BASIS OF PRESENTATION | 3 Months Ended |
Mar. 31, 2015 |
Accounting Policies [Abstract] | |
BASIS OF PRESENTATION | BASIS OF PRESENTATION |
The accompanying unaudited consolidated financial statements include accounts of Westmoreland Coal Company, or the Company, or Parent, and its subsidiaries and controlled entities. The Company’s current principal activities are conducted within the United States and Canada. U.S. activities include the production and sale of coal from its mines in Montana, Wyoming, North Dakota, Texas, and Ohio and the ownership of the Roanoke Valley power plants, or ROVA, in North Carolina. Canadian activities include the production and sale of coal from six surface mines in Alberta and Saskatchewan, selling char to the barbecue briquette industry, and a 50% interest in a joint venture which produces activated carbon. The Company’s activities are primarily conducted through wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. |
U.S. Coal Operations – The Company’s Kemmerer Mine is owned by its subsidiary Westmoreland Kemmerer, Inc., or Kemmerer. The Company’s Absaloka Mine is owned by its subsidiary Westmoreland Resources, Inc., or WRI. The Beulah, Jewett, Rosebud, and Savage Mines are owned through the Company’s subsidiary Westmoreland Mining LLC, or WML. The Company’s Buckingham Mine is owned by its subsidiary WCC Land Holding Company, Inc. See Note 2 for additional information on the Buckingham Mine. |
Canadian Operations – Prairie Mines & Royalty ULC, or PMRU, operates five surface coal mines in Alberta and Saskatchewan. PMRU owns and operates the Paintearth, Sheerness, Genesee, Poplar River and Estevan mines. PMRU directly owns a 50% joint venture interest in the Estevan Activated Carbon Joint Venture, at the Estevan mine, which produces activated carbon for the removal of mercury from flue gas. PMRU also sells char to the barbecue briquette industry. Coal Valley Resources Inc., or CVRI, operates the Coal Valley Mine which is a surface mine located in West Central Alberta where the majority of coal is exported overseas to Asian utility companies and commodity traders. CVRI operated the Obed Mountain surface mine, which ceased production in 2013 and is currently in reclamation. |
Master Limited Partnership – On December 31, 2014, the Company acquired Westmoreland Resources GP, LLC (formerly Oxford Resources GP, LLC) (the “GP”), the general partner of Westmoreland Resource Partners, LP (formerly Oxford Resource Partners, LP) (NYSE: WMLP, “WMLP”). Concurrent with the acquisition of the GP, Westmoreland contributed certain royalty-bearing coal reserves to WMLP in return for common units representing limited partner interests in WMLP, resulting in the Company owning approximately 79% of the outstanding equity interests in WMLP. WMLP is a low-cost producer of high value thermal coal in Northern Appalachia. WMLP markets its coal primarily to large electric utilities with coal-fire, base load scrubbed power plants under long-term coal sales contracts. See Note 2 for additional information. |
The consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles and require use of management’s estimates. The financial information contained in this Form 10-Q is unaudited, but reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of results to be expected for the year ending December 31, 2015. |
These quarterly consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”). The accounting principles followed by the Company are set forth in the Notes to the Company’s consolidated financial statements in its 2014 Form 10-K. Most of the descriptions of the accounting principles and other footnote disclosures previously made have been omitted in this report so long as the interim information presented is not misleading or inconsistent. |
Debt Obligations |
As of March 31, 2015, the Company is subject to three major debt arrangements: (1) $350.0 million in aggregate principal amount of 8.75% senior secured notes at the parent level (the “8.75% Notes”); (2) a secured term loan facility at the parent level in the aggregate principal amount of $423.9 million (the “WCC Term Loan Facility”); and (3) a secured term loan facility at WMLP in the aggregate principal amount of $176.3 million (the “WMLP Term Loan Facility”). |
The 8.75% Notes are guaranteed by Westmoreland Energy LLC, Westmoreland Kemmerer, Inc., Westmoreland Mining LLC and Westmoreland Resources, Inc. and their respective subsidiaries (other than Absaloka Coal, LLC, Westmoreland Risk Management, Inc. and certain other immaterial subsidiaries). The 8.75% Notes are not guaranteed by Westmoreland Canada LLC or any of its subsidiaries, nor are they guaranteed by Westmoreland Resources GP, LLC or Westmoreland Resource Partners, LP, referred to as the Non-guarantors. The WCC Term Loan Facility is guaranteed by Westmoreland Energy LLC, Westmoreland Kemmerer, Inc., Westmoreland Mining LLC, Westmoreland Resources, Inc. and certain other direct and indirect subsidiaries of the Company (other than Absaloka Coal, LLC, Westmoreland Risk Management, Inc., Westmoreland Canada, LLC, Westmoreland Resources GP, LLC, Westmoreland Resource Partners, LP and certain other immaterial subsidiaries). |
Borrowings under the WMLP Term Loan Facility are secured by substantially all of WMLP’s and its subsidiaries’ assets. |
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, depreciation, depletion, amortization, operating overhead and other related costs. |
Derivatives |
The Company enters into financial derivatives to manage exposure to fluctuations in foreign currency exchange rates and power prices. The Company does not utilize derivative financial instruments for trading purposes or for speculative purposes. |
The Company’s derivative instruments are recorded at fair value with changes in fair value recognized in the Consolidated Statements of Operations at the end of each period in Gain (loss) on foreign exchange or Derivative gain. |
Foreign Exchange Transactions |
Amounts held and transactions denominated in foreign currencies other than the operating unit’s functional currency give rise to foreign exchange gains and losses which are included within Gain (loss) on foreign exchange. |
Equity-Method Investments |
The Company’s 50% interest in the Estevan Activated Carbon Joint Venture is accounted for under the equity method of accounting. Investments in unconsolidated affiliates that the Company has the ability to exercise significant influence over, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the Company records its proportionate share of the entity’s net income or loss at each reporting period in Income from equity affiliates on the Consolidated Statements of Operations with a corresponding entry to increase or decrease the carrying value of the investment. |
Loan and Lease Receivables |
The Company periodically makes loans and finance leases at the Genesee mine in accordance with its operating agreement with its only customer for purposes of funding capital expenditures and working capital requirements. Finance lease and loan receivables are measured at the present value of the future lease payments at the inception of the arrangement. Lease payments received are comprised of a repayment of principal and finance income. Finance income is recognized based on the interest rate implicit in the finance lease. PMRU recognizes finance income over periods between 3 and 27 years, which reflect a constant periodic return on its net investment in the finance lease. Initial direct costs are included in the initial measurement of the finance lease receivables and reduce the amount of income recognized over the lease term. |
Income Taxes |
The Company’s effective tax rate in the three months ended March 31, 2015, was lower than the effective tax rate in the three months ended March 31, 2014, primarily due to the forecasted 2015 decrease in pre-tax loss and an increase in income tax expense related to the our acquisition of PMRU and CVRI (the “Canadian Acquisition”). |
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For the three months ended March 31, 2015, the Company’s effective tax rate differs from the statutory rate primarily due to the U.S. valuation allowance and foreign operations. For the three months ended March 31, 2014, the Company’s effective tax rate differs from the statutory rate primarily due to the U.S. valuation allowance. |
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Foreign Currency Translation |
The functional currency of the Company’s Canadian operations is the Canadian dollar. The Company’s Canadian operations’ assets and liabilities are translated at period end exchange rates, and revenues and costs are translated using average exchange rates for the period. Foreign currency translation adjustments are reported in Other comprehensive income. |
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Noncontrolling Interest |
The Company owns 100% of the GP equity units and thereby has controlling interest of WMLP. The Company includes the accounts of the GP and provides for a noncontrolling interest in WMLP, which was approximately 21% at March 31, 2015. |
Recently Adopted Accounting Pronouncements |
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, issued as a new Topic, Accounting Standards Codification (ASC) Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective beginning in fiscal 2017 and can be adopted by the Company either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations, cash flows and financial position. |
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized liability, be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new guidance should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability). The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statement that have not been previous issued. Management projects the impact to the financial statements resulting in balance sheet reclassification for which the Deferred financing costs, net account is recharacterized as a a contra-liability reducing the Long-term debt, less current installments balance for each of the respective periods upon adoption. |