is expected to be complete by March 31, 2014. The Company expects that the aggregate $5.1 million of expenditures will be cash expenditures paid out in the first quarter of 2014.
The table below represents the restructuring provision activity during the year ended December 31, 2013 (in millions):
Beginning Balance | Restructuring Charges | Restructuring Payments | Ending Balance | |||||||||||
$ | — | $ | 5.1 | $ | — | $ | 5.1 |
Other Operating Income (Loss)
Other operating income in the accompanying Consolidated Results of Operations reflects income from sources other than coal or power revenues. Income from the Company’s Indian Coal Tax Credit monetization transaction is recorded as Other operating income. The Company recognizes income as business interruption losses are incurred and reimbursement is virtually assured and has recognized $16.2 million and $17.3 million of income during 2013 and 2012, respectively; which is included in Other operating income. Insurance proceeds are included in Net cash provided by operating activities.
Share-Based Compensation
Share-based compensation expense is generally measured at the grant date and recognized as expense over the vesting period of the entire award. These costs are recorded in Cost of sales and Selling and administrative expenses in the accompanying consolidated results of operations.
Earnings (Loss) per Share
Basic earnings (loss) per share have been computed by dividing the net income (loss) applicable to common shareholders by the weighted average number of shares of common stock outstanding during each period. Net income (loss) applicable to common shareholders includes the adjustment for net income or loss attributable to noncontrolling interest. Diluted earnings (loss) per share is computed by including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding convertible notes, stock options, stock appreciation rights, restricted stock and warrants. No such items were included in the computation of diluted loss per share for the years ended 2013, 2012 or 2011 because the Company incurred a loss from operations in each of these periods and the effect of inclusion would have been anti-dilutive.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The table below shows the number of shares that were excluded from the calculation of diluted loss per share because their inclusion would be anti-dilutive to the calculation:
Years Ended December 31, | ||||||||
2013 | 2012 | 2011 | ||||||
(In thousands) | ||||||||
Convertible notes and securities | 1,093 | 1,093 | 1,093 | |||||
Restricted stock units, stock options, and SARs | 805 | 978 | 634 | |||||
Total shares excluded from diluted shares calculation | 1,898 | 2,071 | 1,727 |
Recently Adopted Accounting Pronouncements
Effective January 1, 2013, the Company adopted an accounting standards update which requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies would instead cross reference to the related footnote for additional information. This accounting standards update only affects the Company's disclosures.
Liquidity and Capital Resources
The Parent is a holding company and conducts its operations through subsidiaries. The Parent has significant cash requirements to fund debt obligations, ongoing heritage health benefit costs, pension contributions, and corporate overhead expenses. The principal sources of cash flow to the Parent are distributions from principal operating subsidiaries. The cash at ROVA, Kemmerer, and WRI has no restrictions and is immediately available. The cash at WML is available to the Parent through quarterly distributions. The WML credit agreement requires a debt service account and imposes timing and other restrictions on the ability of WML to distribute funds to the Parent. The cash at WRMI is also available to the Parent through dividends and is subject to maintaining a statutory minimum level of capital, which is two hundred fifty thousand dollars.
The Company anticipates that its cash from operations, cash on hand and available borrowing capacity will be sufficient to meet its investing, financing, and working capital requirements for the foreseeable future.
In March 2013, the Company amended the WML Revolving Credit Agreement by extending the maturity date from June 26, 2013 to December 31, 2017. WML's revolving line of credit has a borrowing limit of $25.0 million. The interest rate under the revolving line of credit at December 31, 2013 was 3.75% per annum. At December 31, 2013, WML had no outstanding balance under the revolving line of credit and the revolving line of credit supports a letter of credit of $1.9 million, leaving it with $23.1 million of borrowing availability. WML's revolving line of credit is only available to fund the operations of its respective subsidiaries.
On June 29, 2012, the Company and certain of its subsidiaries entered into a five-year, $20.0 million revolving line of credit permitted under the indenture governing the 10.75% Senior Notes with an expiration date of June 30, 2017. The revolver may support up to $2.0 million of letters of credit (which was increased to $10.0 million on January 10, 2014), which would reduce the balance available under the revolver. At December 31, 2013, availability on the revolver was $20.0 million with no outstanding balance and no supported letters of credit. All extensions of credit under the revolver are collateralized by a first priority security interest in and lien upon the inventory and accounts receivable of the Parent, WRI, Kemmerer, and ROVA. Pursuant to the Intercreditor Agreement, the holders of the 10.75% Senior Notes now have a subordinate lien on these assets.
2. | ACQUISITION |
On December 23, 2011, the Company, through Westmoreland Kemmerer, Inc., entered into a purchase and sale agreement with Chevron Mining Inc., a Missouri corporation (the “Seller”), pursuant to which the Company agreed to purchase from Seller the Kemmerer surface coal mine, associated processing facilities and other related real and personal property assets located in Kemmerer, Wyoming and assumed certain liabilities related to the mine. The Company did not acquire working capital in the acquisition, other than inventory.
On January 31, 2012, the Company closed on the acquisition of the Kemmerer Mine from the Seller. In addition, on January 31, 2012, the Company completed the issuance and sale of $125.0 million aggregate principal amount of 10.75% senior secured notes due 2018 (the “Add-On Notes”) at a price equal to approximately 95.5% of their face value.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The purchase consideration for the Kemmerer Mine was $164.5 million, which included $76.5 million paid in cash, plus the assumption of approximately $88.0 million of liabilities. The net proceeds of the Add-On Notes financed the $76.5 million cash portion of the purchase consideration, $24.7 million of cash bonding obligations for the Kemmerer Mine and paid cash transaction costs for the Kemmerer acquisition and the Add-On Notes. Acquisition-related costs of $1.6 million have been expensed and are included in Selling and administrative costs. Issuance costs related to the Add-On Notes of $5.1 million have been capitalized. The balance of the net proceeds of the Add-On Notes was used to fund working capital requirements necessary to integrate the Kemmerer operations with the Company's operations.
The Kemmerer acquisition has been accounted for under the acquisition method of accounting that requires the total purchase consideration to be allocated to the assets acquired and liabilities assumed based on estimates of fair value.
The Company has finalized the purchase price allocation for the Kemmerer acquisition. No significant goodwill or other intangible assets were evident in the acquisition.
A summary of the purchase consideration and allocation of the purchase consideration follow (in millions):
Final as of December 31, 2012 | |||
Purchase consideration: | |||
Cash paid | $ | 76.5 | |
Fair value of liabilities assumed: | |||
Postretirement medical cost obligations | 49.2 | ||
Asset retirement obligations | 19.4 | ||
Pension obligations | 15.6 | ||
Deferred revenue | 2.2 | ||
Accrued liabilities | 1.6 | ||
Total fair value of liabilities assumed | 88.0 | ||
Total purchase consideration | $ | 164.5 | |
Allocation of purchase consideration: | |||
Inventories | $ | 9.6 | |
Land and mineral rights | 65.5 | ||
Plant and equipment | 89.4 | ||
Total | $ | 164.5 |
The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on January 1, 2011. The unaudited pro forma results have been prepared based on estimates and assumptions, which the Company believes are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the acquisition occurred on January 1, 2011, or of future results of operations.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Years Ended | |||||||
December 31, 2012 | December 31, 2011 | ||||||
(In thousands) | |||||||
Total Revenues | |||||||
As reported | $ | 600,437 | $ | 501,713 | |||
Pro forma | $ | 614,550 | $ | 645,595 | |||
Operating Income | |||||||
As reported | $ | 28,872 | $ | 10,626 | |||
Pro forma | $ | 31,146 | $ | 13,275 | |||
Net income (loss) applicable to common shareholders | |||||||
As reported | $ | (8,586 | ) | $ | (34,460 | ) | |
Pro forma | $ | (7,524 | ) | $ | (46,260 | ) | |
Net income (loss) per share applicable to common shareholders | |||||||
As reported | $ | (0.61 | ) | $ | (2.61 | ) | |
Pro forma | $ | (0.54 | ) | $ | (3.51 | ) |
3. | INVENTORIES |
Inventories consisted of the following:
December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Coal stockpiles | $ | 543 | $ | 989 | |||
Coal fuel inventories | 6,161 | 3,048 | |||||
Materials and supplies | 34,233 | 34,954 | |||||
Reserve for obsolete inventory | (965 | ) | (1,257 | ) | |||
Total | $ | 39,972 | $ | 37,734 |
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
4. | RESTRICTED INVESTMENTS AND BOND COLLATERAL |
The Company’s restricted investments and bond collateral consist of the following:
December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Coal Segment: | |||||||
WML debt reserve account | $ | 13,067 | $ | 13,062 | |||
Reclamation bond collateral: | |||||||
Kemmerer Mine | 24,966 | 24,702 | |||||
Absaloka Mine | 11,653 | 14,507 | |||||
Rosebud Mine | 3,145 | 12,495 | |||||
Beulah Mine | 1,270 | 1,270 | |||||
Power Segment: | |||||||
Letter of credit account | 5,998 | 5,990 | |||||
Corporate Segment: | |||||||
Postretirement medical benefit bonds | 8,467 | 8,593 | |||||
Workers’ compensation bonds | 6,667 | 6,590 | |||||
Total restricted investments and bond collateral | 75,233 | 87,209 | |||||
Less current portion | (5,998 | ) | — | ||||
Total restricted investments and bond collateral, less current portion | $ | 69,235 | $ | 87,209 |
The Company’s carrying value and estimated fair value of its restricted investments and bond collateral at December 31, 2013 are as follows:
Carrying Value | Fair Value | ||||||
(In thousands) | |||||||
Cash and cash equivalents | $ | 40,605 | $ | 40,605 | |||
Time deposits | 2,444 | 2,444 | |||||
Held-to-maturity securities | 32,184 | 32,046 | |||||
$ | 75,233 | $ | 75,095 |
In 2013, 2012, and 2011, the Company recorded a gain of less than $0.1 million, $0.1 million, and $0.1 million, respectively, on the sale of available-for-sale securities held as restricted investments and bond collateral.
In 2013, $3.0 million and $9.4 million of reclamation bond collateral has been released from restriction regarding the Absaloka and Rosebud Mines, respectively.
The $6.0 million letter of credit account in the power segment has been released from restriction in February, 2014 and as a result is included as current portion.
Coal Segment
Pursuant to the terms of the Note Purchase Agreement dated June 26, 2008, WML must maintain a debt service reserve account. The debt service reserve account is required to contain funds sufficient to pay the principal, interest, and collateral agent’s fees scheduled to be paid in the following six months. The debt service reserve account was fully funded at December 31, 2013.
As of December 31, 2013, the Company had reclamation bond collateral in place for its Kemmerer, Absaloka, Rosebud and Beulah Mines. Bond collateral is not required at the Jewett Mine as reclamation bonding is the responsibility of its customer. These government-required bonds assure that coal-mining operations comply with applicable federal and state regulations relating to the performance and completion of final reclamation activities. The amounts deposited in the bond collateral account secure the bonds issued by the bonding company.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Power Segment
As of February, 2014, the Company will no longer be required to fund a letter of credit account for its power operations.
Corporate Segment
The Company is required to obtain surety bonds in connection with its self-insured workers’ compensation plan and certain health care plans. The Company’s surety bond underwriters require collateral to issue these bonds.
Held-to-Maturity and Available-for-Sale Restricted Investments and Bond Collateral
The amortized cost, gross unrealized holding gains and losses and fair value of held-to-maturity securities are as follows:
December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Amortized cost | $ | 32,184 | $ | 3,983 | |||
Gross unrealized holding gains | 309 | 356 | |||||
Gross unrealized holding losses | (447 | ) | — | ||||
Fair value | $ | 32,046 | $ | 4,339 |
Maturities of held-to-maturity securities are as follows at December 31, 2013:
Amortized Cost | Fair Value | ||||||
(In thousands) | |||||||
Due within one year | $ | 1,111 | $ | 1,143 | |||
Due in five years or less | 17,839 | 17,944 | |||||
Due after five years to ten years | 6,769 | 6,665 | |||||
Due in more than ten years | 6,465 | 6,294 | |||||
$ | 32,184 | $ | 32,046 |
The cost basis, gross unrealized holding gains and fair value of available-for-sale securities are as follows:
December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Cost basis | $ | — | $ | 175 | |||
Gross unrealized holding gains | — | 16 | |||||
Fair value | $ | — | $ | 191 |
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
5. | LINES OF CREDIT AND LONG-TERM DEBT |
The amounts outstanding under the Company’s long-term debt consisted of the following as of the dates indicated:
Total Debt Outstanding December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
10.75% senior notes due 2018 | $ | 251,500 | $ | 252,000 | |||
WML term debt due 2018 | 85,500 | 103,500 | |||||
Capital lease obligations | 10,153 | 13,926 | |||||
Other | 1,209 | 1,654 | |||||
Debt discount | (8,525 | ) | (10,091 | ) | |||
Total debt outstanding | 339,837 | 360,989 | |||||
Less current portion | (44,343 | ) | (23,791 | ) | |||
Total debt outstanding, less current portion | $ | 295,494 | $ | 337,198 |
The following table presents aggregate contractual debt maturities of all long-term debt:
As of December 31, 2013 | |||
(In thousands) | |||
2014 | $ | 23,949 | |
2015 | 22,662 | ||
2016 | 21,943 | ||
2017 | 22,492 | ||
2018 | 257,316 | ||
Thereafter | — | ||
Total | 348,362 | ||
Less: debt discount | (8,525 | ) | |
Total debt | $ | 339,837 |
Revolving Lines of Credit
Corporate Revolving Credit Agreement
On June 29, 2012, the Company and certain of its subsidiaries entered into a five-year, $20.0 million revolving line of credit permitted under the indenture governing the 10.75% Senior Notes with an expiration date of June 30, 2017. The revolver may support up to $2.0 million of letters of credit (which was increased to $10.0 million on January 10, 2014), which would reduce the balance available under the revolver. At December 31, 2013, availability on the revolver was $20.0 million with no outstanding balance and no supported letters of credit. All extensions of credit under the revolver are collateralized by a first priority security interest in and lien upon the inventory and accounts receivable of the Parent, WRI, Kemmerer, and ROVA. Pursuant to the Intercreditor Agreement, the holders of the 10.75% Senior Notes now have a subordinate lien on these assets. The Company capitalized debt issuance costs of $0.7 million in 2012 related to the revolver.
Two interest rate options exist under this revolver. The Base Rate option bears interest at the greater of the Federal Funds Rate plus 0.5% or the Prime Rate, as defined in the loan agreement and is payable monthly. The LIBOR Rate option bears interest at the London Interbank Offering Rate, or LIBOR, rate plus 2.25% and is payable monthly. In addition, a commitment fee of 0.75% of the average unused portion of the available revolver is payable monthly.
The loan agreement contains various affirmative, negative and financial covenants. Financial covenants in the agreement include a fixed charge coverage ratio and an EBITDA measure. The fixed charge coverage ratio must meet or exceed a specified minimum. The EBITDA covenant requires a minimum amount of EBITDA to be achieved. We met these covenant requirements as of December 31, 2013.
WML Revolving Credit Agreement
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
At December 31, 2013, WML had a revolving credit agreement with a borrowing limit of $25.0 million and a maturity date of June 26, 2013. WML has two interest rate options to choose from on this revolver. The Base Rate option bears interest at a base rate plus 0.50% and is payable monthly (3.75% per annum at December 31, 2013). The LIBOR Rate option bears interest at the London Interbank Offering Rate, or LIBOR, rate plus 3.0% (3.53% per annum at December 31, 2013). In addition, a commitment fee of 0.50% of the average unused portion of the available revolver is payable quarterly. At December 31, 2013, the revolver had no outstanding balance and supported a $1.9 million letter of credit. The Company had $23.1 million of borrowing availability under this revolver at December 31, 2013.
In March 2013, the Company amended the credit agreement by extending the maturity date from June 26, 2013 to December 31, 2017. Issuance costs related to the amendment of $0.2 million have been capitalized.
The revolver is secured by substantially all assets of WML, Westmoreland Savage Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC; the Company’s membership interest in WML; and the stock of WSC, WECO and DWC. WECO, DWC, and WSC have guaranteed WML’s obligations with respect to the Revolver.
Upon closing of the Sherritt Acquisition, the WML revolving credit agreement will expect to be terminated. See Note 1 for additional information.
10.75% Senior Notes
On February 4, 2011 through a private placement offering, the Company issued $150.0 million of Parent Notes (the “Parent Notes”), which are senior secured notes. The Company’s subsidiary, Westmoreland Partners, was a co-issuer of the notes. The Parent Notes were issued at a 5% discount, mature February 1, 2018, and bear a fixed interest rate of 10.75%, payable semi-annually, in arrears, on February 1 and August 1 of each year, which began August 1, 2011. Proceeds from the Parent Notes were used to retire ROVA's term debt, WRI's term debt and revolving line of credit, and the convertible notes; as well as payment of preferred stock dividend arrearages. On July 29, 2011, the Company commenced an exchange offer for the Parent Notes for an equal principal amount of notes that have been registered under the Securities Act of 1933, which exchange was completed in September, 2011. As a result of this offering, the Company recorded a $17.0 million loss on extinguishment of debt in the year ended December 31, 2011. The loss included a $9.1 million make-whole payment for ROVA’s debt and $7.9 million of non-cash write-offs of unamortized discount on debt and related capitalized debt costs and convertible debt conversion expense.
On January 31, 2012, the Company completed the private placement of $125.0 million of senior secured notes due in 2018 (the “Add-On Notes”), which were additional notes issued pursuant to the existing Parent Notes indenture, collectively referred to as the “10.75% Senior Notes”. The Add-On Notes were issued at a 4.5% original issue discount. On June 22, 2012, the Company commenced an exchange offer for the Add-On Notes for an equal principal amount of notes that have been registered under the Securities Act of 1933, which exchange was completed in July, 2012. At this time, all of the outstanding 10.75% Senior Notes are traded under one CUSIP. In 2011, the Company capitalized $0.2 million of debt issuance costs related to the Add-On Notes offering and has capitalized debt issuance costs of $4.9 million in 2012. The Company funded the Kemmerer Mine acquisition through the net proceeds from the Add-On Notes.
The 10.75% Senior Notes mature February 1, 2018, and bear an annual fixed interest rate of 10.75%, payable semi-annually, in arrears, on February 1 and August 1 of each year. The 10.75% Senior Notes are fully and unconditionally guaranteed by ROVA, Westmoreland Kemmerer, Inc. (“Kemmerer”), WRI and their respective subsidiaries (other than Absaloka Coal, LLC) and by certain other subsidiaries. Substantially all of the assets of the Parent, ROVA, Kemmerer and WRI constitute collateral for the 10.75% Senior Notes as to which the holders of these notes have a lien securing the notes. The lien securing the 10.75% Senior Notes is subordinate to the lien securing our revolving credit agreement.
During the year ended December 31, 2013, the Company paid $0.5 million, excluding accrued interest, to repurchase Senior Notes with a principal amount of $0.5 million. The Company recognized losses of $0.1 million on these repurchases, which were recorded as losses on extinguishment of debt. The losses on the repurchases were measured based on the carrying value of the repurchased portion of the Senior Notes, which included a portion of the unamortized debt issue costs and the debt discount on the dates of repurchase.
Under the indenture governing the 10.75% Senior Notes, the Company is required to offer a portion of our Excess Cash Flow (as defined by the indenture) for each fiscal year to purchase some of these notes at 100% of the principal amount. While the Company did repurchase $23.0 million of 10.75% Senior Notes during 2012, we did not have Excess Cash Flow for the years ended December 31, 2012 or 2011. The Company did have $29.5 million of Excess Cash Flow for the year ended
22
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
December 31, 2013 and will be required to offer $22.1 million for repurchase by April 30, 2014. As a result, the Company has reclassified $22.1 million of the outstanding 10.75% Senior Notes to Current installments of long-term debt.
The indenture governing the 10.75% Senior Notes contains, among other provisions, events of default and various affirmative and negative covenants. As of December 31, 2013, the Company was in compliance with all covenants for these notes.
WML Term Debt
The term debt bears interest at 8.02% per annum, payable quarterly. The principal payments required for the term debt are as follows:
(In millions) | |||
2014 | $ | 18.0 | |
2015 | 20.0 | ||
2016 | 20.0 | ||
2017 | 22.0 | ||
2018 | 5.5 | ||
Thereafter | — |
The term debt is payable in full on March 31, 2018. The term debt is secured by substantially all assets of WML, Westmoreland Savage Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC; the Company’s membership interest in WML; and the stock of WSC, WECO and DWC. WECO, DWC, and WSC have guaranteed WML’s obligations with respect to the term debt. The credit agreement requires a debt service account and imposes timing and other restrictions on the ability of WML to distribute funds to the Parent.
WML’s credit agreement contains various affirmative and negative covenants. Operational covenants in the agreements prohibit, among other things, WML from incurring or guaranteeing additional indebtedness, creating liens on its assets, making investments or engaging in asset sales or transactions with affiliates, in each case subject to specified exceptions. Financial covenants in the agreements impose requirements relating to specified debt service coverage and leverage ratios. The debt service coverage ratio must meet or exceed a specified minimum. The leverage ratio covenant requires that WML not permit the ratio of total debt at the end of each quarter to EBITDA (both as defined) for the four quarters then ended to be greater than a specified amount. WML met all of its covenant requirements as of December 31, 2013.
Upon closing of the Sherritt Acquisition, the WML term debt will expect to be prepaid using a portion of the $425.0 million in proceeds from the offering of the New Notes. See Note 1 for additional information.
Capital Leases
The Company engages in leasing transactions for equipment utilized in its mining operations. At December 31, 2013 and 2012, the capital leases outstanding had a weighted average interest rate of 6.40% and 7.57%, respectively and mature at various dates beginning in 2014 through 2018. During the year ended December 31, 2013, the Company paid $2.7 million to purchase equipment under capital leases prior to their maturities with a principal amount of $2.5 million. The difference between the purchase price and the carrying amount of the capital lease obligation was recorded as an adjustment to the carrying amount of the equipment.
6. | POSTRETIREMENT MEDICAL BENEFITS |
The Company provides postretirement medical benefits to retired employees and their dependents, mandated by the Coal Industry Retiree Health Act of 1992 and pursuant to collective bargaining agreements. The Company also provides these benefits to qualified full-time employees pursuant to collective bargaining agreements. These benefits are provided through self-insured programs.
23
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The following table sets forth the actuarial present value of postretirement medical benefit obligations and amounts recognized in the Company’s financial statements:
December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Change in benefit obligations: | |||||||
Net benefit obligation at beginning of year | $ | 333,842 | $ | 258,641 | |||
Liability acquired | — | 49,241 | |||||
Service cost | 4,436 | 3,555 | |||||
Interest cost | 12,139 | 12,363 | |||||
Plan participant contributions | 132 | 129 | |||||
Actuarial loss (gain) | (53,230 | ) | 22,342 | ||||
Gross benefits paid | (14,220 | ) | (13,544 | ) | |||
Federal subsidy on benefits paid | 1,230 | 1,115 | |||||
Net benefit obligation at end of year | 284,329 | 333,842 | |||||
Change in plan assets: | |||||||
Employer contributions | 14,088 | 13,415 | |||||
Plan participant contributions | 132 | 129 | |||||
Gross benefits paid | (14,220 | ) | (13,544 | ) | |||
Fair value of plan assets at end of year | — | — | |||||
Unfunded status at end of year | $ | (284,329 | ) | $ | (333,842 | ) | |
Amounts recognized in the balance sheet consist of: | |||||||
Current liabilities | $ | (13,955 | ) | $ | (14,068 | ) | |
Noncurrent liabilities | (270,374 | ) | (319,775 | ) | |||
Accumulated other comprehensive loss | 20,292 | 77,528 | |||||
Net amount recognized | $ | (264,037 | ) | $ | (256,315 | ) | |
Amounts recognized in accumulated other comprehensive loss consists of: | |||||||
Net actuarial loss | $ | 26,012 | $ | 83,884 | |||
Prior service credit | (5,720 | ) | (6,356 | ) | |||
$ | 20,292 | $ | 77,528 |
In 2013, the Company’s postretirement medical benefit liabilities decreased $49.5 million primarily due to increases in discount rates.
The Company has elected to amortize its transition obligations over a 20-year period. Prior service costs and credits and actuarial gains and losses are amortized over the average life expectancy or average future service of the plan’s participants. The following amounts will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2014 (in millions):
Actuarial loss | $ | 0.7 | |
Prior service credit | 0.6 |
24
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The components of net periodic postretirement medical benefit cost are as follows:
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(In thousands) | |||||||||||
Components of net periodic benefit cost: | |||||||||||
Service cost | $ | 4,436 | $ | 3,555 | $ | 493 | |||||
Interest cost | 12,139 | 12,363 | 10,510 | ||||||||
Amortization of: | |||||||||||
Transition obligation | — | 93 | 93 | ||||||||
Prior service credit | (636 | ) | (636 | ) | (636 | ) | |||||
Actuarial loss | 4,641 | 3,116 | 255 | ||||||||
Total net periodic benefit cost | $ | 20,580 | $ | 18,491 | $ | 10,715 |
The following table shows the net periodic postretirement medical benefit costs that relate to current and former mining operations:
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(In thousands) | |||||||||||
Former mining operations | $ | 12,475 | $ | 11,314 | $ | 9,259 | |||||
Current operations | 8,105 | 7,177 | 1,456 | ||||||||
Total net periodic benefit cost | $ | 20,580 | $ | 18,491 | $ | 10,715 |
The costs for the former mining operations are included in Heritage health benefit expenses and the costs for current operations are included as operating expenses.
Assumptions
The weighted-average assumptions used to determine the benefit obligations as of the end of each year were as follows:
December 31, | |||
2013 | 2012 | ||
Discount rate | 4.50% - 5.05% | 3.60% - 4.15% | |
Measurement date | December 31, 2013 | December 31, 2012 |
The discount rate is adjusted annually based on an Aa corporate bond index adjusted for the difference in the duration of the bond index and the duration of the benefit obligations. This rate is calculated using a yield curve, which is developed using the average yield for bonds in the tenth to ninetieth percentiles, which excludes bonds with outlier yields.
The weighted-average assumptions used to determine net periodic benefit cost were as follows:
December 31, | |||||
2013 | 2012 | 2011 | |||
Discount rate | 3.60% - 4.15% | 4.10% | 5.15% | ||
Measurement date | December 31, 2012 | December 31, 2011 | December 31, 2010 |
The following presents information about the assumed health care trend rate:
December 31, | |||||
2013 | 2012 | ||||
Health care cost trend rate assumed for next year | 6.75 | % | 7.00 | % | |
Rate to which the cost trend is assumed to decline (ultimate trend rate) | 5.00 | % | 5.00 | % | |
Year that the trend rate reaches the ultimate trend rate | 2021 | 2021 |
25
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The effect of a one percent change on the health care cost trend rate used to calculate periodic postretirement medical benefit costs and the related benefit obligation are summarized in the table below:
Postretirement Medical Benefits | |||||||
1 % Increase | 1 % Decrease | ||||||
(In thousands) | |||||||
Effect on service and interest cost components | $ | 3,148 | $ | (2,442 | ) | ||
Effect on postretirement medical benefit obligation | $ | 35,464 | $ | (30,096 | ) |
Cash Flows
The following benefit payments and Medicare D subsidy (which the Company receives as a benefit partially offsetting its prescription drug costs for retirees and their dependents) are expected by the Company:
Postretirement Medical Benefits | Medicare D Subsidy | Net Postretirement Medical Benefits | |||||||||
(In thousands) | |||||||||||
2014 | $ | 13,955 | $ | (1,249 | ) | $ | 12,706 | ||||
2015 | 14,522 | (1,293 | ) | 13,229 | |||||||
2016 | 14,975 | (1,336 | ) | 13,639 | |||||||
2017 | 15,408 | (1,386 | ) | 14,022 | |||||||
2018 | 16,191 | (1,432 | ) | 14,759 | |||||||
Years 2019 - 2023 | 85,342 | (7,807 | ) | 77,535 |
Combined Benefit Fund
Additionally, the Company makes payments to the UMWA Combined Benefit Fund, or CBF, which is a multiemployer health plan neither controlled by nor administered by the Company. The CBF is designed to pay health care benefits to UMWA workers (and dependents) who retired prior to 1976. The Company is required by the Coal Act to make monthly premium payments into the CBF. These payments are based on the number of the Company’s UMWA employees who retired prior to 1976, and the Company’s pro-rata assigned share of UMWA retirees whose companies are no longer in business. Contributions to the CBF have decreased over the past three years due to a declining population. The Company expenses payments to the CBF when they are due. The following payments were made to the CBF (in millions):
2013 | $ | 2.2 | |
2012 | 2.3 | ||
2011 | 2.6 |
Workers’ Compensation Benefits
The Company was self-insured for workers’ compensation benefits prior to January 1, 1996. Since 1996, the Company has purchased third-party insurance for workers’ compensation claims.
26
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The following table shows the changes in the Company’s workers’ compensation obligation:
December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Workers’ compensation, beginning of year (including current portion) | $ | 9,530 | $ | 11,626 | |||
Accretion | 166 | 204 | |||||
Claims paid | (581 | ) | (475 | ) | |||
Actuarial changes | (1,654 | ) | (1,825 | ) | |||
Workers’ compensation, end of year | 7,461 | 9,530 | |||||
Less current portion | (717 | ) | (820 | ) | |||
Workers’ compensation, less current portion | $ | 6,744 | $ | 8,710 |
The discount rates used in determining the workers’ compensation benefit accruals are adjusted annually based on ten-year Treasury bond rates. At December 31, 2013 and 2012, the rates were 3.0% and 2.0%, respectively.
Black Lung Benefits
The Company is self-insured for federal and state black lung benefits for former heritage employees and has established an independent trust to pay these benefits.
The PPACA amended previous legislation related to black lung disease, providing automatic extension of awarded lifetime benefits to surviving spouses and providing changes to the legal criteria used to assess and award claims. Since the legislation passed in March 2010, the Company has experienced a significant increase in claims filed compared to the corresponding period in prior years. However, the Company has not been able to determine what, if any, additional impact may result from these claims due to lack of claims experience under the new legislation and court rulings interpreting the new provisions. The Company has not noted an increase in cash disbursements resulting from these new claims. The Company will continue to evaluate the impact of the PPACA in future periods as additional information, interpretations, guidance and claims experience becomes available.
The following table sets forth the funded status of the Company’s black lung obligation:
December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Actuarial present value of benefit obligation: | |||||||
Expected claims from terminated employees | $ | 876 | $ | 1,139 | |||
Amounts owed to existing claimants | 13,267 | 15,061 | |||||
Total present value of benefit obligation | 14,143 | 16,200 | |||||
Plan assets at fair value, primarily government-backed securities | 5,468 | 7,844 | |||||
Excess of the black lung benefit obligation over trust assets | $ | 8,675 | $ | 8,356 |
The discount rates used in determining the actuarial present value of the black lung benefit obligation are based on corporate bond yields and are adjusted annually. At December 31, 2013 and 2012, the rates used were 4.00% and 3.25%, respectively.
27
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Plan Assets
The fair value of the Company’s Black Lung trust assets by asset category is as follows:
December 31, 2013 | |||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | ||||||||||
Fair Value | Level 1 | Level 2 | |||||||||
(In thousands) | |||||||||||
U.S. treasury securities | $ | 5,280 | $ | — | $ | 5,280 | |||||
Mortgage-backed securities | 185 | — | 185 | ||||||||
Cash and cash equivalents | 3 | 3 | — | ||||||||
$ | 5,468 | $ | 3 | $ | 5,465 |
December 31, 2012 | |||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | ||||||||||
Fair Value | Level 1 | Level 2 | |||||||||
(In thousands) | |||||||||||
U.S. treasury securities | $ | 7,548 | $ | — | $ | 7,548 | |||||
Mortgage-backed securities | 269 | — | 269 | ||||||||
Cash and cash equivalents | 27 | 27 | — | ||||||||
$ | 7,844 | $ | 27 | $ | 7,817 |
The Black Lung Level 1 trust assets include cash and cash equivalents.
The Black Lung Level 2 trust assets include U.S. treasury bonds and notes where evaluators gather information from market sources and integrate relative credit information, observed market movements, and sector news into the evaluated pricing applications and models to value these assets. Level 2 trust assets also include mortgage-backed securities which are valued via model using various inputs such as daily cash flow, snapshots of US Treasury market, floating rate indices as a benchmark yield, spread over index, periodic and life caps, next coupon adjustment date, and convertibility of the bond.
7. | PENSION AND OTHER SAVING PLANS |
Defined Benefit Pension Plans
The Company provides defined benefit pension plans to qualified full-time employees pursuant to collective bargaining agreements. Benefits are generally based on years of service and the employee’s average annual compensation for the highest five continuous years of employment as specified in the plan agreement. The Company’s funding policy is to contribute annually the minimum amount prescribed, as specified by applicable regulations or loan covenants. The Company may make additional discretionary contributions. In 2009, the Company froze its pension plan for non-represented employees.
Supplemental Executive Retirement Plan
The Company maintains a Supplemental Executive Retirement Plan or SERP for former executives as a result of employment or severance agreements. The SERP is an unfunded non-qualified deferred compensation plan, which provides benefits to certain employees beyond the maximum limits imposed by the Employee Retirement Income Security Act and the Internal Revenue Code. The Company does not expect to add new participants to its SERP plan.
28
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The following table provides a reconciliation of the changes in the benefit obligations of the plans and the fair value of assets of the qualified plans and the amounts recognized in the Company’s financial statements for both the defined benefit pension and SERP plans:
Defined Benefit Pension December 31, | SERP December 31, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(In thousands) | |||||||||||||||
Change in benefit obligation: | |||||||||||||||
Net benefit obligation at beginning of year | $ | 172,289 | $ | 100,582 | $ | 4,241 | $ | 4,511 | |||||||
Liability acquired | — | 57,307 | — | — | |||||||||||
Service cost | 2,346 | 2,139 | — | — | |||||||||||
Interest cost | 6,209 | 6,330 | 152 | 172 | |||||||||||
Actuarial loss (gain) | (18,972 | ) | 13,121 | (359 | ) | (48 | ) | ||||||||
Benefits and expenses paid | (6,797 | ) | (7,190 | ) | (394 | ) | (394 | ) | |||||||
Net benefit obligation at end of year | 155,075 | 172,289 | 3,640 | 4,241 | |||||||||||
Change in plan assets: | |||||||||||||||
Fair value of plan assets at the beginning of year | 121,887 | 75,710 | — | — | |||||||||||
Assets acquired | — | 41,704 | — | — | |||||||||||
Actual return on plan assets | 18,414 | 11,502 | — | — | |||||||||||
Employer contributions | 645 | 161 | 394 | 394 | |||||||||||
Benefits and expenses paid | (6,797 | ) | (7,190 | ) | (394 | ) | (394 | ) | |||||||
Fair value of plan assets at end of year | 134,149 | 121,887 | — | — | |||||||||||
Unfunded status at end of year | $ | (20,926 | ) | $ | (50,402 | ) | $ | (3,640 | ) | $ | (4,241 | ) | |||
Amounts recognized in the accompanying balance sheet consist of: | |||||||||||||||
Current liability | $ | — | $ | — | $ | (390 | ) | $ | (390 | ) | |||||
Noncurrent liability | (20,926 | ) | (50,401 | ) | (3,250 | ) | (3,850 | ) | |||||||
Accumulated other comprehensive loss | 11,045 | 43,037 | 1,209 | 1,679 | |||||||||||
Net amount recognized at end of year | $ | (9,881 | ) | $ | (7,364 | ) | $ | (2,431 | ) | $ | (2,561 | ) | |||
Amounts recognized in accumulated other comprehensive loss consist of: | |||||||||||||||
Net actuarial loss | $ | 11,045 | $ | 43,037 | $ | 1,209 | $ | 1,679 | |||||||
$ | 11,045 | $ | 43,037 | $ | 1,209 | $ | 1,679 |
The accumulated benefit obligation for all plans was $158.7 million and $176.5 million at December 31, 2013 and 2012, respectively. The Company’s pension and SERP liabilities decreased $30.1 million in 2013 primarily from increases in discount rates.
Prior service costs and actuarial gains and losses are amortized over the expected future period of service of the plan’s participants. The following amounts will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2014 (in millions):
Pension | SERP | ||||||
Net actuarial loss | $ | 0.8 | $ | 0.1 |
29
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The components of net periodic benefit cost are as follows:
Defined Benefit Pension Years Ended December 31, | SERP Years Ended December 31, | ||||||||||||||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
Components of net periodic benefit cost: | |||||||||||||||||||||||
Service cost | $ | 2,346 | $ | 2,139 | $ | 784 | $ | — | $ | — | $ | — | |||||||||||
Interest cost | 6,209 | 6,330 | 4,568 | 152 | 172 | 215 | |||||||||||||||||
Expected return on plan assets | (8,770 | ) | (8,241 | ) | (5,218 | ) | — | — | — | ||||||||||||||
Amortization of: | |||||||||||||||||||||||
Prior service cost | — | — | — | — | — | 5 | |||||||||||||||||
Actuarial loss | 3,377 | 2,867 | 1,578 | 112 | 95 | 64 | |||||||||||||||||
Total net periodic pension cost | $ | 3,162 | $ | 3,095 | $ | 1,712 | $ | 264 | $ | 267 | $ | 284 |
These costs are included in the accompanying statements of operations in Cost of sales and Selling and administrative expenses.
Assumptions
The weighted-average assumptions used to determine the benefit obligations as of the end of each year were as follows:
Defined Benefit Pension December 31, | SERP December 31, | ||||||
2013 | 2012 | 2013 | 2012 | ||||
Discount rate | 4.25% - 4.65% | 3.35% - 3.75% | 4.65% | 3.75% | |||
Measurement date | December 31, 2013 | December 31, 2012 | December 31, 2013 | December 31, 2012 |
The discount rate is adjusted annually based on an Aa corporate bond index adjusted for the difference in the duration of the bond index and the duration of the benefit obligations. This rate is calculated using a yield curve, which is developed using the average yield for bonds in the tenth to ninetieth percentiles, which excludes bonds with outlier yields.
The following table provides the assumptions used to determine net periodic benefit cost:
Defined Benefit Pension Years Ended December 31, | SERP Years Ended December 31, | ||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||
Discount rate | 3.35% - 3.75% | 4.05% - 4.25% | 5.15% - 5.40% | 3.75% | 4.25% | 5.40% | |||||
Expected return on plan assets | 7.40% | 7.40% | 7.40% | N/A | N/A | N/A | |||||
Rate of compensation increase | N/A | N/A | N/A | N/A | N/A | N/A | |||||
Measurement date | December 31, 2012 | December 31, 2011 | December 31, 2010 | December 31, 2012 | December 31, 2011 | December 31, 2010 |
Plan Assets
The Company’s investment goals are to maximize returns subject to specific risk management policies. The Company sets the expected return on plan assets based on historical trends and forecasts provided by its third-party fund managers. Its risk management policies permit investments in mutual funds, and prohibit direct investments in debt and equity securities and derivative financial instruments. The Company invested in its common stock in 2011 in order to meet plan funding requirements. The Company addresses diversification by the use of mutual fund investments whose underlying investments are in fixed income and equity securities, both domestic and international. These mutual funds are readily marketable and can be sold to fund benefit payment obligations as they become payable.
30
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The weighted-average target asset allocation of the Company’s pension trusts were as follows at December 31, 2013:
Target Allocation | |
Asset category | |
Cash and equivalents | 0% - 10% |
Equity securities funds | 20% - 60% |
Debt securities funds | 40% - 80% |
Other | 0% - 10% |
The fair value of the Company’s pension plan assets by asset category is as follows:
December 31, 2013 | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
(In thousands) | |||||||||||||||
Pooled separate accounts: | |||||||||||||||
Large-cap | $ | 48,983 | $ | — | $ | 48,983 | $ | — | |||||||
International blend | 18,191 | — | 18,191 | — | |||||||||||
Fixed income domestic | 40,944 | — | 40,944 | — | |||||||||||
Fixed income long term | 17,797 | — | 17,797 | — | |||||||||||
Stable Value | 5,267 | — | 5,267 | — | |||||||||||
Registered investment companies – growth fund | — | — | — | — | |||||||||||
Limited partnerships and limited liability companies | 250 | — | — | 250 | |||||||||||
Westmoreland Coal common stock | 2,255 | 2,255 | — | — | |||||||||||
Cash and cash equivalents | 462 | 462 | — | — | |||||||||||
$ | 134,149 | $ | 2,717 | $ | 131,182 | $ | 250 |
December 31, 2012 | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
(In thousands) | |||||||||||||||
Pooled separate accounts: | |||||||||||||||
Large-cap | $ | 50,589 | $ | — | $ | 50,589 | $ | — | |||||||
International blend | 10,294 | — | 10,294 | — | |||||||||||
Fixed income domestic | 42,744 | — | 42,744 | — | |||||||||||
Stable value | 3,850 | — | 3,850 | — | |||||||||||
Registered investment companies – growth fund | 10,295 | 10,295 | — | — | |||||||||||
Limited partnerships and limited liability companies | 614 | — | — | 614 | |||||||||||
Westmoreland Coal common stock | 3,500 | 3,500 | — | — | |||||||||||
Cash and cash equivalents | 1 | 1 | — | — | |||||||||||
$ | 121,887 | $ | 13,796 | $ | 107,477 | $ | 614 |
31
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The Company’s Level 1 assets include securities held by registered investment companies and its common stock, which are both typically valued using quoted market prices of an active market. Cash and cash equivalents and short-term investments are predominantly held in money market accounts.
The Company’s Level 2 assets include pooled separate accounts, which are valued based on the quoted market prices of the securities underlying the investments.
The Company’s Level 3 assets include interest in limited partnerships and limited liability companies that invest in privately held companies or privately held real estate assets. These assets are valued by the respective partnership or company manager using market and income approaches. The market approach consists of using comparable market transactions or values. The income approach consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and other risk factors. The inputs considered in the valuations include original transaction prices, recent transactions in the same or similar instruments, changes in financial ratios or cash flows, discounted cash flow valuations, and general economic and market conditions.
A summary of changes in the fair value of the Plan’s Level 3 assets is shown below:
Limited partnerships and limited liability companies | |||||||
Year Ended December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Beginning balance | $ | 614 | $ | 1,050 | |||
Unrealized gain | 5 | 96 | |||||
Settlements, net | (369 | ) | (532 | ) | |||
Ending balance | $ | 250 | $ | 614 |
Contributions
Previously, the Company was required by WML loan covenants to ensure that by 8.5 months after the end of the plan year, the value of its pension assets are at least 90% of each of the plan’s year end actuarially determined pension liability. On June 28, 2012, the loan covenant was amended to lower the requirement to 80%.
The Company contributed $0.6 million in cash to its retirement plans during 2013, in order to achieve the required 80% funding status. In 2014, the Company expects to make approximately $4.3 million of pension plan contributions.
Cash Flows
The following benefit payments are expected to be paid from its pension plan assets:
Pension Benefits | |||
(In thousands) | |||
2014 | $ | 7,324 | |
2015 | 7,772 | ||
2016 | 8,238 | ||
2017 | 9,066 | ||
2018 | 9,321 | ||
Years 2019 - 2023 | 50,340 |
The benefits expected to be paid are based on the same assumptions used to measure the Company’s pension benefit obligation at December 31, 2013 and include estimated future employee service.
Multi-Employer Pension
The Company contributes to the Central Pension Fund, or the Plan, a multiemployer defined benefit pension plan for its WECO, WRI and WSC entities pursuant to collective bargaining agreements. The Plan’s Employer Identification Number is 36-6052390. These employers contribute to the Plan based on a negotiated rate per hour worked per participating employee. For
32
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
the Plan’s year-end dates of January 31, 2013 and 2012, no single employer contributed more than 5% of total contributions to the Plan. As of the Plan’s year-end date January 31, 2013, it had a healthy or greater than 80% funding status.
The following table shows required information for each employer contributing to the Central Pension Fund:
WECO | WRI | WSC | |||||||||
Employer plan number | 9313 | 9243 | 4990 | ||||||||
Minimum contributions per hour worked | $ | 5.75 | $ | 5.70 | $2.95 - $3.20 | ||||||
Expiration date of collective bargaining agreements | 2/28/2019 | 5/31/2015 | 4/1/2016 | ||||||||
Employer contributions (in millions): | |||||||||||
2013 | $ | 3.4 | $ | 0.9 | $ | 0.1 | |||||
2012 | 3.2 | 0.5 | 0.1 | ||||||||
2011 | 3.2 | 0.9 | 0.1 |
Other Plans
The Company sponsors 401(k) saving plans, which were established to assist eligible employees provide for their future retirement needs. The Company’s expense was $3.6 million, $2.9 million and $2.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. During 2013, the Company's expense of $3.6 million consisted of $1.2 million in cash contributions and $2.4 million in contributions of Company stock to the plans. During 2012 and 2011, the Company's expense were all from contributions of Company stock to the plans.
8. | HERITAGE HEALTH BENEFIT EXPENSES |
The caption Heritage health benefit expenses used in the consolidated statements of operations refers to costs of benefits the Company provides to its former mining operation employees. The components of these expenses are as follows:
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(In thousands) | |||||||||||
Health care benefits | $ | 12,579 | $ | 11,367 | $ | 9,507 | |||||
Combined benefit fund payments | 2,240 | 2,258 | 2,617 | ||||||||
Workers’ compensation benefits (credit) | (1,212 | ) | (1,322 | ) | 2,132 | ||||||
Black lung benefits (credit) | (189 | ) | 1,085 | 4,319 | |||||||
Total | $ | 13,418 | $ | 13,388 | $ | 18,575 |
33
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
9. | ASSET RETIREMENT OBLIGATIONS, CONTRACTUAL THIRD-PARTY RECLAMATION RECEIVABLE, AND RECLAMATION DEPOSITS |
The asset retirement obligation, contractual third-party reclamation receivable, and reclamation deposits for each of the Company’s mines and ROVA at December 31, 2013 are summarized below:
Asset Retirement Obligation | Contractual Third-Party Reclamation Receivable | Reclamation Deposits | |||||||||
(In thousands) | |||||||||||
Rosebud | $ | 126,965 | $ | 21,186 | $ | 74,921 | |||||
Jewett | 75,267 | 75,267 | — | ||||||||
Absaloka | 36,401 | 337 | — | ||||||||
Beulah | 17,785 | — | — | ||||||||
Kemmerer | 17,174 | — | — | ||||||||
Savage | 5,380 | — | — | ||||||||
ROVA | 892 | — | — | ||||||||
Total | $ | 279,864 | $ | 96,790 | $ | 74,921 |
Asset Retirement Obligations
Changes in the Company’s asset retirement obligations were as follows:
Years Ended December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Asset retirement obligations, beginning of year (including current portion) | $ | 263,847 | $ | 247,478 | |||
Accretion | 21,905 | 21,909 | |||||
Liabilities settled | (21,630 | ) | (17,342 | ) | |||
Changes due to amount and timing of reclamation | 15,742 | (7,575 | ) | ||||
ARO acquired | — | 19,377 | |||||
Asset retirement obligations, end of year | 279,864 | 263,847 | |||||
Less current portion | (23,353 | ) | (22,238 | ) | |||
Asset retirement obligations, less current portion | $ | 256,511 | $ | 241,609 |
As permittee, the Company or its subsidiaries are responsible for the total amount of final reclamation costs for its mines and ROVA. The financial responsibility for a portion of final reclamation of the mines when they are closed has been transferred by contract to certain customers, while other customers have provided guarantees or funded escrow accounts to cover final reclamation costs. Costs of reclamation of mining pits prior to mine closure are recovered in the price of coal shipped.
As of December 31, 2013, the Company had $298.6 million in surety bonds outstanding to secure reclamation obligations.
Contractual Third-Party Reclamation Receivables
The Company has recognized as an asset $96.8 million as contractual third-party reclamation receivables, representing the present value of customer obligations to reimburse the Company for reclamation expenditures at the Company’s Rosebud, Jewett and Absaloka Mines.
34
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Reclamation Deposits
The Company’s reclamation deposits will be used to fund final reclamation activities. The Company’s carrying value and estimated fair value of its reclamation deposits at December 31, 2013 are as follows:
Carrying Value | Fair Value | ||||||
(In thousands) | |||||||
Cash and cash equivalents | $ | 63,525 | $ | 63,525 | |||
Held-to-maturity securities | 11,396 | 12,086 | |||||
$ | 74,921 | $ | 75,611 |
In 2011, the Company recorded a gain of $0.1 million on the sale of available-for-sale securities held as reclamation deposits.
Held-to-Maturity and Available-for-Sale Reclamation Deposits
The amortized cost, gross unrealized holding gains and losses and fair value of held-to-maturity securities are as follows:
Years Ended December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Amortized cost | $ | 11,396 | $ | 19,832 | |||
Gross unrealized holding gains | 764 | 1,190 | |||||
Gross unrealized holding losses | (74 | ) | (9 | ) | |||
Fair value | $ | 12,086 | $ | 21,013 |
Maturities of held-to-maturity securities are as follows at December 31, 2013:
Amortized Cost | Fair Value | ||||||
(In thousands) | |||||||
Within one year | $ | 17 | $ | 17 | |||
Due in five years or less | 6,645 | 6,976 | |||||
Due after five years to ten years | 3,002 | 3,123 | |||||
Due in more than ten years | 1,732 | 1,970 | |||||
$ | 11,396 | $ | 12,086 |
The cost basis, gross unrealized holding gains and fair value of available-for-sale securities are as follows:
December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Cost basis | $ | — | $ | 1,000 | |||
Gross unrealized holding gains | — | 39 | |||||
Fair value | $ | — | $ | 1,039 |
35
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
10. | DERIVATIVE INSTRUMENTS |
Derivative Liabilities
The Company evaluates all of its financial instruments to determine if such instruments are derivatives, derivatives that qualify for the normal purchase normal sale exception, or contain features that qualify as embedded derivatives. All derivative financial instruments, except for derivatives that qualify for the normal purchase normal sale exception, are recognized on the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting.
Convertible Debt
As a part of the Parent Notes offering in February 2011, the Company’s convertible notes were retired.
The effect of derivative instruments not designated as hedging instruments on the accompanying consolidated statements of operations was as follows (in thousands):
Statement of Operations Location | Income Recognized in Earnings on Derivatives | |||||||||||||
Years Ended December 31, | ||||||||||||||
Derivative Instrument | 2013 | 2012 | 2011 | |||||||||||
Convertible debt -conversion feature | Other income (loss) | $ | — | $ | — | $ | 3,079 |
11. | FAIR VALUE MEASUREMENTS |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company is required to disclose the fair value of financial instruments where practicable. The carrying amounts of cash equivalents, accounts receivable and accounts payable reflected on the consolidated balance sheets approximate the fair value of these instruments due to the short duration to their maturities. Long-term debt fair value estimates are based on observed prices for securities with an active trading market when available (Level 2) and otherwise using discount rate estimates based on interest rates as of December 31, 2013 (Level 3).
The estimated fair value of the Company’s debt with fixed interest rates are as follows:
Carrying Value | Fair Value | ||||||
(In thousands) | |||||||
December 31, 2012 | $ | 345,408 | $ | 359,753 | |||
December 31, 2013 | $ | 328,473 | $ | 364,329 |
The table below sets forth, by level, the Company’s financial assets and liabilities that are accounted for at fair value on a recurring basis:
Year Ended December 31, 2012 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(In thousands) | |||||||||||||||
Assets: | |||||||||||||||
Available-for-sale investments included in Restricted investments and bond collateral | $ | 191 | $ | — | $ | — | $ | 191 | |||||||
Available-for-sale investments included in Reclamation deposits | 1,039 | — | — | 1,039 | |||||||||||
Total assets | $ | 1,230 | $ | — | $ | — | $ | 1,230 |
12. | RESTRICTED STOCK UNITS, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (SARs) |
As of December 31, 2013, the Company had restricted stock units, stock options, and stock-settled stock appreciation rights, or SARs, outstanding from three stock incentive plans. Two of these plans were terminated in October 2009. The Company grants employees and non-employee directors restricted stock units from the Amended and Restated 2007 Equity
36
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Incentive Stock Plan. The Amended and Restated 2007 Equity Incentive Stock Plan provides that non-employee directors will receive equity awards of 7,000 shares after each annual meeting.
The maximum number of remaining shares that can be issued under the 2007 Incentive Stock Plan is 49,050.
Compensation cost arising from share-based arrangements is shown in the following table:
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(In thousands) | |||||||||||
Recognition of fair value of restricted stock units, stock options and SARs over vesting period; and issuance of stock | $ | 2,967 | $ | 3,088 | $ | 1,969 | |||||
Contributions of stock to the Company’s 401(k) plan | 2,355 | 2,952 | 2,752 | ||||||||
Total share-based compensation expense | $ | 5,322 | $ | 6,040 | $ | 4,721 |
Restricted Stock Units
The Company may issue restricted stock units, which requires no payment from the employee. Restricted stock units typically vest ratably over three years. Upon vesting, the Company can elect to settle the restricted stock units in either cash or the Company’s common stock. Compensation expense is based on the fair value on the grant date and is recorded ratably over the vesting period.
In April 2013, the Company granted 54,730 restricted stock units, of which 27,366 units will vest ratably over a three-year period. The remaining 27,364 units are performance based, which will vest and pay out at the end of a three-year period if performance goals are met. The Company’s management believes it is probable that the target performance condition will be met.
A summary of restricted stock award activity for the year ended December 31, 2013 is as follows:
Units | Weighted Average Grant-Date Fair Value | Unamortized Compensation Expense (In thousands) | |||||||||
Non-vested at December 31, 2012 | 680,185 | $ | 8.88 | ||||||||
Granted | 103,730 | $ | 11.70 | ||||||||
Vested | (195,940 | ) | $ | 8.62 | |||||||
Forfeited | — | $ | — | ||||||||
Non-vested at December 31, 2013 | 587,975 | $ | 9.46 | $ | 2,346 | (1) |
____________________
(1) | Expected to be recognized over the next three years. |
Additional information related to restricted stock units:
Years Ended December 31: | Weighted Average Grant-Date Fair Value | Total Grant- Date Fair Value of Restricted Stock Units that Vested (In thousands) | |||||
2013 | $ | 11.70 | $ | 1,689 | |||
2012 | $ | 7.57 | $ | 1,336 | |||
2011 | $ | 14.99 | $ | 1,757 |
Stock Options
Stock options generally vest over three years, expire ten years from the date of grant, and have an option price equal to the market value of the stock on the date of grant.
37
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Information with respect to stock option activity for the year ended December 31, 2013, is as follows:
Stock Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (In years) | Aggregate Intrinsic Value (In thousands) | Unamortized Compensation Expense (In thousands) | ||||||||||||
Outstanding at December 31, 2012 | 170,823 | $ | 21.30 | |||||||||||||
Expired | (25,017 | ) | $ | 17.41 | ||||||||||||
Outstanding and exercisable at December 31, 2013 | 145,806 | $ | 21.97 | 4.254 | $ | — | $ | — |
Additional information related to stock options:
Years Ended December 31: | Intrinsic Value of Stock Options Exercised | Total Grant-Date Fair Value of Stock Options that Vested | |||||
(In thousands) | |||||||
2013 | $ | — | $ | — | |||
2012 | $ | — | $ | — | |||
2011 | $ | 86 | $ | 538 |
There were no stock options granted during 2013, 2012 or 2011.
SARs
SARs generally vest over three years, expire ten years from the date of grant, and have a base price equal to the market value of the stock on the date of grant. Upon vesting, the holders may exercise the SARs and receive a number of shares of common stock having a value equal to the appreciation in the value of the common stock between the grant date and the exercise date.
Information with respect to SARs granted and outstanding for the year ended December 31, 2013 is as follows:
SARs | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (In years) | Aggregate Intrinsic Value (In thousands) | Unamortized Compensation Expense (In thousands) | ||||||||||||
Outstanding at December 31, 2012 | 70,734 | $ | 22.60 | |||||||||||||
Expired | — | $ | — | |||||||||||||
Outstanding and exercisable at December 31, 2013 | 70,734 | $ | 22.60 | 1.7 | $ | — | $ | — |
There were no SARs granted or exercised during 2013, 2012, or 2011.
The total grant-date fair value of SARs that vested was less than $0.1 million in 2011. No SARs vested during 2012 or 2013.
13. | STOCKHOLDERS’ EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
Preferred and Common Stock
The Company has two classes of capital stock outstanding, common stock, par value $2.50 per share, and Series A Convertible Exchangeable Preferred Stock on which cumulative dividends of $2.125 per share are payable quarterly. Each share of Series A Preferred Stock is represented by four Depositary Shares. Under the terms of the Series A Preferred Stock, the Company can redeem preferred shares at any time for the redemption value of $100.00 plus any accumulated dividends paid in cash. In February 2011, the Company paid $19.9 million of accumulated preferred stock dividends as of January 1, 2011. The Company is permitted to pay preferred stock dividends to the extent there is a surplus, defined by Delaware law. In June 2011, approximately 169 shares of preferred stock were converted into 1,152 shares of common stock. Subsequent to December 31, 2013 and through February 25, 2014, approximately 37,300 shares of preferred stock were converted into 254,822 shares of common stock. The Company paid $1.4 million of preferred stock dividends for the year ended December 31, 2013.
38
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Accumulated Other Comprehensive Income (Loss)
The following is a summary of accumulated other comprehensive income (loss):
Pension and Postretirement Medical Benefits | Available for Sale Securities | Tax Effect of Other Comprehensive Income Gains | Accumulated Other Comprehensive Loss | ||||||||||||
(In thousands) | |||||||||||||||
Balance at January 1, 2011 | $ | (32,049 | ) | $ | 525 | $ | (26,156 | ) | $ | (57,680 | ) | ||||
2011 activity | (63,575 | ) | (200 | ) | — | (63,775 | ) | ||||||||
Balance at December 31, 2011 | (95,624 | ) | 325 | (26,156 | ) | (121,455 | ) | ||||||||
2012 activity | (26,622 | ) | (268 | ) | — | (26,890 | ) | ||||||||
Balance at December 31, 2012 | (122,246 | ) | 57 | (26,156 | ) | (148,345 | ) | ||||||||
2013 activity | 89,699 | (57 | ) | (4,892 | ) | 84,750 | |||||||||
Balance at December 31, 2013 | $ | (32,547 | ) | $ | — | $ | (31,048 | ) | $ | (63,595 | ) |
Pension and postretirement medical benefit adjustments relate to changes in the funded status of various benefit plans. The unrealized gains and losses associated with recognizing the Company’s “available-for-sale” securities at fair value are recorded through Accumulated other comprehensive loss.
Changes in Accumulated Other Comprehensive Income
The following table reflects the changes in accumulated other comprehensive income (loss) by component:
Pension | Postretirement medical benefits | Available for sale securities | Tax effect of other comprehensive income gains | Accumulated other comprehensive loss | |||||||||||||||
(In thousands) | |||||||||||||||||||
Balance at December 31, 2012 | $ | (44,719 | ) | $ | (77,527 | ) | $ | 57 | $ | (26,156 | ) | $ | (148,345 | ) | |||||
Other comprehensive income before reclassifications | 28,974 | 53,230 | (45 | ) | (4,892 | ) | 77,267 | ||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | 3,490 | 4,005 | (12 | ) | — | 7,483 | |||||||||||||
Balance at December 31, 2013 | $ | (12,255 | ) | $ | (20,292 | ) | $ | — | $ | (31,048 | ) | $ | (63,595 | ) |
The following table reflects the reclassifications out of accumulated other comprehensive income (loss) for the year ended December 31, 2013 (in thousands):
Details about accumulated other comprehensive income (loss) components | Amount reclassified from accumulated other comprehensive income (loss)(1) | Affected line item in the statement where net income (loss) is presented | ||||
Available-for sale securities | ||||||
Realized gains and losses on available-for sale securities | $ | (12 | ) | Other income (loss) | ||
$ | (12 | ) | Total | |||
Amortization of defined benefit pension items: | ||||||
Actuarial losses | $ | 3,490 | (2) | |||
Amortization of postretirement medical items: | ||||||
Prior service costs | $ | (636 | ) | (3) | ||
Actuarial losses | 4,641 | (3) | ||||
$ | 4,005 | Total |
39
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
____________________
(1) | Amounts in parentheses indicate debits to income/loss. |
(2) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost. (See Note 7 - Pension and Other Savings Plans for additional details) |
(3) | These accumulated other comprehensive income components are included in the computation of net periodic postretirement medical cost. (See Note 6 - Postretirement Medical Benefits for additional details) |
14. | INCOME TAX |
Income tax expense (benefit) attributable to net loss before income taxes consists of:
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(In thousands) | |||||||||||
Current: | |||||||||||
Federal | $ | (2 | ) | $ | (8 | ) | $ | (174 | ) | ||
State | 112 | 98 | 168 | ||||||||
110 | 90 | (6 | ) | ||||||||
Deferred: | |||||||||||
Federal | (4,189 | ) | — | — | |||||||
State | (703 | ) | — | (420 | ) | ||||||
(4,892 | ) | — | (420 | ) | |||||||
Income tax expense (benefit) | $ | (4,782 | ) | $ | 90 | $ | (426 | ) |
Income tax expense (benefit) attributable to net loss before income taxes differed from the amounts computed by applying the statutory Federal income tax rate of 34% to pre-tax income as a result of the following:
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(In thousands) | |||||||||||
Computed tax benefit at statutory rate | $ | (4,389 | ) | $ | (4,615 | ) | $ | (12,683 | ) | ||
Increase (decrease) in tax expense resulting from: | |||||||||||
Tax depletion in excess of basis | (6,187 | ) | (4,782 | ) | (3,820 | ) | |||||
Non-deductible interest expense | — | — | 3,717 | ||||||||
Noncontrolling interest | 1,167 | 2,188 | 1,283 | ||||||||
State income taxes, net | (2,506 | ) | (3,427 | ) | (4,548 | ) | |||||
Change in valuation allowance for net deferred tax assets | 15 | 8,571 | 2,923 | ||||||||
Indian Coal Tax Credits | 92 | 83 | (122 | ) | |||||||
Federal and state NOL expiration | — | 153 | 11,226 | ||||||||
Change in state effective tax rate | 6,202 | 2,049 | 1,310 | ||||||||
Other, net | 824 | (130 | ) | 288 | |||||||
Income tax expense (benefit) | $ | (4,782 | ) | $ | 90 | $ | (426 | ) |
40
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
For the year ended December 31, 2013, the Company recorded a tax benefit of approximately $4.9 million due to non-cash income tax expense related to gains recorded within other comprehensive income during 2013. Generally accepted accounting principles, or GAAP, requires all items be considered, including items recorded in other comprehensive income, in determining the amount of tax benefit that results from a loss from continuing operations that should be allocated to continuing operations. In accordance with GAAP, the Company recorded a tax benefit on its loss from continuing operations, which was exactly offset by income tax expense on other comprehensive income as follows:
Loss From Continuing Operations | Other Comprehensive Income | Total Comprehensive Income | |||||||||
(In thousands) | |||||||||||
Pre-allocation | $ | 110 | $ | — | $ | 110 | |||||
Tax allocation | (4,892 | ) | 4,892 | — | |||||||
As presented | $ | (4,782 | ) | $ | 4,892 | $ | 110 | ||||
Components of OCI gain: | |||||||||||
Gross | Tax Allocation | ||||||||||
Pension | $ | 32,464 | $ | 1,772 | |||||||
Post-retirement benefits | 57,235 | 3,123 | |||||||||
Unrealized gain (loss) on securities | (57 | ) | (3 | ) | |||||||
Total | $ | 89,642 | $ | 4,892 |
The PPACA reduces the tax benefits available to an employer that receives the Medicare Part D subsidy beginning in years ending after December 31, 2010. As a result of the PPACA, employers that receive the Medicare Part D subsidy will recognize the deferred tax effects of the reduced deductibility of the postretirement prescription drug coverage in the period the PPACA was enacted. On March 30, 2010, a companion bill, the Reconciliation Act, was signed into law. The Reconciliation Act reduces the effect of the PPACA on affected employers by deferring for two years (until years ending after December 31, 2012) the reduced deductibility of the postretirement prescription drug coverage. Accounting for income taxes requires that the effect of adjusting the deferred tax asset for the elimination of this deduction be included in income from continuing operations. However, entities that have a full valuation allowance for this deferred tax asset would recognize a related decrease in the valuation allowance. As the Company has a full valuation allowance against its related deferred tax asset, this change in tax law regarding the Medicare Part D subsidy will not have an effect on the Company’s income from continuing operations.
On September 13, 2013, the IRS issued T.D. 9636, Guidance Regarding Deduction and Capitalization of Expenditures Related to Tangible Property (the Repairs Regulations) under IRC Sections 162(a) and 263(a) with an effective date of January 1, 2014. These address when costs incurred to acquire, produce or improve tangible property must be capitalized or may be deducted as incurred. Management is currently reviewing and analyzing the final repair Regulations and have estimated the effect to be a reduction in the deferred tax asset of approximately $4.5 million, tax effected. The amount will be confirmed as new data is analyzed and when the companion Regulations governing general asset accounts and the disposition of depreciable property are finalized.
41
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
December 31, | |||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
Deferred tax assets: | |||||||
Federal net operating loss carryforwards | $ | 89,698 | $ | 84,330 | |||
State net operating loss carryforwards | 26,509 | 28,700 | |||||
Alternative minimum tax credit carryforwards | 7,179 | 6,973 | |||||
Charitable contribution carryforwards | 146 | 132 | |||||
Indian Coal Tax Credit carryforwards | 25,499 | 25,591 | |||||
Accruals for the following: | |||||||
Workers’ compensation | 2,726 | 3,592 | |||||
Postretirement medical benefit and pension obligations | 106,912 | 138,710 | |||||
Incentive plans | 1,606 | 1,995 | |||||
Asset retirement obligations | 68,989 | 77,698 | |||||
Deferred revenues | 18,919 | 22,500 | |||||
Excess of pneumoconiosis benefit obligation over trust assets | 3,262 | 3,185 | |||||
Acquisition Costs | 1,276 | 198 | |||||
Restructuring | 1,909 | — | |||||
Other accruals | 6,656 | 6,035 | |||||
Total gross deferred assets | 361,286 | 399,639 | |||||
Less valuation allowance | (264,464 | ) | (293,504 | ) | |||
Net deferred tax assets | 96,822 | 106,135 | |||||
Deferred tax liabilities: | |||||||
Property, plant and equipment, differences due to depreciation and amortization | (94,868 | ) | (104,992 | ) | |||
Other | (1,954 | ) | (1,143 | ) | |||
Total gross deferred tax liabilities | (96,822 | ) | (106,135 | ) | |||
Net deferred tax asset | $ | — | $ | — |
As of December 31, 2013, the Company had significant deferred tax assets. The deferred tax assets include federal and state regular net operating losses, or NOLs, alternative minimum tax, or AMT, credit carryforwards, Indian Coal Tax Credit, or ICTC, carryforwards, charitable contribution carryforwards, and net deductible reversing temporary differences related to on-going differences between book and taxable income.
The Company believes it will be taxed under the AMT system for the foreseeable future due to the significant amount of statutory tax depletion in excess of book depletion expected to be generated by its mining operations. As a result, Westmoreland has determined that a valuation allowance is required for all of its regular federal net operating loss carryforwards and AMT credit carryforwards, since they are only available to offset future regular taxes. As of December 31, 2013, the Company has an estimated $7.2 million of AMT credit carryforwards, which have an indefinite carryover life, with no expiration.
As of December 31, 2013, the Company has an estimated $25.5 million in ICTC carryforwards that are available to offset the Company's regular tax and AMT liabilities. The Company has determined that a full valuation allowance is required for all its ICTC carryforward. The ICTC can generally be used to offset AMT liability. The Company does not believe it has sufficient positive evidence of significant magnitude to substantiate that its deferred tax asset for the ICTC carryforward is realizable at a more-likely-than-not level of assurance. As a result, the Company will continue to record a full valuation allowance on its ICTC carryforward; reversing valuation allowance only if utilized in a future year. ICTC credits are a general business credit with a 20-year carryforward period. The majority of the credits will expire in years 2020-2033.
42
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The Company has determined that since its net deductible temporary differences will not reverse for the foreseeable future, and it is unable to forecast that it will have regular taxable income when they do reverse, a full valuation allowance is required for these deferred tax assets.
As of December 31, 2013, the Company has available Federal net operating loss carryforwards to reduce future regular taxable income, which expire as follows:
Expiration Date | Regular Tax | |||
(In thousands) | ||||
2018 | $ | 28 | ||
2019 | 88,429 | |||
2020 | 32 | |||
2021 | 20 | |||
after 2022 | 176,413 | |||
Total | $ | 264,922 |
As of December 31, 2013, the Company also has an estimated $701 million in state net operating loss carryforwards, expiring in years 2016 through 2033, to reduce future taxable income. The Company has recorded a full valuation allowance for all of its state net operating losses since it believes they will not be realized in the foreseeable future. A portion of our deferred tax assets include NOL benefits that if realized would result in an increase to other paid-in capital.
As of December 31, 2013, Westmoreland had no liability related to uncertain tax positions. The Company has elected under ASC 740-10-40 to recognize interest and penalties related to income tax matters in income tax expense.
The Company files tax returns in the U.S. federal jurisdiction and in various U.S. state jurisdictions, and is subject to examination by taxing authorities in all of these jurisdictions. From time to time, the Company's tax returns are reviewed or audited by various U.S. federal and state taxing authorities. The Company believes that adjustments, if any, resulting from these reviews or audits would not be material, individually or in the aggregate, to the Company's financial position, results of operations or liquidity. It is reasonably possible that the amount of unrecognized tax benefits related to certain of the Company's tax positions will increase or decrease in the next twelve months as audits or reviews are initiated and settled. At this time, an estimate of the range of a reasonably possible change cannot be made. With few exceptions, the Company is not subject to income tax examinations by U.S. federal or state jurisdictions for fiscal years prior to 2010.
15. | COMMITMENTS AND CONTINGENCIES |
Supply Agreements
Westmoreland Partners, which owns ROVA, has two coal supply agreements with TECO Coal Corporation, or TECO, that includes minimum purchase requirements. At the current pricing, Westmoreland Partners is obligated to pay TECO $17.9 million for 2014 and $2.9 million for 2015.
Leases
The following shows the gross value and accumulated amortization of property, plant and equipment and mine development assets under capital leases related primarily to the leasing of mining equipment:
2013 | 2012 | ||||||
(In thousands) | |||||||
Gross value | $ | 24,982 | $ | 34,677 | |||
Accumulated amortization | 11,983 | 15,887 |
43
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Future minimum capital and operating lease payments as of December 31, 2013, are as follows:
Capital Leases | Operating Leases | ||||||
(In thousands) | |||||||
2014 | $ | 5,949 | $ | 7,896 | |||
2015 | 2,419 | 5,156 | |||||
2016 | 1,548 | 2,584 | |||||
2017 | 495 | 1,256 | |||||
2018 | 316 | 515 | |||||
Thereafter | — | — | |||||
Total minimum lease payments | 10,727 | $ | 17,407 | ||||
Less imputed interest | (574 | ) | |||||
Present value of minimum capital lease payments | $ | 10,153 |
Rental expense under operating leases during the years ended December 31, 2013, 2012 and 2011 totaled $11.8 million, $9.5 million and $7.7 million, respectively.
The Company leases certain of its coal reserves from third parties and pays royalties based on either a per ton rate or as a percentage of revenues received. Royalties charged to expense under all such lease agreements amounted to $43.6 million, $40.1 million and $38.8 million in the years ended December 31, 2013, 2012 and 2011, respectively.
At December 31, 2013, the Company had fuel supply contracts outstanding with a minimum purchase requirement of 4.0 million gallons of diesel fuel per year. These contracts qualify for the normal purchase normal sale exception under hedge accounting.
Contingencies
The Company is a party to numerous claims and lawsuits with respect to various matters. The Company provides for costs related to contingencies when a loss is probable and the amount is reasonably estimable. After conferring with counsel, it is the opinion of management that the ultimate resolution of pending claims will not have a material adverse effect on the consolidated financial condition, results of operations, or liquidity of the Company.
16. | BUSINESS SEGMENT INFORMATION |
Segment information is based on a management approach, which requires segmentation based upon the Company’s internal organization, reporting of revenue, and operating income.
The Company’s operations are classified into four reporting segments: coal, power, heritage and corporate. The coal reporting segment includes the aggregated operations of coal mines located in Wyoming, Montana, North Dakota and Texas. The power segment includes its ROVA operations located in North Carolina. The heritage segment costs primarily include benefits the Company provides to former mining operation employees as well as other administrative costs associated with providing those benefits and cost containment efforts. The corporate segment primarily consists of corporate administrative expenses.
44
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Summarized financial information by segment is as follows:
Coal | Power | Heritage | Corporate | Consolidated | |||||||||||||||
(In thousands) | |||||||||||||||||||
December 31, 2013 | |||||||||||||||||||
Revenues | $ | 587,119 | $ | 87,567 | $ | — | $ | — | $ | 674,686 | |||||||||
Restructuring charges | — | 5,078 | — | — | 5,078 | ||||||||||||||
Operating income (loss) | 44,471 | 4,907 | (14,498 | ) | (9,518 | ) | 25,362 | ||||||||||||
Depreciation, depletion, and amortization | 56,698 | 10,179 | — | 354 | 67,231 | ||||||||||||||
Total assets | 705,816 | 180,684 | 15,497 | 44,688 | 946,685 | ||||||||||||||
Capital expenditures | 27,064 | 790 | — | 737 | 28,591 | ||||||||||||||
December 31, 2012 | |||||||||||||||||||
Revenues | $ | 519,152 | $ | 81,285 | $ | — | $ | — | $ | 600,437 | |||||||||
Operating income (loss) | 48,235 | 8,244 | (14,711 | ) | (12,896 | ) | 28,872 | ||||||||||||
Depreciation, depletion, and amortization | 46,639 | 10,085 | — | 421 | 57,145 | ||||||||||||||
Total assets | 703,315 | 189,599 | 15,508 | 27,693 | 936,115 | ||||||||||||||
Capital expenditures | 18,804 | 2,070 | — | 158 | 21,032 | ||||||||||||||
December 31, 2011 | |||||||||||||||||||
Revenues | $ | 414,928 | $ | 86,785 | $ | — | $ | — | $ | 501,713 | |||||||||
Operating income (loss) | 27,453 | 12,119 | (19,675 | ) | (9,271 | ) | 10,626 | ||||||||||||
Depreciation, depletion, and amortization | 35,112 | 10,176 | — | 306 | 45,594 | ||||||||||||||
Total assets | 510,507 | 194,730 | 13,769 | 40,166 | 759,172 | ||||||||||||||
Capital expenditures | 24,678 | 2,119 | — | 797 | 27,594 |
A reconciliation of segment income from operations to loss before income taxes follows:
Years Ended | |||||||||||
2013 | 2012 | 2011 | |||||||||
(In thousands) | |||||||||||
Income from operations | $ | 25,362 | $ | 28,872 | $ | 10,626 | |||||
Loss on extinguishment of debt | (64 | ) | (1,986 | ) | (17,030 | ) | |||||
Interest expense | (39,937 | ) | (42,677 | ) | (29,769 | ) | |||||
Interest income | 1,366 | 1,496 | 1,444 | ||||||||
Other income (loss) | 364 | 723 | (2,572 | ) | |||||||
Loss before income taxes | $ | (12,909 | ) | $ | (13,572 | ) | $ | (37,301 | ) |
The Company derives its revenues from a few key customers. The customers from which more than 10% of total revenue has been derived and the percentage of total revenue from those customers is summarized as follows:
2013 | 2012 | 2011 | |||||||||
(In thousands) | |||||||||||
Customer A – coal | $ | 117,545 | $ | 126,982 | $ | 120,243 | |||||
Customer B – coal (1) | 112,061 | 96,718 | — | ||||||||
Customer C – coal | 89,266 | 81,981 | 81,353 | ||||||||
Customer D – power | 86,390 | 80,109 | 85,639 | ||||||||
Customer E – coal | 85,929 | 66,128 | 65,224 | ||||||||
Customer F – coal (2) | 25,958 | 26,525 | 52,835 | ||||||||
Percentage of total revenue | 77 | % | 80 | % | 81 | % |
____________________
(1) | The revenue from Customer B did not exceed 10% in 2011. |
(2) | The revenue from Customer F did not exceed 10% in 2013 or 2012. |
45
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
17. | QUARTERLY FINANCIAL DATA (UNAUDITED) |
Summarized quarterly financial data is as follows:
Three Months Ended | |||||||||||||||
March 31 | June 30 | September 30 | December 31 | ||||||||||||
(In thousands; except per share data) | |||||||||||||||
2013: | |||||||||||||||
Revenues | $ | 161,448 | $ | 162,499 | $ | 176,792 | $ | 173,947 | |||||||
Operating income (loss) | 5,734 | 11,975 | 8,536 | (883 | ) | ||||||||||
Net income (loss) applicable to common shareholders | (2,725 | ) | (622 | ) | 2,421 | (5,131 | ) | ||||||||
Basic income (loss) per common share | $ | (0.19 | ) | $ | (0.04 | ) | $ | 0.17 | $ | (0.35 | ) | ||||
2012: | |||||||||||||||
Revenues | $ | 147,236 | $ | 132,842 | $ | 161,332 | $ | 159,027 | |||||||
Operating income (loss) | 9,086 | (4,262 | ) | 15,451 | 8,597 | ||||||||||
Net income (loss) applicable to common shareholders | 518 | (12,423 | ) | 7,282 | (3,963 | ) | |||||||||
Basic income (loss) per common share | $ | 0.04 | $ | (0.89 | ) | $ | 0.52 | $ | (0.28 | ) |
During the second quarter of 2012, the Company revised its preliminary allocation of the Kemmerer Mine purchase price for $2.2 million of deferred revenue. Adjustments to preliminary fair values are assumed to have been made as of the acquisition date. As a result, additional revenue of approximately $1.3 million was subsequently recorded in the first quarter of 2012, compared to what was originally reported in the Form 10-Q for the three months ended March 31, 2012. The information above for the three months ended March 31, 2012 reflects this additional revenue.
During the fourth quarter of 2013, as a result of a review of useful lives assigned to assets under capital leases and an evaluation of other operating income, the Company recorded $1.5 million of additional net expense related to prior years. In accordance with applicable U.S. GAAP, management quantitatively and qualitatively evaluated the impact and determined it to be immaterial to the Company's 2013 consolidated financial statements.
18. | SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION |
Pursuant to the indenture governing the 10.75% Senior Notes, certain 100% owned subsidiaries of the Company have fully and unconditionally guaranteed the notes on a joint and several basis.
Guarantees of the Senior Notes will be released under certain circumstances, including:
(1) | in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor Subsidiary, by way of merger, consolidation or otherwise, a sale or other disposition of all of the Equity Interests of such Guarantor Subsidiary then held by the Issuers or any Restricted Subsidiary; provided, that the sale or other disposition does not violate the “Asset Sales” provisions of the Indenture; |
(2) | if such Guarantor Subsidiary is designated as an Unrestricted Subsidiary in accordance with the provisions of the Indenture, upon effectiveness of such designation; |
(3) | upon Legal Defeasance or Covenant Defeasance (as such terms are defined in the indenture) or upon satisfaction and discharge of the Indenture; |
(4) | upon the liquidation or dissolution of such Guarantor Subsidiary, provided no event of default has occurred and is continuing; or |
(5) | at such time as such Guarantor Subsidiary is no longer required to be a Guarantor Subsidiary of the Senior Notes as described in the Indenture, provided no event of default has occurred and is continuing. |
The following tables present unaudited consolidating financial information for (i) the issuer of the notes (Westmoreland Coal Company), (ii) the co-issuer of the notes (Westmoreland Partners), (iii) the guarantors under the notes, and (iv) the entities that are not guarantors under the notes.
Certain amounts in prior periods have been reclassified to conform with the presentation of 2013. These reclassifications affected only the statements of cash flows. The following tables are historical and present WML and its
46
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014. The effects of the changes to guarantors that took place on July 31, 2014 are presented below these tables with an explanatory paragraph.
CONSOLIDATING BALANCE SHEETS (1)
December 31, 2013
(In thousands)
Assets | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 25,326 | $ | 3,341 | $ | 7,942 | $ | 24,501 | $ | — | $ | 61,110 | ||||||||||||
Receivables: | ||||||||||||||||||||||||
Trade | — | 12,934 | 17,389 | 35,873 | — | 66,196 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 44 | 8,443 | — | 8,487 | ||||||||||||||||||
Intercompany receivable/payable | (3,568 | ) | — | 4,384 | (33,681 | ) | 32,865 | — | ||||||||||||||||
Other | 95 | 210 | 2,974 | 1,831 | (24 | ) | 5,086 | |||||||||||||||||
(3,473 | ) | 13,144 | 24,791 | 12,466 | 32,841 | 79,769 | ||||||||||||||||||
Inventories | — | 6,161 | 16,077 | 17,735 | (1 | ) | 39,972 | |||||||||||||||||
Deferred income taxes | — | — | 870 | — | (870 | ) | — | |||||||||||||||||
Restricted investments and bond collateral | — | 5,998 | — | — | — | 5,998 | ||||||||||||||||||
Other current assets | 6,115 | 143 | 6,883 | 5,049 | — | 18,190 | ||||||||||||||||||
Total current assets | 27,968 | 28,787 | 56,563 | 59,751 | 31,970 | 205,039 | ||||||||||||||||||
Property, plant and equipment: | ||||||||||||||||||||||||
Land and mineral rights | — | 1,395 | 104,631 | 172,163 | (1 | ) | 278,188 | |||||||||||||||||
Plant and equipment | 3,939 | 220,872 | 229,998 | 202,886 | 1 | 657,696 | ||||||||||||||||||
3,939 | 222,267 | 334,629 | 375,049 | — | 935,884 | |||||||||||||||||||
Less accumulated depreciation, depletion and amortization | 2,705 | 71,653 | 132,189 | 239,302 | (1 | ) | 445,848 | |||||||||||||||||
Net property, plant and equipment | 1,234 | 150,614 | 202,440 | 135,747 | 1 | 490,036 | ||||||||||||||||||
Advanced coal royalties | — | — | 3,000 | 4,311 | — | 7,311 | ||||||||||||||||||
Reclamation deposits | — | — | — | 74,921 | — | 74,921 | ||||||||||||||||||
Restricted investments and bond collateral | 15,134 | — | 36,619 | 17,482 | — | 69,235 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 293 | 88,010 | — | 88,303 | ||||||||||||||||||
Intangible assets | — | 1,283 | — | 238 | (1 | ) | 1,520 | |||||||||||||||||
Investment in subsidiaries | 266,847 | — | — | 3,770 | (270,617 | ) | — | |||||||||||||||||
Other assets | 8,636 | — | 586 | 3,098 | (2,000 | ) | 10,320 | |||||||||||||||||
Total assets | $ | 319,819 | $ | 180,684 | $ | 299,501 | $ | 387,328 | $ | (240,647 | ) | $ | 946,685 |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
47
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING BALANCE SHEETS (1)
December 31, 2013
(In thousands)
Liabilities and Shareholders’ Deficit | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Current installments of long-term debt | $ | 20,392 | $ | — | $ | 2,790 | $ | 21,161 | $ | — | $ | 44,343 | ||||||||||||
Accounts payable and accrued expenses: | ||||||||||||||||||||||||
Trade | 4,122 | 10,119 | 12,522 | 30,743 | 1 | 57,507 | ||||||||||||||||||
Production taxes | — | 3 | 17,429 | 24,472 | 1 | 41,905 | ||||||||||||||||||
Workers’ compensation | 717 | — | — | — | — | 717 | ||||||||||||||||||
Postretirement medical benefits | 12,042 | — | 329 | 1,583 | 1 | 13,955 | ||||||||||||||||||
SERP | 390 | — | — | — | — | 390 | ||||||||||||||||||
Deferred revenue | — | 9,024 | 3,969 | 1,075 | — | 14,068 | ||||||||||||||||||
Asset retirement obligations | — | — | 3,104 | 20,250 | (1 | ) | 23,353 | |||||||||||||||||
Other current liabilities | 11,302 | 5,053 | 317 | 142 | (24 | ) | 16,790 | |||||||||||||||||
Total current liabilities | 48,965 | 24,199 | 40,460 | 99,426 | (22 | ) | 213,028 | |||||||||||||||||
Long-term debt, less current installments | 224,582 | — | 2,664 | 70,248 | (2,000 | ) | 295,494 | |||||||||||||||||
Workers’ compensation, less current portion | 6,744 | — | — | — | — | 6,744 | ||||||||||||||||||
Excess of black lung benefit obligation over trust assets | 8,675 | — | — | — | — | 8,675 | ||||||||||||||||||
Postretirement medical benefits, less current portion | 185,858 | — | 49,418 | 35,098 | — | 270,374 | ||||||||||||||||||
Pension and SERP obligations, less current portion | 13,069 | 99 | 9,381 | 1,627 | — | 24,176 | ||||||||||||||||||
Deferred revenue, less current portion | — | 41,297 | — | 5,271 | (1 | ) | 46,567 | |||||||||||||||||
Asset retirement obligations, less current portion | — | 892 | 50,472 | 205,147 | — | 256,511 | ||||||||||||||||||
Intangible liabilities | — | 5,606 | — | — | — | 5,606 | ||||||||||||||||||
Other liabilities | 5,939 | — | 6,220 | 1,450 | (6,220 | ) | 7,389 | |||||||||||||||||
Intercompany receivable/payable | 13,866 | — | 525 | 6,434 | (20,825 | ) | — | |||||||||||||||||
Total liabilities | 507,698 | 72,093 | 159,140 | 424,701 | (29,068 | ) | 1,134,564 | |||||||||||||||||
Shareholders’ deficit | ||||||||||||||||||||||||
Preferred stock | 160 | — | — | — | — | 160 | ||||||||||||||||||
Common stock | 36,479 | 5 | 110 | 132 | (247 | ) | 36,479 | |||||||||||||||||
Other paid-in capital | 134,861 | 52,835 | 94,370 | 64,401 | (211,606 | ) | 134,861 | |||||||||||||||||
Accumulated other comprehensive income (loss) | (63,595 | ) | (164 | ) | 17,492 | (14,153 | ) | (3,175 | ) | (63,595 | ) | |||||||||||||
Accumulated earnings (deficit) | (295,784 | ) | 55,915 | 28,389 | (87,753 | ) | 3,449 | (295,784 | ) | |||||||||||||||
Total Westmoreland Coal Company shareholders’ deficit | (187,879 | ) | 108,591 | 140,361 | (37,373 | ) | (211,579 | ) | (187,879 | ) | ||||||||||||||
Noncontrolling interest | — | — | — | — | — | — | ||||||||||||||||||
Total equity (deficit) | (187,879 | ) | 108,591 | 140,361 | (37,373 | ) | (211,579 | ) | (187,879 | ) | ||||||||||||||
Total liabilities and shareholders’ deficit | $ | 319,819 | $ | 180,684 | $ | 299,501 | $ | 387,328 | $ | (240,647 | ) | $ | 946,685 |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
48
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING BALANCE SHEETS (1)
December 31, 2012
(In thousands)
Assets | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 14,836 | $ | 4,545 | $ | 5,362 | $ | 6,867 | $ | — | $ | 31,610 | ||||||||||||
Receivables: | ||||||||||||||||||||||||
Trade | — | 13,018 | 13,428 | 33,591 | — | 60,037 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 56 | 10,151 | — | 10,207 | ||||||||||||||||||
Intercompany receivable/payable | (8,002 | ) | — | 5,667 | (30,641 | ) | 32,976 | — | ||||||||||||||||
Other | 77 | — | 16,806 | 1,182 | (14,845 | ) | 3,220 | |||||||||||||||||
(7,925 | ) | 13,018 | 35,957 | 14,283 | 18,131 | 73,464 | ||||||||||||||||||
Inventories | — | 3,047 | 16,538 | 18,149 | — | 37,734 | ||||||||||||||||||
Other current assets | 739 | 298 | 5,550 | 9,917 | — | 16,504 | ||||||||||||||||||
Total current assets | 7,650 | 20,908 | 63,407 | 49,216 | 18,131 | 159,312 | ||||||||||||||||||
Property, plant and equipment: | ||||||||||||||||||||||||
Land and mineral rights | — | 1,395 | 91,741 | 168,605 | — | 261,741 | ||||||||||||||||||
Plant and equipment | 3,198 | 219,857 | 215,751 | 196,914 | — | 635,720 | ||||||||||||||||||
3,198 | 221,252 | 307,492 | 365,519 | — | 897,461 | |||||||||||||||||||
Less accumulated depreciation, depletion and amortization | 2,364 | 61,474 | 108,151 | 212,632 | — | 384,621 | ||||||||||||||||||
Net property, plant and equipment | 834 | 159,778 | 199,341 | 152,887 | — | 512,840 | ||||||||||||||||||
Advanced coal royalties | — | — | 500 | 3,816 | — | 4,316 | ||||||||||||||||||
Reclamation deposits | — | — | — | 72,718 | — | 72,718 | ||||||||||||||||||
Restricted investments and bond collateral | 15,183 | 5,990 | 39,208 | 26,828 | — | 87,209 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 327 | 83,831 | — | 84,158 | ||||||||||||||||||
Intangible assets | — | 2,923 | — | 280 | — | 3,203 | ||||||||||||||||||
Investment in subsidiaries | 248,565 | — | (792 | ) | 3,770 | (251,543 | ) | — | ||||||||||||||||
Other assets | 10,267 | — | 635 | 3,457 | (2,000 | ) | 12,359 | |||||||||||||||||
Total assets | $ | 282,499 | $ | 189,599 | $ | 302,626 | $ | 396,803 | $ | (235,412 | ) | $ | 936,115 |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
49
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING BALANCE SHEETS (1)
December 31, 2012
(In thousands)
Liabilities and Shareholders’ Deficit | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Current installments of long-term debt | $ | (1,548 | ) | $ | — | $ | 1,939 | $ | 23,400 | $ | — | $ | 23,791 | |||||||||||
Accounts payable and accrued expenses: | ||||||||||||||||||||||||
Trade | 4,707 | 4,978 | 15,163 | 42,085 | (14,840 | ) | 52,093 | |||||||||||||||||
Production taxes | — | 3 | 10,014 | 23,211 | — | 33,228 | ||||||||||||||||||
Workers’ compensation | 820 | — | — | — | — | 820 | ||||||||||||||||||
Postretirement medical benefits | 12,494 | — | 87 | 1,487 | — | 14,068 | ||||||||||||||||||
SERP | 390 | — | — | — | — | 390 | ||||||||||||||||||
Deferred revenue | — | 8,788 | 2,997 | 1,037 | — | 12,822 | ||||||||||||||||||
Asset retirement obligations | — | — | 3,519 | 18,719 | — | 22,238 | ||||||||||||||||||
Other current liabilities | 11,312 | — | 10 | 144 | (4 | ) | 11,462 | |||||||||||||||||
Total current liabilities | 28,175 | 13,769 | 33,729 | 110,083 | (14,844 | ) | 170,912 | |||||||||||||||||
Long-term debt, less current installments | 245,456 | — | 2,473 | 91,269 | (2,000 | ) | 337,198 | |||||||||||||||||
Workers’ compensation, less current portion | 8,710 | — | — | — | — | 8,710 | ||||||||||||||||||
Excess of black lung benefit obligation over trust assets | 8,356 | — | — | — | — | 8,356 | ||||||||||||||||||
Postretirement medical benefits, less current portion | 224,336 | — | 55,981 | 39,458 | — | 319,775 | ||||||||||||||||||
Pension and SERP obligations, less current portion | 29,265 | 289 | 19,346 | 5,350 | — | 54,250 | ||||||||||||||||||
Deferred revenue, less current portion | — | 50,239 | — | 6,652 | — | 56,891 | ||||||||||||||||||
Asset retirement obligations, less current portion | — | 829 | 40,063 | 200,717 | — | 241,609 | ||||||||||||||||||
Intangible liabilities | — | 6,625 | — | — | — | 6,625 | ||||||||||||||||||
Other liabilities | 701 | — | 15,677 | 1,642 | — | 18,020 | ||||||||||||||||||
Intercompany receivable/payable | 23,731 | — | (7,972 | ) | 35,787 | (51,546 | ) | — | ||||||||||||||||
Total liabilities | 568,730 | 71,751 | 159,297 | 490,958 | (68,390 | ) | 1,222,346 | |||||||||||||||||
Shareholders’ deficit | ||||||||||||||||||||||||
Preferred stock | 160 | — | — | — | — | 160 | ||||||||||||||||||
Common stock | 35,502 | 5 | 110 | 132 | (247 | ) | 35,502 | |||||||||||||||||
Other paid-in capital | 130,852 | 52,807 | 93,456 | 62,539 | (208,802 | ) | 130,852 | |||||||||||||||||
Accumulated other comprehensive loss | (148,345 | ) | (372 | ) | (4,987 | ) | (24,492 | ) | 29,851 | (148,345 | ) | |||||||||||||
Accumulated earnings (deficit) | (289,727 | ) | 65,408 | 54,750 | (132,334 | ) | 12,176 | (289,727 | ) | |||||||||||||||
Total Westmoreland Coal Company shareholders’ deficit | (271,558 | ) | 117,848 | 143,329 | (94,155 | ) | (167,022 | ) | (271,558 | ) | ||||||||||||||
Noncontrolling interest | (14,673 | ) | — | — | — | — | (14,673 | ) | ||||||||||||||||
Total equity (deficit) | (286,231 | ) | 117,848 | 143,329 | (94,155 | ) | (167,022 | ) | (286,231 | ) | ||||||||||||||
Total liabilities and shareholders’ deficit | $ | 282,499 | $ | 189,599 | $ | 302,626 | $ | 396,803 | $ | (235,412 | ) | $ | 936,115 |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
50
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF OPERATIONS (1)
Year Ended December 31, 2013
(In thousands)
Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Revenues | $ | — | $ | 87,567 | $ | 214,481 | $ | 414,085 | $ | (41,447 | ) | $ | 674,686 | ||||||||||
Costs and expenses: | |||||||||||||||||||||||
Cost of sales | — | 63,794 | 174,204 | 338,769 | (41,447 | ) | 535,320 | ||||||||||||||||
Depreciation, depletion and amortization | 354 | 10,178 | 27,452 | 29,247 | — | 67,231 | |||||||||||||||||
Selling and administrative | 12,339 | 3,609 | 11,092 | 23,681 | — | 50,721 | |||||||||||||||||
Heritage health benefit expenses | 12,361 | — | — | 1,057 | — | 13,418 | |||||||||||||||||
Loss (gain) on sales of assets | — | — | 115 | (189 | ) | — | (74 | ) | |||||||||||||||
Restructuring charges | — | 5,078 | — | — | — | 5,078 | |||||||||||||||||
Other operating income | — | — | (22,367 | ) | (3 | ) | — | (22,370 | ) | ||||||||||||||
25,054 | 82,659 | 190,496 | 392,562 | (41,447 | ) | 649,324 | |||||||||||||||||
Operating income (loss) | (25,054 | ) | 4,908 | 23,985 | 21,523 | — | 25,362 | ||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense | (30,417 | ) | (39 | ) | (295 | ) | (9,221 | ) | 35 | (39,937 | ) | ||||||||||||
Loss on extinguishment of debt | (64 | ) | — | — | — | — | (64 | ) | |||||||||||||||
Interest income | 165 | 26 | 522 | 688 | (35 | ) | 1,366 | ||||||||||||||||
Other income | 1 | — | 328 | 35 | — | 364 | |||||||||||||||||
(30,315 | ) | (13 | ) | 555 | (8,498 | ) | — | (38,271 | ) | ||||||||||||||
Income (loss) before income taxes and income of consolidated subsidiaries | (55,369 | ) | 4,895 | 24,540 | 13,025 | — | (12,909 | ) | |||||||||||||||
Equity in income of subsidiaries | 42,347 | — | — | — | (42,347 | ) | — | ||||||||||||||||
Loss before income taxes | (13,022 | ) | 4,895 | 24,540 | 13,025 | (42,347 | ) | (12,909 | ) | ||||||||||||||
Income tax expense (benefit) | (4,895 | ) | 680 | 8,461 | (47 | ) | (8,981 | ) | (4,782 | ) | |||||||||||||
Net income (loss) | (8,127 | ) | 4,215 | 16,079 | 13,072 | (33,366 | ) | (8,127 | ) | ||||||||||||||
Less net loss attributable to noncontrolling interest | (3,430 | ) | — | — | — | — | (3,430 | ) | |||||||||||||||
Net income (loss) attributable to the Parent company | $ | (4,697 | ) | $ | 4,215 | $ | 16,079 | $ | 13,072 | $ | (33,366 | ) | $ | (4,697 | ) |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
51
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF OPERATIONS (1)
Year Ended December 31, 2012
(In thousands)
Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Revenues | $ | — | $ | 81,285 | $ | 184,506 | $ | 366,105 | $ | (31,459 | ) | $ | 600,437 | ||||||||||
Costs and expenses: | |||||||||||||||||||||||
Cost of sales | — | 59,299 | 134,683 | 303,998 | (31,459 | ) | 466,521 | ||||||||||||||||
Depreciation, depletion and amortization | 421 | 10,085 | 19,571 | 27,068 | — | 57,145 | |||||||||||||||||
Selling and administrative | 13,748 | 3,657 | 9,993 | 24,037 | (1,527 | ) | 49,908 | ||||||||||||||||
Heritage health benefit expenses | 12,406 | — | — | 982 | — | 13,388 | |||||||||||||||||
Loss on sales of assets | 13 | — | 251 | 264 | — | 528 | |||||||||||||||||
Other operating income | — | — | (17,452 | ) | — | 1,527 | (15,925 | ) | |||||||||||||||
26,588 | 73,041 | 147,046 | 356,349 | (31,459 | ) | 571,565 | |||||||||||||||||
Operating income (loss) | (26,588 | ) | 8,244 | 37,460 | 9,756 | — | 28,872 | ||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense | (31,301 | ) | (39 | ) | (378 | ) | (11,039 | ) | 80 | (42,677 | ) | ||||||||||||
Loss on extinguishment of debt | (1,986 | ) | — | — | — | — | (1,986 | ) | |||||||||||||||
Interest income | 253 | 15 | 294 | 1,014 | (80 | ) | 1,496 | ||||||||||||||||
Other income | 190 | — | 395 | 138 | — | 723 | |||||||||||||||||
(32,844 | ) | (24 | ) | 311 | (9,887 | ) | — | (42,444 | ) | ||||||||||||||
Income (loss) before income taxes and income of consolidated subsidiaries | (59,432 | ) | 8,220 | 37,771 | (131 | ) | — | (13,572 | ) | ||||||||||||||
Equity in income of subsidiaries | 45,762 | — | — | — | (45,762 | ) | — | ||||||||||||||||
Income (loss) before income taxes | (13,670 | ) | 8,220 | 37,771 | (131 | ) | (45,762 | ) | (13,572 | ) | |||||||||||||
Income tax expense (benefit) | (8 | ) | 107 | — | 4,410 | (4,419 | ) | 90 | |||||||||||||||
Net income (loss) | (13,662 | ) | 8,113 | 37,771 | (4,541 | ) | (41,343 | ) | (13,662 | ) | |||||||||||||
Less net loss attributable to noncontrolling interest | (6,436 | ) | — | — | — | — | (6,436 | ) | |||||||||||||||
Net income (loss) attributable to the Parent company | $ | (7,226 | ) | $ | 8,113 | $ | 37,771 | $ | (4,541 | ) | $ | (41,343 | ) | $ | (7,226 | ) |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
52
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF OPERATIONS (1)
Year Ended December 31, 2011
(In thousands)
Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Revenues | $ | — | $ | 86,785 | $ | 58,544 | $ | 411,908 | $ | (55,524 | ) | $ | 501,713 | ||||||||||
Costs and expenses: | |||||||||||||||||||||||
Cost of sales | — | 60,243 | 49,439 | 338,629 | (55,524 | ) | 392,787 | ||||||||||||||||
Depreciation, depletion and amortization | 306 | 10,175 | 7,936 | 27,177 | — | 45,594 | |||||||||||||||||
Selling and administrative | 10,616 | 4,059 | 4,566 | 21,508 | (473 | ) | 40,276 | ||||||||||||||||
Heritage health benefit expenses | 17,754 | — | — | 821 | — | 18,575 | |||||||||||||||||
Gain (loss) on sales of assets | 3 | 189 | 59 | 389 | — | 640 | |||||||||||||||||
Other operating income | — | — | (7,258 | ) | — | 473 | (6,785 | ) | |||||||||||||||
28,679 | 74,666 | 54,742 | 388,524 | (55,524 | ) | 491,087 | |||||||||||||||||
Operating income (loss) | (28,679 | ) | 12,119 | 3,802 | 23,384 | — | 10,626 | ||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense | (16,365 | ) | (469 | ) | (657 | ) | (12,370 | ) | 92 | (29,769 | ) | ||||||||||||
Loss on extinguishment of debt | (7,873 | ) | (9,073 | ) | (84 | ) | — | — | (17,030 | ) | |||||||||||||
Interest income | 266 | 14 | 206 | 1,050 | (92 | ) | 1,444 | ||||||||||||||||
Other income (loss) | (3,014 | ) | — | 170 | 272 | — | (2,572 | ) | |||||||||||||||
(26,986 | ) | (9,528 | ) | (365 | ) | (11,048 | ) | — | (47,927 | ) | |||||||||||||
Loss before income taxes and income of consolidated subsidiaries | (55,665 | ) | 2,591 | 3,437 | 12,336 | — | (37,301 | ) | |||||||||||||||
Equity in income of subsidiaries | 18,508 | — | — | — | (18,508 | ) | — | ||||||||||||||||
Loss before income taxes | (37,157 | ) | 2,591 | 3,437 | 12,336 | (18,508 | ) | (37,301 | ) | ||||||||||||||
Income tax expense (benefit) | (282 | ) | (2,498 | ) | (26 | ) | 7,263 | (4,883 | ) | (426 | ) | ||||||||||||
Net income (loss) | (36,875 | ) | 5,089 | 3,463 | 5,073 | (13,625 | ) | (36,875 | ) | ||||||||||||||
Less net loss attributable to noncontrolling interest | (3,775 | ) | — | — | — | — | (3,775 | ) | |||||||||||||||
Net loss attributable to the Parent company | $ | (33,100 | ) | $ | 5,089 | $ | 3,463 | $ | 5,073 | $ | (13,625 | ) | $ | (33,100 | ) |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
53
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (1)
Year Ended December 31, 2013
(In thousands)
Parent/Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Net income (loss) | $ | (8,127 | ) | $ | 4,215 | $ | 16,079 | $ | 13,072 | $ | (33,366 | ) | $ | (8,127 | ) | ||||||||
Other comprehensive income (loss) | |||||||||||||||||||||||
Amortization of accumulated actuarial gains or losses, pension | 3,490 | 28 | — | 863 | (891 | ) | 3,490 | ||||||||||||||||
Adjustments to accumulated actuarial losses and transition obligations, pension | 28,974 | 180 | 10,554 | 3,252 | (13,986 | ) | 28,974 | ||||||||||||||||
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit | 4,005 | — | — | 852 | (852 | ) | 4,005 | ||||||||||||||||
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits | 53,230 | — | 11,941 | 5,411 | (17,352 | ) | 53,230 | ||||||||||||||||
Tax effect of other comprehensive income gains | (4,892 | ) | — | — | — | — | (4,892 | ) | |||||||||||||||
Unrealized and realized gains and losses on available-for-sale securities | (57 | ) | — | (17 | ) | (38 | ) | 55 | (57 | ) | |||||||||||||
Other comprehensive income | 84,750 | 208 | 22,478 | 10,340 | (33,026 | ) | 84,750 | ||||||||||||||||
Comprehensive income attributable to Westmoreland Coal Company | $ | 76,623 | $ | 4,423 | $ | 38,557 | $ | 23,412 | $ | (66,392 | ) | $ | 76,623 |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
54
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (1)
Year Ended December 31, 2012
(In thousands)
Parent/Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Net income (loss) | $ | (13,662 | ) | $ | 8,113 | $ | 37,771 | $ | (4,541 | ) | $ | (41,343 | ) | $ | (13,662 | ) | |||||||
Other comprehensive income (loss) | |||||||||||||||||||||||
Amortization of accumulated actuarial gains or losses, pension | 2,960 | 23 | — | 766 | (789 | ) | 2,960 | ||||||||||||||||
Adjustments to accumulated actuarial losses and transition obligations, pension | (9,812 | ) | (52 | ) | (3,034 | ) | (2,132 | ) | 5,218 | (9,812 | ) | ||||||||||||
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit | 2,572 | — | — | 973 | (973 | ) | 2,572 | ||||||||||||||||
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits | (22,342 | ) | — | (1,969 | ) | (865 | ) | 2,834 | (22,342 | ) | |||||||||||||
Unrealized and realized gains and losses on available-for-sale securities | (268 | ) | — | 1 | (65 | ) | 64 | (268 | ) | ||||||||||||||
Other comprehensive income | (26,890 | ) | (29 | ) | (5,002 | ) | (1,323 | ) | 6,354 | (26,890 | ) | ||||||||||||
Comprehensive income (loss) attributable to Westmoreland Coal Company | $ | (40,552 | ) | $ | 8,084 | $ | 32,769 | $ | (5,864 | ) | $ | (34,989 | ) | $ | (40,552 | ) |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
55
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (1)
Year Ended December 31, 2011
(In thousands)
Parent/Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Net income (loss) | $ | (36,875 | ) | $ | 5,089 | $ | 3,463 | $ | 5,073 | $ | (13,625 | ) | $ | (36,875 | ) | ||||||||
Other comprehensive income (loss) | |||||||||||||||||||||||
Amortization of accumulated actuarial gains or losses, pension | 1,647 | 9 | — | 702 | (711 | ) | 1,647 | ||||||||||||||||
Adjustments to accumulated actuarial losses and transition obligations, pension | (15,798 | ) | (150 | ) | — | (444 | ) | 594 | (15,798 | ) | |||||||||||||
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit | (288 | ) | — | — | 295 | (295 | ) | (288 | ) | ||||||||||||||
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits | (49,136 | ) | — | — | (9,269 | ) | 9,269 | (49,136 | ) | ||||||||||||||
Unrealized and realized gains and losses on available-for-sale securities | (200 | ) | — | (103 | ) | (100 | ) | 203 | (200 | ) | |||||||||||||
Other comprehensive income | (63,775 | ) | (141 | ) | (103 | ) | (8,816 | ) | 9,060 | (63,775 | ) | ||||||||||||
Comprehensive income (loss) attributable to Westmoreland Coal Company | $ | (100,650 | ) | $ | 4,948 | $ | 3,360 | $ | (3,743 | ) | $ | (4,565 | ) | $ | (100,650 | ) |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
56
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF CASH FLOWS (1)
Year Ended December 31, 2013
(In thousands)
Statements of Cash Flows | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income (loss) | $ | (8,127 | ) | $ | 4,215 | $ | 16,079 | $ | 13,072 | $ | (33,366 | ) | $ | (8,127 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | (42,347 | ) | — | — | — | 42,347 | — | |||||||||||||||||
Depreciation, depletion, and amortization | 354 | 10,178 | 27,452 | 29,247 | — | 67,231 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 63 | 4,192 | 8,426 | — | 12,681 | ||||||||||||||||||
Non-cash tax benefits | (4,892 | ) | �� | — | — | — | (4,892 | ) | ||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 622 | — | 43 | — | 665 | ||||||||||||||||||
Share-based compensation | 2,437 | 37 | 914 | 1,934 | — | 5,322 | ||||||||||||||||||
Loss on sale of assets | — | — | 115 | (189 | ) | — | (74 | ) | ||||||||||||||||
Amortization of deferred financing costs | 3,165 | — | 49 | 517 | — | 3,731 | ||||||||||||||||||
Other | — | — | (1,001 | ) | — | — | (1,001 | ) | ||||||||||||||||
Loss on extinguishment of debt | 64 | — | — | — | — | 64 | ||||||||||||||||||
Gain on sales of investments | — | — | 19 | (22 | ) | — | (3 | ) | ||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | (18 | ) | (126 | ) | 9,871 | (4,069 | ) | (13,294 | ) | (7,636 | ) | |||||||||||||
Inventories | — | (3,114 | ) | 187 | 415 | — | (2,512 | ) | ||||||||||||||||
Excess of black lung benefit obligation over trust assets | 319 | — | — | — | — | 319 | ||||||||||||||||||
Accounts payable and accrued expenses | (613 | ) | 5,141 | 4,082 | (9,852 | ) | 14,821 | 13,579 | ||||||||||||||||
Deferred revenue | — | (8,706 | ) | 972 | (1,344 | ) | — | (9,078 | ) | |||||||||||||||
Income tax payable | — | — | (1,679 | ) | 1,678 | — | (1 | ) | ||||||||||||||||
Accrual for workers’ compensation | (2,069 | ) | — | — | — | — | (2,069 | ) | ||||||||||||||||
Asset retirement obligations | — | — | (1,971 | ) | (7,439 | ) | — | (9,410 | ) | |||||||||||||||
Accrual for postretirement medical benefits | 101 | — | 5,620 | 2,000 | — | 7,721 | ||||||||||||||||||
Pension and SERP obligations | 1,391 | 18 | 589 | 390 | — | 2,388 | ||||||||||||||||||
Other assets and liabilities | (144 | ) | 4,983 | 8,206 | 4,124 | (5,350 | ) | 11,819 | ||||||||||||||||
Distributions received from subsidiaries | 78,000 | — | — | — | (78,000 | ) | — | |||||||||||||||||
Net cash provided by (used in) operating activities | 27,621 | 13,311 | 73,696 | 38,931 | (72,842 | ) | 80,717 | |||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Additions to property, plant and equipment | (737 | ) | (790 | ) | (17,156 | ) | (9,908 | ) | — | (28,591 | ) | |||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | 49 | (8 | ) | 1,766 | (373 | ) | — | 1,434 | ||||||||||||||||
Net proceeds from sales of assets | — | — | 534 | 368 | — | 902 |
57
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Proceeds from the sale of restricted investments | — | — | 788 | 7,499 | — | 8,287 | ||||||||||||||||||
Receivable from customer for property and equipment purchases | — | — | — | (389 | ) | — | (389 | ) | ||||||||||||||||
Other | — | — | (2,500 | ) | (1,040 | ) | — | (3,540 | ) | |||||||||||||||
Net cash provided by (used in) investing activities | (688 | ) | (798 | ) | (16,568 | ) | (3,843 | ) | — | (21,897 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Change in book overdrafts | — | — | 310 | — | — | 310 | ||||||||||||||||||
Repayments of long-term debt | (500 | ) | — | (2,322 | ) | (25,266 | ) | — | (28,088 | ) | ||||||||||||||
Borrowings on revolving lines of credit | — | — | — | 7,000 | — | 7,000 | ||||||||||||||||||
Repayments on revolving lines of credit | — | — | — | (7,000 | ) | — | (7,000 | ) | ||||||||||||||||
Debt issuance costs and other refinancing costs | (26 | ) | — | — | (156 | ) | — | (182 | ) | |||||||||||||||
Dividends/distributions | (1,360 | ) | (14,500 | ) | (44,500 | ) | (19,000 | ) | 78,000 | (1,360 | ) | |||||||||||||
Transactions with Parent/affiliates | (14,557 | ) | 783 | (8,036 | ) | 26,968 | (5,158 | ) | — | |||||||||||||||
Net cash provided by (used in) financing activities | (16,443 | ) | (13,717 | ) | (54,548 | ) | (17,454 | ) | 72,842 | (29,320 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 10,490 | (1,204 | ) | 2,580 | 17,634 | — | 29,500 | |||||||||||||||||
Cash and cash equivalents, beginning of year | 14,836 | 4,545 | 5,362 | 6,867 | — | 31,610 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 25,326 | $ | 3,341 | $ | 7,942 | $ | 24,501 | $ | — | $ | 61,110 |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
58
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF CASH FLOWS (1)
Year Ended December 31, 2012
(In thousands)
Statements of Cash Flows | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income (loss) | $ | (13,662 | ) | $ | 8,113 | $ | 37,771 | $ | (4,541 | ) | $ | (41,343 | ) | $ | (13,662 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | (45,762 | ) | — | — | — | 45,762 | — | |||||||||||||||||
Depreciation, depletion, and amortization | 421 | 10,085 | 19,571 | 27,068 | — | 57,145 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 59 | 4,038 | 8,092 | — | 12,189 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 622 | — | 36 | — | 658 | ||||||||||||||||||
Share-based compensation | 2,716 | 44 | 559 | 2,721 | — | 6,040 | ||||||||||||||||||
Loss (gain) on sale of assets | 13 | — | 251 | 264 | — | 528 | ||||||||||||||||||
Amortization of deferred financing costs | 2,889 | — | 847 | 622 | — | 4,358 | ||||||||||||||||||
Loss on extinguishment of debt | 1,986 | — | — | — | — | 1,986 | ||||||||||||||||||
Gain on sales of investments | (190 | ) | — | — | 25 | — | (165 | ) | ||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | 147 | (151 | ) | (20,910 | ) | 102 | 7,957 | (12,855 | ) | |||||||||||||||
Inventories | — | 709 | (2,389 | ) | (484 | ) | — | (2,164 | ) | |||||||||||||||
Excess of black lung benefit obligation over trust assets | 1,791 | — | — | — | — | 1,791 | ||||||||||||||||||
Accounts payable and accrued expenses | 4,981 | (3,209 | ) | 18,396 | 5,453 | (8,222 | ) | 17,399 | ||||||||||||||||
Deferred revenue | — | (8,312 | ) | 772 | (658 | ) | — | (8,198 | ) | |||||||||||||||
Accrual for workers’ compensation | (2,096 | ) | — | — | — | — | (2,096 | ) | ||||||||||||||||
Asset retirement obligations | — | — | (1,198 | ) | (5,745 | ) | — | (6,943 | ) | |||||||||||||||
Accrual for postretirement medical benefits | (524 | ) | — | 4,858 | 1,857 | — | 6,191 | |||||||||||||||||
Pension and SERP obligations | 1,286 | 15 | 709 | 792 | — | 2,802 | ||||||||||||||||||
Other assets and liabilities | (243 | ) | (536 | ) | 1,047 | (10,128 | ) | 2,000 | (7,860 | ) | ||||||||||||||
Distributions received from subsidiaries | 31,971 | — | — | — | (31,971 | ) | — | |||||||||||||||||
Net cash provided by (used in) operating activities | (14,276 | ) | 7,439 | 64,322 | 25,476 | (25,817 | ) | 57,144 | ||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Additions to property, plant and equipment | (159 | ) | (2,067 | ) | (8,385 | ) | (10,421 | ) | — | (21,032 | ) | |||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | (3,248 | ) | (7 | ) | (27,504 | ) | (3,133 | ) | — | (33,892 | ) | |||||||||||||
Cash payments related to acquisitions and other | 4,000 | — | (76,522 | ) | — | — | (72,522 | ) | ||||||||||||||||
Net proceeds from sales of assets | — | — | 240 | 240 | — | 480 | ||||||||||||||||||
Proceeds from the sale of restricted investments | 1,581 | — | 1,889 | 636 | — | 4,106 | ||||||||||||||||||
Receivable from customer for property and equipment purchases | — | — | — | (674 | ) | — | (674 | ) |
59
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Net cash provided by (used in) investing activities | 2,174 | (2,074 | ) | (110,282 | ) | (13,352 | ) | — | (123,534 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Change in book overdrafts | — | (259 | ) | 6 | — | — | (253 | ) | ||||||||||||||||
Borrowings from long-term debt | 119,364 | — | — | — | — | 119,364 | ||||||||||||||||||
Repayments of long-term debt | (23,000 | ) | — | (2,494 | ) | (19,352 | ) | — | (44,846 | ) | ||||||||||||||
Borrowings on revolving lines of credit | — | — | — | 16,500 | — | 16,500 | ||||||||||||||||||
Repayments on revolving lines of credit | — | — | — | (16,500 | ) | — | (16,500 | ) | ||||||||||||||||
Debt issuance costs and other refinancing costs | (5,666 | ) | — | — | (22 | ) | — | (5,688 | ) | |||||||||||||||
Dividends/distributions | (1,360 | ) | (1,050 | ) | (19,173 | ) | (11,748 | ) | 31,971 | (1,360 | ) | |||||||||||||
Transactions with Parent/affiliates | (88,541 | ) | 483 | 72,840 | 21,372 | (6,154 | ) | — | ||||||||||||||||
Net cash provided by (used in) financing activities | 797 | (826 | ) | 51,179 | (9,750 | ) | 25,817 | 67,217 | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (11,305 | ) | 4,539 | 5,219 | 2,374 | — | 827 | |||||||||||||||||
Cash and cash equivalents, beginning of year | 26,141 | 6 | 143 | 4,493 | — | 30,783 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 14,836 | $ | 4,545 | $ | 5,362 | $ | 6,867 | $ | — | $ | 31,610 |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
60
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF CASH FLOWS (1)
Year Ended December 31, 2011
(In thousands)
Statements of Cash Flows | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net loss | $ | (36,875 | ) | $ | 5,089 | $ | 3,463 | $ | 5,073 | $ | (13,625 | ) | $ | (36,875 | ) | |||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | (18,508 | ) | — | — | — | 18,508 | — | |||||||||||||||||
Depreciation, depletion, and amortization | 306 | 10,175 | 7,936 | 27,177 | — | 45,594 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 55 | 3,034 | 7,789 | — | 10,878 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 621 | — | 36 | — | 657 | ||||||||||||||||||
Share-based compensation | 1,671 | 32 | 249 | 2,769 | — | 4,721 | ||||||||||||||||||
Loss (gain) on sale of assets | 3 | 189 | 59 | 389 | — | 640 | ||||||||||||||||||
Amortization of deferred financing costs | 1,485 | (21 | ) | 383 | 668 | — | 2,515 | |||||||||||||||||
Loss on extinguishment of debt | 7,873 | 9,073 | 84 | — | — | 17,030 | ||||||||||||||||||
Gain on sales of investments | — | — | (75 | ) | (75 | ) | — | (150 | ) | |||||||||||||||
Loss on derivative instruments | 3,079 | — | — | — | — | 3,079 | ||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | (158 | ) | 1,479 | (4,343 | ) | 2,263 | 6,250 | 5,491 | ||||||||||||||||
Inventories | — | (1,820 | ) | 134 | (439 | ) | — | (2,125 | ) | |||||||||||||||
Excess of black lung benefit obligation over trust assets | 4,319 | — | — | — | — | 4,319 | ||||||||||||||||||
Accounts payable and accrued expenses | 5,849 | (1,063 | ) | 378 | 3,103 | (4,139 | ) | 4,128 | ||||||||||||||||
Deferred revenue | — | (8,774 | ) | (349 | ) | (795 | ) | — | (9,918 | ) | ||||||||||||||
Accrual for workers’ compensation | 1,248 | — | — | — | — | 1,248 | ||||||||||||||||||
Asset retirement obligations | — | — | (875 | ) | (5,635 | ) | — | (6,510 | ) | |||||||||||||||
Accrual for postretirement medical benefits | (2,878 | ) | — | — | 1,235 | — | (1,643 | ) | ||||||||||||||||
Pension and SERP obligations | (4,320 | ) | (50 | ) | — | 3,092 | — | (1,278 | ) | |||||||||||||||
Other assets and liabilities | 444 | (529 | ) | 3,839 | (392 | ) | (428 | ) | 2,934 | |||||||||||||||
Distributions received from subsidiaries | 23,400 | — | — | — | (23,400 | ) | — | |||||||||||||||||
Net cash provided by (used in) operating activities | (13,062 | ) | 14,456 | 13,917 | 46,258 | (16,834 | ) | 44,735 | ||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Additions to property, plant and equipment | (797 | ) | (2,119 | ) | (2,569 | ) | (22,109 | ) | — | (27,594 | ) | |||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | (1,714 | ) | 2,581 | (3,738 | ) | (3,115 | ) | — | (5,986 | ) | ||||||||||||||
Cash payments related to acquisitions and other | (4,000 | ) | — | — | — | — | (4,000 | ) | ||||||||||||||||
Net proceeds from sales of assets | — | — | 250 | 437 | — | 687 | ||||||||||||||||||
Proceeds from the sale of investments | — | — | 1,075 | 2,275 | — | 3,350 |
61
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Receivable from customer for property and equipment purchases | — | — | — | (96 | ) | — | (96 | ) | ||||||||||||||||
Net cash provided by (used in) investing activities | (6,511 | ) | 462 | (4,982 | ) | (22,608 | ) | — | (33,639 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Change in book overdrafts | (146 | ) | 259 | (694 | ) | (143 | ) | — | (724 | ) | ||||||||||||||
Borrowings from long-term debt | 142,500 | — | — | — | — | 142,500 | ||||||||||||||||||
Repayments of long-term debt | (2,532 | ) | (46,220 | ) | (11,982 | ) | (12,832 | ) | — | (73,566 | ) | |||||||||||||
Borrowings on revolving lines of credit | — | 1,500 | 12,200 | 73,500 | — | 87,200 | ||||||||||||||||||
Repayments on revolving lines of credit | — | (1,500 | ) | (29,100 | ) | (75,000 | ) | — | (105,600 | ) | ||||||||||||||
Debt issuance costs | (6,042 | ) | (9,077 | ) | 100 | — | — | (15,019 | ) | |||||||||||||||
Exercise of stock options | 422 | — | — | — | — | 422 | ||||||||||||||||||
Dividends/distributions | (21,301 | ) | (10,700 | ) | — | (12,700 | ) | 23,400 | (21,301 | ) | ||||||||||||||
Transactions with Parent/affiliates | (67,458 | ) | 49,946 | 20,684 | 3,394 | (6,566 | ) | — | ||||||||||||||||
Net cash provided by (used in) financing activities | 45,443 | (15,792 | ) | (8,792 | ) | (23,781 | ) | 16,834 | 13,912 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 25,870 | (874 | ) | 143 | (131 | ) | — | 25,008 | ||||||||||||||||
Cash and cash equivalents, beginning of year | 271 | 880 | — | 4,624 | — | 5,775 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 26,141 | $ | 6 | $ | 143 | $ | 4,493 | $ | — | $ | 30,783 |
____________________
(1) This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.
62
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
On July 31, 2014, WML and WML’s four subsidiaries entered into the Fifth Supplemental Indenture (the “Fifth Supplemental Indenture”) to the existing indenture dated as of February 4, 2011, as amended and supplemented (the “Indenture”) among the Company and Westmoreland Partners, as co-issuers (together, the “Co-Issuers”), the guarantors named therein (the “Existing Guarantors”), Wells Fargo Bank, National Association, as trustee, and Wells Fargo Bank, National Association, as note collateral agent, which governs the 10.75% Senior Notes. Pursuant to the Fifth Supplemental Indenture, WML and its subsidiaries (the “New Guarantors”) each became restricted subsidiaries that are subject to the terms and conditions of the Indenture and agreed to guarantee the 10.75% Senior Notes on the same terms and conditions as the other Existing Guarantors. In connection with their entering into the Fifth Supplemental Indenture, the New Guarantors also entered into a Pledge and Security Agreement Supplement by which they secured their obligations under their guarantees and the obligations of the Company and the Co-Issuers under the Indenture.
The following tables present revised unaudited consolidating financial information to reflect WML and its subsidiaries as additional subsidiary guarantors of the 10.75% Senior Notes resulting from the Fifth Supplemental Indenture.
63
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING BALANCE SHEETS
December 31, 2013
(In thousands)
Assets | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 25,326 | $ | 3,341 | $ | 27,451 | $ | 4,992 | $ | — | $ | 61,110 | ||||||||||||
Receivables: | ||||||||||||||||||||||||
Trade | — | 12,934 | 46,985 | 6,277 | — | 66,196 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 8,487 | — | — | 8,487 | ||||||||||||||||||
Intercompany receivable/payable | (16,273 | ) | — | 2,761 | (19,353 | ) | 32,865 | — | ||||||||||||||||
Other | 1,616 | 210 | 3,256 | 28 | (24 | ) | 5,086 | |||||||||||||||||
(14,657 | ) | 13,144 | 61,489 | (13,048 | ) | 32,841 | 79,769 | |||||||||||||||||
Inventories | — | 6,161 | 33,811 | — | — | 39,972 | ||||||||||||||||||
Deferred income taxes | — | — | 870 | — | (870 | ) | — | |||||||||||||||||
Restricted investments and bond collateral | — | 5,998 | — | — | — | 5,998 | ||||||||||||||||||
Other current assets | 6,144 | 143 | 11,069 | 834 | — | 18,190 | ||||||||||||||||||
Total current assets | 16,813 | 28,787 | 134,690 | (7,222 | ) | 31,971 | 205,039 | |||||||||||||||||
Property, plant and equipment: | ||||||||||||||||||||||||
Land and mineral rights | — | 1,395 | 276,793 | — | — | 278,188 | ||||||||||||||||||
Plant and equipment | 3,973 | 220,872 | 432,851 | — | — | 657,696 | ||||||||||||||||||
3,973 | 222,267 | 709,644 | — | — | 935,884 | |||||||||||||||||||
Less accumulated depreciation, depletion and amortization | 2,707 | 71,653 | 371,488 | — | — | 445,848 | ||||||||||||||||||
Net property, plant and equipment | 1,266 | 150,614 | 338,156 | — | — | 490,036 | ||||||||||||||||||
Advanced coal royalties | — | — | 7,311 | — | — | 7,311 | ||||||||||||||||||
Reclamation deposits | — | — | 74,921 | — | — | 74,921 | ||||||||||||||||||
Restricted investments and bond collateral | 15,134 | — | 54,101 | — | — | 69,235 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 88,303 | — | — | 88,303 | ||||||||||||||||||
Intangible assets | — | 1,283 | 237 | — | — | 1,520 | ||||||||||||||||||
Investment in subsidiaries | 280,843 | — | — | 3,770 | (284,613 | ) | — | |||||||||||||||||
Other assets | 8,636 | — | 1,683 | 2,000 | (1,999 | ) | 10,320 | |||||||||||||||||
Total assets | $ | 322,692 | $ | 180,684 | $ | 699,402 | $ | (1,452 | ) | $ | (254,641 | ) | $ | 946,685 |
64
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING BALANCE SHEETS
December 31, 2013
(In thousands)
Liabilities and Shareholders’ Deficit | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Current installments of long-term debt | $ | 20,392 | $ | — | $ | 23,951 | $ | — | $ | — | $ | 44,343 | ||||||||||||
Accounts payable and accrued expenses: | ||||||||||||||||||||||||
Trade | 6,840 | 10,119 | 38,061 | 2,487 | — | 57,507 | ||||||||||||||||||
Production taxes | — | 3 | 36,522 | 5,380 | — | 41,905 | ||||||||||||||||||
Workers’ compensation | 717 | — | — | — | — | 717 | ||||||||||||||||||
Postretirement medical benefits | 12,042 | — | 774 | 1,139 | — | 13,955 | ||||||||||||||||||
SERP | 390 | — | — | — | — | 390 | ||||||||||||||||||
Deferred revenue | — | 9,024 | 5,044 | — | — | 14,068 | ||||||||||||||||||
Asset retirement obligations | — | — | 23,353 | — | — | 23,353 | ||||||||||||||||||
Other current liabilities | 11,302 | 5,053 | 457 | — | (22 | ) | 16,790 | |||||||||||||||||
Total current liabilities | 51,683 | 24,199 | 128,162 | 9,006 | (22 | ) | 213,028 | |||||||||||||||||
Long-term debt, less current installments | 224,582 | — | 72,912 | — | (2,000 | ) | 295,494 | |||||||||||||||||
Workers’ compensation, less current portion | 6,744 | — | — | — | — | 6,744 | ||||||||||||||||||
Excess of black lung benefit obligation over trust assets | 8,675 | — | — | — | — | 8,675 | ||||||||||||||||||
Postretirement medical benefits, less current portion | 185,858 | — | 66,439 | 18,077 | — | 270,374 | ||||||||||||||||||
Pension and SERP obligations, less current portion | 13,069 | 99 | 10,765 | 243 | — | 24,176 | ||||||||||||||||||
Deferred revenue, less current portion | — | 41,297 | 5,270 | — | — | 46,567 | ||||||||||||||||||
Asset retirement obligations, less current portion | — | 892 | 255,619 | — | — | 256,511 | ||||||||||||||||||
Intangible liabilities | — | 5,606 | — | — | — | 5,606 | ||||||||||||||||||
Other liabilities | 5,939 | — | 6,687 | 983 | (6,220 | ) | 7,389 | |||||||||||||||||
Intercompany receivable/payable | 14,021 | — | (7,851 | ) | 14,654 | (20,824 | ) | — | ||||||||||||||||
Total liabilities | 510,571 | 72,093 | 538,003 | 42,963 | (29,066 | ) | 1,134,564 | |||||||||||||||||
Shareholders’ deficit | ||||||||||||||||||||||||
Preferred stock | 160 | — | — | — | — | 160 | ||||||||||||||||||
Common stock | 36,479 | 5 | 110 | 132 | (247 | ) | 36,479 | |||||||||||||||||
Other paid-in capital | 134,861 | 52,835 | 157,984 | (124 | ) | (210,695 | ) | 134,861 | ||||||||||||||||
Accumulated other comprehensive income (loss) | (63,595 | ) | (164 | ) | 6,425 | (3,086 | ) | (3,175 | ) | (63,595 | ) | |||||||||||||
Accumulated earnings (deficit) | (295,784 | ) | 55,915 | (3,120 | ) | (41,337 | ) | (11,458 | ) | (295,784 | ) | |||||||||||||
Total Westmoreland Coal Company shareholders’ deficit | (187,879 | ) | 108,591 | 161,399 | (44,415 | ) | (225,575 | ) | (187,879 | ) | ||||||||||||||
Noncontrolling interest | — | — | — | — | — | — | ||||||||||||||||||
Total equity (deficit) | (187,879 | ) | 108,591 | 161,399 | (44,415 | ) | (225,575 | ) | (187,879 | ) | ||||||||||||||
Total liabilities and shareholders’ deficit | $ | 322,692 | $ | 180,684 | $ | 699,402 | $ | (1,452 | ) | $ | (254,641 | ) | $ | 946,685 |
65
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING BALANCE SHEETS
December 31, 2012
(In thousands)
Assets | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 14,836 | $ | 4,545 | $ | 10,236 | $ | 1,993 | $ | — | $ | 31,610 | ||||||||||||
Receivables: | ||||||||||||||||||||||||
Trade | — | 13,018 | 43,420 | 3,599 | — | 60,037 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 10,207 | — | — | 10,207 | ||||||||||||||||||
Intercompany receivable/payable | (17,309 | ) | — | 2,595 | (18,262 | ) | 32,976 | — | ||||||||||||||||
Other | 680 | — | 17,377 | 8 | (14,845 | ) | 3,220 | |||||||||||||||||
(16,629 | ) | 13,018 | 73,599 | (14,655 | ) | 18,131 | 73,464 | |||||||||||||||||
Inventories | — | 3,047 | 34,687 | — | — | 37,734 | ||||||||||||||||||
Other current assets | 743 | 298 | 15,463 | — | — | 16,504 | ||||||||||||||||||
Total current assets | (1,050 | ) | 20,908 | 133,985 | (12,662 | ) | 18,131 | 159,312 | ||||||||||||||||
Property, plant and equipment: | ||||||||||||||||||||||||
Land and mineral rights | — | 1,395 | 260,346 | — | — | 261,741 | ||||||||||||||||||
Plant and equipment | 3,198 | 219,857 | 412,665 | — | — | 635,720 | ||||||||||||||||||
3,198 | 221,252 | 673,011 | — | — | 897,461 | |||||||||||||||||||
Less accumulated depreciation, depletion and amortization | 2,364 | 61,474 | 320,783 | — | — | 384,621 | ||||||||||||||||||
Net property, plant and equipment | 834 | 159,778 | 352,228 | — | — | 512,840 | ||||||||||||||||||
Advanced coal royalties | — | — | 4,316 | — | — | 4,316 | ||||||||||||||||||
Reclamation deposits | — | — | 72,718 | — | — | 72,718 | ||||||||||||||||||
Restricted investments and bond collateral | 15,183 | 5,990 | 66,036 | — | — | 87,209 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 84,158 | — | — | 84,158 | ||||||||||||||||||
Intangible assets | — | 2,923 | 280 | — | — | 3,203 | ||||||||||||||||||
Investment in subsidiaries | 257,773 | — | (792 | ) | 3,770 | (260,751 | ) | — | ||||||||||||||||
Other assets | 10,267 | — | 2,092 | 2,000 | (2,000 | ) | 12,359 | |||||||||||||||||
Total assets | $ | 283,007 | $ | 189,599 | $ | 715,021 | $ | (6,892 | ) | $ | (244,620 | ) | $ | 936,115 |
66
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING BALANCE SHEETS
December 31, 2012
(In thousands)
Liabilities and Shareholders’ Deficit | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Current installments of long-term debt | $ | (1,548 | ) | $ | — | $ | 25,339 | $ | — | $ | — | $ | 23,791 | |||||||||||
Accounts payable and accrued expenses: | ||||||||||||||||||||||||
Trade | 5,060 | 4,978 | 40,715 | 16,181 | (14,841 | ) | 52,093 | |||||||||||||||||
Production taxes | — | 3 | 28,856 | 4,369 | — | 33,228 | ||||||||||||||||||
Workers’ compensation | 820 | — | — | — | — | 820 | ||||||||||||||||||
Postretirement medical benefits | 12,494 | — | 449 | 1,125 | — | 14,068 | ||||||||||||||||||
SERP | 390 | — | — | — | — | 390 | ||||||||||||||||||
Deferred revenue | — | 8,788 | 4,034 | — | — | 12,822 | ||||||||||||||||||
Asset retirement obligations | — | — | 22,238 | — | — | 22,238 | ||||||||||||||||||
Other current liabilities | 11,311 | — | 155 | — | (4 | ) | 11,462 | |||||||||||||||||
Total current liabilities | 28,527 | 13,769 | 121,786 | 21,675 | (14,845 | ) | 170,912 | |||||||||||||||||
Long-term debt, less current installments | 245,456 | — | 93,742 | — | (2,000 | ) | 337,198 | |||||||||||||||||
Workers’ compensation, less current portion | 8,710 | — | — | — | — | 8,710 | ||||||||||||||||||
Excess of black lung benefit obligation over trust assets | 8,356 | — | — | — | — | 8,356 | ||||||||||||||||||
Postretirement medical benefits, less current portion | 224,336 | — | 74,589 | 20,850 | — | 319,775 | ||||||||||||||||||
Pension and SERP obligations, less current portion | 29,265 | 289 | 23,955 | 741 | — | 54,250 | ||||||||||||||||||
Deferred revenue, less current portion | — | 50,239 | 6,652 | — | — | 56,891 | ||||||||||||||||||
Asset retirement obligations, less current portion | — | 829 | 240,780 | — | — | 241,609 | ||||||||||||||||||
Intangible liabilities | — | 6,625 | — | — | — | 6,625 | ||||||||||||||||||
Other liabilities | 701 | — | 16,145 | 1,174 | — | 18,020 | ||||||||||||||||||
Intercompany receivable/payable | 23,887 | — | 13,004 | 14,654 | (51,545 | ) | — | |||||||||||||||||
Total liabilities | 569,238 | 71,751 | 590,653 | 59,094 | (68,390 | ) | 1,222,346 | |||||||||||||||||
Shareholders’ deficit | ||||||||||||||||||||||||
Preferred stock | 160 | — | — | — | — | 160 | ||||||||||||||||||
Common stock | 35,502 | 5 | 110 | 132 | (247 | ) | 35,502 | |||||||||||||||||
Other paid-in capital | 130,852 | 52,806 | 155,585 | (124 | ) | (208,267 | ) | 130,852 | ||||||||||||||||
Accumulated other comprehensive loss | (148,345 | ) | (372 | ) | (22,777 | ) | (6,702 | ) | 29,851 | (148,345 | ) | |||||||||||||
Accumulated earnings (deficit) | (289,727 | ) | 65,409 | (8,550 | ) | (59,292 | ) | 2,433 | (289,727 | ) | ||||||||||||||
Total Westmoreland Coal Company shareholders’ deficit | (271,558 | ) | 117,848 | 124,368 | (65,986 | ) | (176,230 | ) | (271,558 | ) | ||||||||||||||
Noncontrolling interest | (14,673 | ) | — | — | — | — | (14,673 | ) | ||||||||||||||||
Total equity (deficit) | (286,231 | ) | 117,848 | 124,368 | (65,986 | ) | (176,230 | ) | (286,231 | ) | ||||||||||||||
Total liabilities and shareholders’ deficit | $ | 283,007 | $ | 189,599 | $ | 715,021 | $ | (6,892 | ) | $ | (244,620 | ) | $ | 936,115 |
67
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2013
(In thousands)
Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Revenues | $ | — | $ | 87,567 | $ | 571,021 | $ | 57,545 | $ | (41,447 | ) | $ | 674,686 | ||||||||||
Costs and expenses: | |||||||||||||||||||||||
Cost of sales | (1,525 | ) | 63,794 | 453,508 | 60,990 | (41,447 | ) | 535,320 | |||||||||||||||
Depreciation, depletion and amortization | 357 | 10,178 | 56,696 | — | — | 67,231 | |||||||||||||||||
Selling and administrative | 19,027 | 3,609 | 30,596 | (2,511 | ) | — | 50,721 | ||||||||||||||||
Heritage health benefit expenses | 12,361 | — | — | 1,057 | — | 13,418 | |||||||||||||||||
Loss (gain) on sales of assets | — | — | (74 | ) | — | — | (74 | ) | |||||||||||||||
Restructuring charges | — | 5,078 | — | — | — | 5,078 | |||||||||||||||||
Other operating income | — | — | (22,370 | ) | — | — | (22,370 | ) | |||||||||||||||
30,220 | 82,659 | 518,356 | 59,536 | (41,447 | ) | 649,324 | |||||||||||||||||
Operating income (loss) | (30,220 | ) | 4,908 | 52,665 | (1,991 | ) | — | 25,362 | |||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense | (30,417 | ) | (39 | ) | (9,495 | ) | (21 | ) | 35 | (39,937 | ) | ||||||||||||
Loss on extinguishment of debt | (64 | ) | — | — | — | — | (64 | ) | |||||||||||||||
Interest income | 165 | 26 | 1,190 | 20 | (35 | ) | 1,366 | ||||||||||||||||
Other income | — | — | 364 | — | — | 364 | |||||||||||||||||
(30,316 | ) | (13 | ) | (7,941 | ) | (1 | ) | — | (38,271 | ) | |||||||||||||
Income (loss) before income taxes and income of consolidated subsidiaries | (60,536 | ) | 4,895 | 44,724 | (1,992 | ) | — | (12,909 | ) | ||||||||||||||
Equity in income of subsidiaries | 47,514 | — | — | — | (47,514 | ) | — | ||||||||||||||||
Loss before income taxes | (13,022 | ) | 4,895 | 44,724 | (1,992 | ) | (47,514 | ) | (12,909 | ) | |||||||||||||
Income tax expense (benefit) | (4,895 | ) | 680 | 8,414 | — | (8,981 | ) | (4,782 | ) | ||||||||||||||
Net income (loss) | (8,127 | ) | 4,215 | 36,310 | (1,992 | ) | (38,533 | ) | (8,127 | ) | |||||||||||||
Less net loss attributable to noncontrolling interest | (3,430 | ) | — | — | — | — | (3,430 | ) | |||||||||||||||
Net income (loss) attributable to the Parent company | $ | (4,697 | ) | $ | 4,215 | $ | 36,310 | $ | (1,992 | ) | $ | (38,533 | ) | $ | (4,697 | ) |
68
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2012
(In thousands)
Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Revenues | $ | — | $ | 81,285 | $ | 511,570 | $ | 39,041 | $ | (31,459 | ) | $ | 600,437 | ||||||||||
Costs and expenses: | |||||||||||||||||||||||
Cost of sales | (587 | ) | 59,299 | 393,793 | 45,475 | (31,459 | ) | 466,521 | |||||||||||||||
Depreciation, depletion and amortization | 421 | 10,085 | 46,639 | — | — | 57,145 | |||||||||||||||||
Selling and administrative | 18,407 | 3,657 | 29,334 | 37 | (1,527 | ) | 49,908 | ||||||||||||||||
Heritage health benefit expenses | 12,406 | — | (1 | ) | 983 | — | 13,388 | ||||||||||||||||
Loss on sales of assets | 13 | — | 515 | — | — | 528 | |||||||||||||||||
Other operating income | — | — | (17,452 | ) | — | 1,527 | (15,925 | ) | |||||||||||||||
30,660 | 73,041 | 452,828 | 46,495 | (31,459 | ) | 571,565 | |||||||||||||||||
Operating income (loss) | (30,660 | ) | 8,244 | 58,742 | (7,454 | ) | — | 28,872 | |||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense | (31,301 | ) | (39 | ) | (11,349 | ) | (68 | ) | 80 | (42,677 | ) | ||||||||||||
Loss on extinguishment of debt | (1,986 | ) | — | — | — | — | (1,986 | ) | |||||||||||||||
Interest income | 253 | 15 | 1,289 | 19 | (80 | ) | 1,496 | ||||||||||||||||
Other income | 190 | — | 533 | — | — | 723 | |||||||||||||||||
(32,844 | ) | (24 | ) | (9,527 | ) | (49 | ) | — | (42,444 | ) | |||||||||||||
Income (loss) before income taxes and income of consolidated subsidiaries | (63,504 | ) | 8,220 | 49,215 | (7,503 | ) | — | (13,572 | ) | ||||||||||||||
Equity in income of subsidiaries | 49,834 | — | — | — | (49,834 | ) | — | ||||||||||||||||
Income (loss) before income taxes | (13,670 | ) | 8,220 | 49,215 | (7,503 | ) | (49,834 | ) | (13,572 | ) | |||||||||||||
Income tax expense (benefit) | (8 | ) | 107 | 4,410 | — | (4,419 | ) | 90 | |||||||||||||||
Net income (loss) | (13,662 | ) | 8,113 | 44,805 | (7,503 | ) | (45,415 | ) | (13,662 | ) | |||||||||||||
Less net loss attributable to noncontrolling interest | (6,436 | ) | — | — | — | — | (6,436 | ) | |||||||||||||||
Net income (loss) attributable to the Parent company | $ | (7,226 | ) | $ | 8,113 | $ | 44,805 | $ | (7,503 | ) | $ | (45,415 | ) | $ | (7,226 | ) |
69
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2011
(In thousands)
Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Revenues | $ | — | $ | 86,785 | $ | 390,621 | $ | 79,831 | $ | (55,524 | ) | $ | 501,713 | ||||||||||
Costs and expenses: | |||||||||||||||||||||||
Cost of sales | (158 | ) | 60,243 | 304,652 | 83,574 | (55,524 | ) | 392,787 | |||||||||||||||
Depreciation, depletion and amortization | 306 | 10,175 | 35,113 | — | — | 45,594 | |||||||||||||||||
Selling and administrative | 13,394 | 4,059 | 23,850 | (554 | ) | (473 | ) | 40,276 | |||||||||||||||
Heritage health benefit expenses | 17,754 | — | — | 821 | — | 18,575 | |||||||||||||||||
Gain (loss) on sales of assets | 3 | 189 | 448 | — | — | 640 | |||||||||||||||||
Other operating income | — | — | (7,258 | ) | — | 473 | (6,785 | ) | |||||||||||||||
31,299 | 74,666 | 356,805 | 83,841 | (55,524 | ) | 491,087 | |||||||||||||||||
Operating income (loss) | (31,299 | ) | 12,119 | 33,816 | (4,010 | ) | — | 10,626 | |||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest expense | (16,365 | ) | (469 | ) | (12,957 | ) | (70 | ) | 92 | (29,769 | ) | ||||||||||||
Loss on extinguishment of debt | (7,873 | ) | (9,073 | ) | (84 | ) | — | — | (17,030 | ) | |||||||||||||
Interest income | 266 | 14 | 1,229 | 27 | (92 | ) | 1,444 | ||||||||||||||||
Other income (loss) | (3,014 | ) | — | 418 | 24 | — | (2,572 | ) | |||||||||||||||
(26,986 | ) | (9,528 | ) | (11,394 | ) | (19 | ) | — | (47,927 | ) | |||||||||||||
Loss before income taxes and income of consolidated subsidiaries | (58,285 | ) | 2,591 | 22,422 | (4,029 | ) | — | (37,301 | ) | ||||||||||||||
Equity in income of subsidiaries | 21,128 | — | — | — | (21,128 | ) | — | ||||||||||||||||
Loss before income taxes | (37,157 | ) | 2,591 | 22,422 | (4,029 | ) | (21,128 | ) | (37,301 | ) | |||||||||||||
Income tax expense (benefit) | (282 | ) | (2,498 | ) | 7,236 | — | (4,882 | ) | (426 | ) | |||||||||||||
Net income (loss) | (36,875 | ) | 5,089 | 15,186 | (4,029 | ) | (16,246 | ) | (36,875 | ) | |||||||||||||
Less net loss attributable to noncontrolling interest | (3,775 | ) | — | — | — | — | (3,775 | ) | |||||||||||||||
Net loss attributable to the Parent company | $ | (33,100 | ) | $ | 5,089 | $ | 15,186 | $ | (4,029 | ) | $ | (16,246 | ) | $ | (33,100 | ) |
70
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, 2013
(In thousands)
Parent/Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Net income (loss) | $ | (8,127 | ) | $ | 4,215 | $ | 36,310 | $ | (1,992 | ) | $ | (38,533 | ) | $ | (8,127 | ) | |||||||
Other comprehensive income (loss) | |||||||||||||||||||||||
Amortization of accumulated actuarial gains or losses, pension | 3,490 | 28 | 801 | 61 | (890 | ) | 3,490 | ||||||||||||||||
Adjustments to accumulated actuarial losses and transition obligations, pension | 28,974 | 180 | 13,331 | 475 | (13,986 | ) | 28,974 | ||||||||||||||||
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit | 4,005 | — | 577 | 275 | (852 | ) | 4,005 | ||||||||||||||||
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits | 53,230 | 180 | 14,548 | 2,804 | (17,532 | ) | 53,230 | ||||||||||||||||
Tax effect of other comprehensive income gains | (4,892 | ) | — | — | — | — | (4,892 | ) | |||||||||||||||
Unrealized and realized gains and losses on available-for-sale securities | (57 | ) | — | (55 | ) | — | 55 | (57 | ) | ||||||||||||||
Other comprehensive income | 84,750 | 388 | 29,202 | 3,615 | (33,205 | ) | 84,750 | ||||||||||||||||
Comprehensive income attributable to Westmoreland Coal Company | $ | 76,623 | $ | 4,603 | $ | 65,512 | $ | 1,623 | $ | (71,738 | ) | $ | 76,623 |
71
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, 2012
(In thousands)
Parent/Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Net income (loss) | $ | (13,662 | ) | $ | 8,113 | $ | 44,805 | $ | (7,503 | ) | $ | (45,415 | ) | $ | (13,662 | ) | |||||||
Other comprehensive income (loss) | |||||||||||||||||||||||
Amortization of accumulated actuarial gains or losses, pension | 2,960 | 23 | 720 | 46 | (789 | ) | 2,960 | ||||||||||||||||
Adjustments to accumulated actuarial losses and transition obligations, pension | (9,812 | ) | (52 | ) | (5,144 | ) | (22 | ) | 5,218 | (9,812 | ) | ||||||||||||
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit | 2,572 | — | 823 | 150 | (973 | ) | 2,572 | ||||||||||||||||
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits | (22,342 | ) | — | (1,367 | ) | (1,467 | ) | 2,834 | (22,342 | ) | |||||||||||||
Unrealized and realized gains and losses on available-for-sale securities | (268 | ) | — | (64 | ) | — | 64 | (268 | ) | ||||||||||||||
Other comprehensive income (loss) | (26,890 | ) | (29 | ) | (5,032 | ) | (1,293 | ) | 6,354 | (26,890 | ) | ||||||||||||
Comprehensive income (loss) attributable to Westmoreland Coal Company | $ | (40,552 | ) | $ | 8,084 | $ | 39,773 | $ | (8,796 | ) | $ | (39,061 | ) | $ | (40,552 | ) |
72
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, 2011
(In thousands)
Parent/Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Net income (loss) | $ | (36,875 | ) | $ | 5,089 | $ | 15,186 | $ | (4,029 | ) | $ | (16,246 | ) | $ | (36,875 | ) | |||||||
Other comprehensive income (loss) | |||||||||||||||||||||||
Amortization of accumulated actuarial gains or losses, pension | 1,647 | 9 | 86 | 36 | (131 | ) | 1,647 | ||||||||||||||||
Adjustments to accumulated actuarial losses and transition obligations, pension | (15,798 | ) | (150 | ) | 72 | (516 | ) | 594 | (15,798 | ) | |||||||||||||
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit | (288 | ) | — | 348 | (54 | ) | (294 | ) | (288 | ) | |||||||||||||
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits | (49,136 | ) | — | (5,934 | ) | (3,335 | ) | 9,269 | (49,136 | ) | |||||||||||||
Unrealized and realized gains and losses on available-for-sale securities | (200 | ) | — | (203 | ) | — | 203 | (200 | ) | ||||||||||||||
Other comprehensive income (loss) | (63,775 | ) | (141 | ) | (5,631 | ) | (3,869 | ) | 9,641 | (63,775 | ) | ||||||||||||
Comprehensive income (loss) attributable to Westmoreland Coal Company | $ | (100,650 | ) | $ | 4,948 | $ | 9,555 | $ | (7,898 | ) | $ | (6,605 | ) | $ | (100,650 | ) |
73
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2013
(In thousands)
Statements of Cash Flows | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income (loss) | $ | (8,127 | ) | $ | 4,215 | $ | 36,310 | $ | (1,992 | ) | $ | (38,533 | ) | $ | (8,127 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | (47,514 | ) | — | — | — | 47,514 | — | |||||||||||||||||
Depreciation, depletion, and amortization | 357 | 10,178 | 56,696 | — | — | 67,231 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 63 | 12,618 | — | — | 12,681 | ||||||||||||||||||
Non-cash tax benefits | (4,892 | ) | — | — | — | — | (4,892 | ) | ||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 622 | 43 | — | — | 665 | ||||||||||||||||||
Share-based compensation | 2,887 | 37 | 2,398 | — | — | 5,322 | ||||||||||||||||||
Loss on sale of assets | — | — | (74 | ) | — | — | (74 | ) | ||||||||||||||||
Amortization of deferred financing costs | 3,165 | — | 566 | — | — | 3,731 | ||||||||||||||||||
Other | — | — | (1,001 | ) | — | — | (1,001 | ) | ||||||||||||||||
Loss on extinguishment of debt | 64 | — | — | — | — | 64 | ||||||||||||||||||
Gain on sales of investments | — | — | (3 | ) | — | — | (3 | ) | ||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | (936 | ) | (126 | ) | 10,945 | (4,225 | ) | (13,294 | ) | (7,636 | ) | |||||||||||||
Inventories | — | (3,114 | ) | 602 | — | — | (2,512 | ) | ||||||||||||||||
Excess of black lung benefit obligation over trust assets | 319 | — | — | — | — | 319 | ||||||||||||||||||
Accounts payable and accrued expenses | 1,753 | 5,141 | 4,545 | (12,683 | ) | 14,823 | 13,579 | |||||||||||||||||
Deferred revenue | — | (8,706 | ) | (372 | ) | — | — | (9,078 | ) | |||||||||||||||
Income tax payable | — | — | (1 | ) | — | — | (1 | ) | ||||||||||||||||
Accrual for workers’ compensation | (2,069 | ) | — | — | — | — | (2,069 | ) | ||||||||||||||||
Asset retirement obligations | — | — | (9,410 | ) | — | — | (9,410 | ) | ||||||||||||||||
Accrual for postretirement medical benefits | 101 | — | 7,300 | 320 | — | 7,721 | ||||||||||||||||||
Pension and SERP obligations | 1,391 | 18 | 941 | 38 | — | 2,388 | ||||||||||||||||||
Other assets and liabilities | (170 | ) | 4,983 | 13,383 | (1,025 | ) | (5,352 | ) | 11,819 | |||||||||||||||
Distributions received from subsidiaries | 78,000 | — | — | — | (78,000 | ) | — | |||||||||||||||||
Net cash provided by (used in) operating activities | 24,329 | 13,311 | 135,486 | (19,567 | ) | (72,842 | ) | 80,717 | ||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Additions to property, plant and equipment | (771 | ) | (790 | ) | (27,030 | ) | — | — | (28,591 | ) | ||||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | 49 | (8 | ) | 1,393 | — | — | 1,434 | |||||||||||||||||
Net proceeds from sales of assets | — | — | 902 | — | — | 902 |
74
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Proceeds from the sale of restricted investments | — | — | 8,287 | — | — | 8,287 | ||||||||||||||||||
Receivable from customer for property and equipment purchases | — | — | (389 | ) | — | — | (389 | ) | ||||||||||||||||
Other | — | — | (3,540 | ) | — | — | (3,540 | ) | ||||||||||||||||
Net cash provided by (used in) investing activities | (722 | ) | (798 | ) | (20,377 | ) | — | — | (21,897 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Change in book overdrafts | — | — | 310 | — | — | 310 | ||||||||||||||||||
Repayments of long-term debt | (500 | ) | — | (27,588 | ) | — | — | (28,088 | ) | |||||||||||||||
Borrowings on revolving lines of credit | — | — | 7,000 | — | — | 7,000 | ||||||||||||||||||
Repayments on revolving lines of credit | — | — | (7,000 | ) | — | — | (7,000 | ) | ||||||||||||||||
Debt issuance costs and other refinancing costs | (26 | ) | — | (156 | ) | — | — | (182 | ) | |||||||||||||||
Dividends/distributions | (1,360 | ) | (14,500 | ) | (63,500 | ) | — | 78,000 | (1,360 | ) | ||||||||||||||
Transactions with Parent/affiliates | (11,231 | ) | 783 | (6,960 | ) | 22,566 | (5,158 | ) | — | |||||||||||||||
Net cash provided by (used in) financing activities | (13,117 | ) | (13,717 | ) | (97,894 | ) | 22,566 | 72,842 | (29,320 | ) | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | 10,490 | (1,204 | ) | 17,215 | 2,999 | — | 29,500 | |||||||||||||||||
Cash and cash equivalents, beginning of year | 14,836 | 4,545 | 10,236 | 1,993 | — | 31,610 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 25,326 | $ | 3,341 | $ | 27,451 | $ | 4,992 | $ | — | $ | 61,110 |
75
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2012
(In thousands)
Statements of Cash Flows | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income (loss) | $ | (13,662 | ) | $ | 8,113 | $ | 44,805 | $ | (7,503 | ) | $ | (45,415 | ) | $ | (13,662 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | (49,834 | ) | — | — | — | 49,834 | — | |||||||||||||||||
Depreciation, depletion, and amortization | 421 | 10,085 | 46,639 | — | — | 57,145 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 59 | 12,130 | — | — | 12,189 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 622 | 36 | — | — | 658 | ||||||||||||||||||
Share-based compensation | 3,054 | 44 | 2,942 | — | — | 6,040 | ||||||||||||||||||
Loss (gain) on sale of assets | 13 | — | 515 | — | — | 528 | ||||||||||||||||||
Amortization of deferred financing costs | 2,889 | — | 1,469 | — | — | 4,358 | ||||||||||||||||||
Loss on extinguishment of debt | 1,986 | — | — | — | — | 1,986 | ||||||||||||||||||
Gain on sales of investments | (190 | ) | — | 25 | — | — | (165 | ) | ||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | (280 | ) | (151 | ) | (22,246 | ) | 1,865 | 7,957 | (12,855 | ) | ||||||||||||||
Inventories | — | 709 | (2,873 | ) | — | — | (2,164 | ) | ||||||||||||||||
Excess of black lung benefit obligation over trust assets | 1,791 | — | — | — | — | 1,791 | ||||||||||||||||||
Accounts payable and accrued expenses | 4,792 | (3,208 | ) | 18,551 | 5,488 | (8,224 | ) | 17,399 | ||||||||||||||||
Deferred revenue | — | (8,312 | ) | 114 | — | — | (8,198 | ) | ||||||||||||||||
Accrual for workers’ compensation | (2,096 | ) | — | — | — | — | (2,096 | ) | ||||||||||||||||
Asset retirement obligations | — | — | (6,943 | ) | — | — | (6,943 | ) | ||||||||||||||||
Accrual for postretirement medical benefits | (524 | ) | — | 6,828 | (113 | ) | — | 6,191 | ||||||||||||||||
Pension and SERP obligations | 1,286 | 15 | 1,602 | (101 | ) | — | 2,802 | |||||||||||||||||
Other assets and liabilities | (247 | ) | (536 | ) | (7,185 | ) | (1,892 | ) | 2,000 | (7,860 | ) | |||||||||||||
Distributions received from subsidiaries | 31,971 | — | — | — | (31,971 | ) | — | |||||||||||||||||
Net cash provided by (used in) operating activities | (18,630 | ) | 7,440 | 96,409 | (2,256 | ) | (25,819 | ) | 57,144 | |||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Additions to property, plant and equipment | (159 | ) | (2,067 | ) | (18,806 | ) | — | — | (21,032 | ) | ||||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | (3,248 | ) | (7 | ) | (30,637 | ) | — | — | (33,892 | ) | ||||||||||||||
Cash payments related to acquisitions and other | 4,000 | — | (76,522 | ) | — | — | (72,522 | ) | ||||||||||||||||
Net proceeds from sales of assets | — | — | 480 | — | — | 480 | ||||||||||||||||||
Proceeds from the sale of restricted investments | 1,581 | — | 2,525 | — | — | 4,106 | ||||||||||||||||||
Receivable from customer for property and equipment purchases | — | — | (674 | ) | — | — | (674 | ) |
76
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Net cash provided by (used in) investing activities | 2,174 | (2,074 | ) | (123,634 | ) | — | — | (123,534 | ) | |||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Change in book overdrafts | — | (259 | ) | 6 | — | — | (253 | ) | ||||||||||||||||
Borrowings from long-term debt | 119,364 | — | — | — | — | 119,364 | ||||||||||||||||||
Repayments of long-term debt | (23,000 | ) | — | (21,846 | ) | — | — | (44,846 | ) | |||||||||||||||
Borrowings on revolving lines of credit | — | — | 16,500 | — | — | 16,500 | ||||||||||||||||||
Repayments on revolving lines of credit | — | — | (16,500 | ) | — | — | (16,500 | ) | ||||||||||||||||
Debt issuance costs and other refinancing costs | (5,666 | ) | — | (22 | ) | — | — | (5,688 | ) | |||||||||||||||
Dividends/distributions | (1,360 | ) | (1,050 | ) | (30,921 | ) | — | 31,971 | (1,360 | ) | ||||||||||||||
Transactions with Parent/affiliates | (84,186 | ) | 482 | 86,863 | 2,993 | (6,152 | ) | — | ||||||||||||||||
Net cash provided by (used in) financing activities | 5,152 | (827 | ) | 34,080 | 2,993 | 25,819 | 67,217 | |||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (11,304 | ) | 4,539 | 6,855 | 737 | — | 827 | |||||||||||||||||
Cash and cash equivalents, beginning of year | 26,140 | 6 | 3,381 | 1,256 | — | 30,783 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 14,836 | $ | 4,545 | $ | 10,236 | $ | 1,993 | $ | — | $ | 31,610 |
77
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2011
(In thousands)
Statements of Cash Flows | Parent/ Issuer | Co-Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net loss | $ | (36,875 | ) | $ | 5,089 | $ | 15,186 | $ | (4,029 | ) | $ | (16,246 | ) | $ | (36,875 | ) | ||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | (21,128 | ) | — | — | — | 21,128 | — | |||||||||||||||||
Depreciation, depletion, and amortization | 306 | 10,175 | 35,113 | — | — | 45,594 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 55 | 10,823 | — | — | 10,878 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 621 | 36 | — | — | 657 | ||||||||||||||||||
Share-based compensation | 1,670 | 32 | 3,019 | — | — | 4,721 | ||||||||||||||||||
Loss (gain) on sale of assets | 3 | 189 | 448 | — | — | 640 | ||||||||||||||||||
Amortization of deferred financing costs | 1,485 | (21 | ) | 1,051 | — | — | 2,515 | |||||||||||||||||
Loss on extinguishment of debt | 7,873 | 9,073 | 84 | — | — | 17,030 | ||||||||||||||||||
Gain on sales of investments | — | — | (150 | ) | — | — | (150 | ) | ||||||||||||||||
Loss on derivative instruments | 3,079 | — | — | — | — | 3,079 | ||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | (270 | ) | 1,479 | 1,367 | (3,334 | ) | 6,249 | 5,491 | ||||||||||||||||
Inventories | — | (1,820 | ) | (305 | ) | — | — | (2,125 | ) | |||||||||||||||
Excess of black lung benefit obligation over trust assets | 4,319 | — | — | — | — | 4,319 | ||||||||||||||||||
Accounts payable and accrued expenses | 5,944 | (1,063 | ) | (940 | ) | 4,326 | (4,139 | ) | 4,128 | |||||||||||||||
Deferred revenue | — | (8,774 | ) | (1,144 | ) | — | — | (9,918 | ) | |||||||||||||||
Accrual for workers’ compensation | 1,248 | — | — | — | — | 1,248 | ||||||||||||||||||
Asset retirement obligations | — | — | (6,510 | ) | — | — | (6,510 | ) | ||||||||||||||||
Accrual for postretirement medical benefits | (2,879 | ) | — | 1,132 | 104 | — | (1,643 | ) | ||||||||||||||||
Pension and SERP obligations | (3,741 | ) | (50 | ) | 2,520 | (7 | ) | — | (1,278 | ) | ||||||||||||||
Other assets and liabilities | 444 | (530 | ) | 3,405 | 42 | (427 | ) | 2,934 | ||||||||||||||||
Distributions received from subsidiaries | 23,400 | — | — | — | (23,400 | ) | — | |||||||||||||||||
Net cash provided by (used in) operating activities | (15,122 | ) | 14,455 | 65,135 | (2,898 | ) | (16,835 | ) | 44,735 | |||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Additions to property, plant and equipment | (797 | ) | (2,119 | ) | (24,678 | ) | — | — | (27,594 | ) | ||||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | (1,713 | ) | 2,580 | (6,853 | ) | — | — | (5,986 | ) | |||||||||||||||
Cash payments related to acquisitions and other | (4,000 | ) | — | — | — | — | (4,000 | ) | ||||||||||||||||
Net proceeds from sales of assets | — | — | 687 | — | — | 687 | ||||||||||||||||||
Proceeds from the sale of investments | — | — | 3,350 | — | — | 3,350 |
78
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Receivable from customer for property and equipment purchases | — | — | (96 | ) | — | — | (96 | ) | ||||||||||||||||
Net cash provided by (used in) investing activities | (6,510 | ) | 461 | (27,590 | ) | — | — | (33,639 | ) | |||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Change in book overdrafts | (146 | ) | 259 | (837 | ) | — | — | (724 | ) | |||||||||||||||
Borrowings from long-term debt | 142,500 | — | — | — | — | 142,500 | ||||||||||||||||||
Repayments of long-term debt | (2,532 | ) | (46,220 | ) | (24,814 | ) | — | — | (73,566 | ) | ||||||||||||||
Borrowings on revolving lines of credit | — | 1,500 | 85,700 | — | — | 87,200 | ||||||||||||||||||
Repayments on revolving lines of credit | — | (1,500 | ) | (104,100 | ) | — | — | (105,600 | ) | |||||||||||||||
Debt issuance costs | (6,042 | ) | (9,077 | ) | 100 | — | — | (15,019 | ) | |||||||||||||||
Exercise of stock options | 422 | — | — | — | — | 422 | ||||||||||||||||||
Dividends/distributions | (21,301 | ) | (10,700 | ) | (11,700 | ) | (1,000 | ) | 23,400 | (21,301 | ) | |||||||||||||
Transactions with Parent/affiliates | (65,400 | ) | 49,948 | 21,135 | 882 | (6,565 | ) | — | ||||||||||||||||
Net cash provided by (used in) financing activities | 47,501 | (15,790 | ) | (34,516 | ) | (118 | ) | 16,835 | 13,912 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 25,869 | (874 | ) | 3,029 | (3,016 | ) | — | 25,008 | ||||||||||||||||
Cash and cash equivalents, beginning of year | 271 | 880 | 352 | 4,272 | — | 5,775 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 26,140 | $ | 6 | $ | 3,381 | $ | 1,256 | $ | — | $ | 30,783 |
79
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
19. | SUBSEQUENT EVENT |
On February 7, 2014, the Company closed on a private offering of $425 million in aggregate principal amount of 10.75% Senior Secured Notes due 2018 at a price of 106.875% plus accrued interest from February 1, 2014. The proceeds from the offering will be used primarily to pay the purchase price and related expenses for the Sherritt Acquisition (See Note 1 for additional details of the Sherritt Acquisition), to prepay the outstanding senior secured notes issued of WML (See Note 5 for additional details of the WML debt), and for working capital. The proceeds will be held in escrow pending the completion of the Sherritt Acquisition, which is expected to occur by the end of the first quarter of 2014.
80