| BASIS OF PRESENTATION | 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include accounts of Westmoreland Coal Company (the "Company" or "WCC"), and its subsidiaries and controlled entities including those of Westmoreland Resource Partners, LP ("WMLP"). All intercompany transactions and accounts have been eliminated in consolidation. The consolidated financial statements of the Company have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) and require the use of management’s estimates. The financial information contained in this Quarterly Report on Form 10-Q ("Quarterly Report") is unaudited, but reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. Certain prior period amounts have been reclassified to conform to current period presentation. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2018 . These unaudited quarterly consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (" 2017 Form 10-K"). There were no changes to our significant accounting policies from those disclosed in the audited consolidated financial statements and notes to the consolidated financial statements thereto contained in our 2017 Form 10-K, except as described below in the section titled "Recently Issued Accounting Pronouncements." Going Concern, Liquidity and Management’s Plan We have significant cash requirements to fund our debt obligations, ongoing heritage health benefit costs, pension contributions and corporate overhead expenses. Our consolidated cash and cash equivalents balance as of March 31, 2018 was $78.8 million . However, this balance includes cash and cash equivalents of $37.5 million and $21.3 million at WMLP and the Westmoreland San Juan Entities, respectively, as of March 31, 2018 that are restricted and unavailable to WCC. The cash and cash equivalents at WMLP and the Westmoreland San Juan Entities is governed as described in Note 6 - Debt and Lines of Credit . The impacts of declining industry conditions and significant debt service requirements on the Company’s financial position, results of operations, and cash flows gives rise to substantial doubt about our ability to pay our obligations as they come due. In consideration of the substantial amount of long-term debt outstanding, detailed below, and the aforementioned declining industry conditions and covenant defaults which required waivers or amendments to cure, the Company has engaged advisors to assist with the evaluation of strategic alternatives, which may include, but not be limited to, seeking a restructuring, amendment or refinancing of existing debt through a private restructuring or reorganization under Chapter 11 of the Bankruptcy Code. However, there can be no assurances that the Company will be able to successfully restructure its indebtedness, improve its financial position or complete any strategic transactions. As a result of these uncertainties and the likelihood of a restructuring or reorganization, management has concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern. The WMLP Term Loan matures on December 31, 2018 and WMLP does not currently have liquidity or access to additional capital sufficient to pay off this debt by its maturity date. This condition gives rise to substantial doubt about WMLP’s ability to continue as a going concern for one year after the issuance of their financial statements. Certain covenants in the WMLP Term Loan provide that an audit opinion on WMLP’s stand-alone consolidated financial statements that includes an explanatory paragraph referencing WMLP's conclusion that substantial doubt exists as to WMLP’s ability to continue as a going concern constitutes an event of default. The audit opinion in WMLP’s Annual Report on Form 10-K for the year ended December 31, 2017 ("WMLP's 2017 Form 10-K") contained such an explanatory paragraph. On March 1, 2018, the WMLP Term Loan lenders waived the event of default arising as a result of such explanatory paragraph being included in the audit opinion in WMLP’s 2017 Form 10-K. This waiver expires on the earlier occurrence of May 15, 2018 or upon the occurrence of any other event of default under the WMLP Term Loan. Unless WMLP obtains further waivers for or otherwise cures this event of default, the lenders could accelerate the maturity date of the WMLP Term Loan after the waiver expires, making it immediately due and payable. This event of default under the WMLP Term Loan would also constitute an event of default under our Term Loan and 8.75% Notes, making them also immediately due and payable. Accordingly, all outstanding principal balances and related debt issuance costs for the WMLP Term Loan, the Term Loan and the 8.75% Notes are presented as current debt on our Consolidated Balance Sheets (unaudited). We do not currently have liquidity or access to additional capital sufficient to pay off this debt. Our Revolver contains a financial covenant requiring that we maintain certain minimum fixed charge coverage ratios. On March 30, 2018, we executed an amendment to our Revolver with Canadian Imperial Bank of Commerce (formerly known as The PrivateBank and Trust Company), as agent and as lender, and East West Bank, as a lender, which amended, among other things, the calculation of Canadian EBITDA as it is used in the fixed charge coverage ratio. The amendment removed certain prior period financial results attributable to the Coal Valley mine from Canadian EBITDA and results in our compliance with the covenant for the three months ended March 31, 2018. Absent this amendment we would have failed to satisfy the financial covenant. The amendment also waived any covenant violation for the year ended December 31, 2017 that solely resulted from the receipt of an opinion from our independent registered public accounting firm that included an explanatory paragraph referencing WCC’s conclusion that substantial doubt exists as to WCC’s ability to continue as a going concern. This amendment was further described in Item 9B - Other Information of our 2017 Form 10-K. Our San Juan Loan provides that the issuance of parent company (WCC) financial statements which include an audit opinion containing an explanatory paragraph referencing WCC's conclusion that substantial doubt exists as to WCC's ability to continue as a going concern constitutes an event of default thereunder. On March 28, 2018, we executed an extension and waiver agreement with NM Capital Utility Corporation, as lender, which, among other things, waived the requirement that the audit opinion included in our consolidated financial statements for the year ended December 31, 2017 is without such an explanatory paragraph. This waiver expires on the earlier of May 1, 2019 or the occurrence of any event of default not already waived. As disclosed in our Current Report on Form 8-K filed April 16, 2018, we received a notification of deficiency from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) based on the Company’s failure to pay certain fees required by Listing Rule 5250(f). Nasdaq has informed the Company that as a result of this deficiency, the Company will be delisted unless the Company appeals Nasdaq’s decision. We have not appealed Nasdaq’s decision, resulting in the suspension of trading of our common stock effective April 25, 2018. The Company’s common stock currently trades over-the-counter under the ticker symbol "WLBA." The accompanying consolidated financial statements (unaudited) are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about our ability to continue as a going concern, other than the reclassification of certain long-term debt and the related debt issuance costs to current liabilities and current assets, respectively. Recently Adopted Accounting Pronouncements In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Cost (“new benefit cost standard”), which requires separate presentation of service costs and all other components of net benefit costs in the Consolidated Statements of Operations. Under this ASU, service cost is included in the same line item as other compensation costs arising from services rendered by employees during the period, with all other components of net benefit costs in the Consolidated Statements of Operations (unaudited) outside of Operating income (loss) . The amendments in this update require retrospective application. Prior to the adoption of the new benefit cost standard, the service cost portion of net periodic benefit cost from pension and postretirement medical benefit were presented in Cost of sales (exclusive of depreciation, depletion and amortization, shown separately) and Selling and administrative while the remaining components of net period benefit cost were included in Selling and administrative and Heritage health benefit expenses . The Company adopted the new benefit cost standard effective January 1, 2018, at which point all of the service cost portion of net periodic benefit cost from pension and postretirement medical benefit are presented in Cost of sales (exclusive of depreciation, depletion and amortization, shown separately) with the remaining components of net periodic benefit cost are presented in Other expense outside of Operating income (loss) . Refer to "Impacts to Previously Reported Results" below for the impact of adoption of the new benefit cost standard on our consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“new cash flows standard”), which requires all entities that have restricted cash or restricted cash equivalents to explain the changes during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents in the Consolidated Statements of Cash Flows. As a result, amounts generally described as restricted cash and restricted cash equivalents that are included in other financial statement captions of the Consolidated Balance Sheets should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the Consolidated Statements of Cash Flows. The ASU should be adopted using a retrospective transition method to each period presented. The Company adopted the new cash flows standard effective January 1, 2018 and applied the ASU retrospectively to the periods presented in the Company's Consolidated Statements of Cash Flows (unaudited). Refer to “Impacts to Previously Reported Results” below for the impact of adoption of the new cash flows standard on our consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“new revenue standard”), which supersedes all previously existing revenue recognition guidance. Under this guidance, an entity should recognize revenue when it transfers 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. The standard allows for initial application to be performed retrospectively to each period presented or as a cumulative effect adjustment as of the date of adoption. During 2016, the FASB clarified the implementation guidance on principal versus agent, identifying performance obligations and licensing, practical expedients, and made technical corrections on various topics. The Company adopted the new revenue standard effective January 1, 2018 using the full retrospective method. Accordingly, certain prior period balances have been restated to reflect the financial results of the Company in accordance with the new standard. This includes the cumulative effect of the adoption reflected as an adjustment to the opening balance of Accumulated deficit for the earliest balance sheet period presented. As a result of the adoption of the new revenue standard, the timing of the recognition of revenue related to certain long-term coal supply agreements that contain provisions for future payments from customers to reimburse our costs incurred during final reclamation is accelerated as compared to the recognition pattern under the previous revenue standard. The contract asset created from the accelerated recognition of revenue related to customer payments related to final reclamation is classified as Unbilled revenues and Unbilled revenues, less current portion in the Consolidated Balance Sheets (unaudited). See Note 2 - Revenue for a more detailed description of accounting for customer payments related to final reclamation. Additionally, upon adoption of the new revenue standard we revised the recognition period of certain deferred revenues from customer up-front payments that were previously being amortized to revenue over the full term of their respective coal supply agreements. Under the new revenue standard, we concluded that these payments provided the customer with a material right for a period shorter in duration than the full term of the coal supply agreements. Refer to "Impacts to Previously Reported Results" below for the impact of adoption of the new revenue standard on our consolidated financial statements (unaudited). Impacts to Previously Reported Results The adoption of the new benefit cost standard, new cash flows standard and new revenue standard resulted in the following adjustments to previously reported results: Consolidated Balance Sheet as of December 31, 2017 As Reported Adjustments for New Revenue Standard Additional Reclassifications As Adjusted (In thousands) Assets Current assets: Cash and cash equivalents $ 103,247 $ — $ — $ 103,247 Receivables: Trade 103,611 — (14,300 ) 89,311 Other 17,697 — — 17,697 Total receivables 121,308 — (14,300 ) 107,008 Inventories 106,795 — — 106,795 Unbilled revenues — 49,574 14,300 63,874 Other current assets 11,517 — — 11,517 Total current assets 342,867 49,574 — 392,441 Land, mineral rights, property, plant and equipment 1,665,740 — — 1,665,740 Less accumulated depreciation, depletion and amortization 923,905 — — 923,905 Net land, mineral rights, property, plant and equipment 741,835 — — 741,835 Advanced coal royalties 21,404 — — 21,404 Restricted investments, reclamation deposits and bond collateral 200,194 — — 200,194 Unbilled revenues, less current portion — 225,245 — 225,245 Investment in joint venture 27,763 — — 27,763 Other assets 55,036 — — 55,036 Total Assets $ 1,389,099 $ 274,819 $ — $ 1,663,918 Liabilities and Shareholders’ Deficit Current liabilities: Current installments of long-term debt $ 983,427 $ — $ — $ 983,427 Accounts payable and accrued expenses: Trade and other accrued liabilities 121,489 — — 121,489 Interest payable 22,840 — — 22,840 Production taxes 41,688 — — 41,688 Postretirement medical benefits 14,734 — — 14,734 Deferred revenue 5,068 (1,867 ) — 3,201 Asset retirement obligations 48,429 — — 48,429 Other current liabilities 9,401 — — 9,401 Total current liabilities 1,247,076 (1,867 ) — 1,245,209 Long-term debt, less current installments 64,980 — — 64,980 Postretirement medical benefits, less current portion 317,407 — — 317,407 Pension and SERP obligations, less current portion 43,585 — — 43,585 Deferred revenue, less current portion 1,984 (1,984 ) — — Asset retirement obligations, less current portion 426,038 — — 426,038 Other liabilities 31,477 — — 31,477 Total liabilities 2,132,547 (3,851 ) — 2,128,696 Shareholders’ deficit: Common stock of $0.01 par value: Authorized 30,000,000 shares; Issued and outstanding 18,771,643 shares at December 31, 2017 188 — — 188 Other paid-in capital 250,494 — — 250,494 Accumulated other comprehensive loss (160,525 ) 1,826 — (158,699 ) Accumulated deficit (829,107 ) 276,844 — (552,263 ) Total shareholders’ deficit (738,950 ) 278,670 — (460,280 ) Noncontrolling interests in consolidated subsidiaries (4,498 ) — — (4,498 ) Total deficit (743,448 ) 278,670 — (464,778 ) Total Liabilities and Shareholders' Deficit $ 1,389,099 $ 274,819 $ — $ 1,663,918 Consolidated Statement of Operations for the three months ended March 31, 2017 As Reported Adjustments for New Revenue Standard Adjustments for New Net Periodic Benefit Cost Standard As Adjusted (In thousands, except per share data) Revenues $ 339,737 $ 7,276 $ — $ 347,013 Cost, expenses and other: Cost of sales (exclusive of depreciation, depletion and amortization, shown separately) 284,604 — 417 285,021 Depreciation, depletion and amortization 36,567 — — 36,567 Selling and administrative 30,426 — (1,851 ) 28,575 Heritage health benefit expenses 3,298 — (2,305 ) 993 Gain on sale/disposal of assets (166 ) — — (166 ) Derivative gain (2,384 ) — — (2,384 ) Income from equity affiliates (1,520 ) — — (1,520 ) 350,825 — (3,739 ) 347,086 Operating loss (11,088 ) 7,276 3,739 (73 ) Other (expense) income: Interest expense (29,261 ) — — (29,261 ) Interest income 893 — — 893 Loss on foreign exchange (467 ) — — (467 ) Other income (expense) 2,158 — (3,739 ) (1,581 ) (26,677 ) — (3,739 ) (30,416 ) Loss before income taxes (37,765 ) 7,276 — (30,489 ) Income tax benefit (465 ) 93 — (372 ) Net loss (37,300 ) 7,183 — (30,117 ) Less net loss attributable to noncontrolling interest (499 ) — — (499 ) Net loss applicable to common shareholders $ (36,801 ) $ 7,183 $ — $ (29,618 ) Net loss per share applicable to common shareholders: Basic and diluted $ (1.98 ) $ 0.39 $ — $ (1.59 ) Weighted average number of common shares outstanding: Basic and diluted 18,572 — — 18,572 Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2017 As Reported Adjustments for New Revenue Standard As Adjusted (In thousands) Net loss $ (37,300 ) $ 7,183 $ (30,117 ) Other comprehensive income (loss) Pension and other postretirement plans: Amortization of accumulated actuarial gains and prior service costs, pension 594 — 594 Adjustments to accumulated actuarial gains and transition obligations, pension 136 — 136 Amortization of accumulated actuarial gains, transition obligations, and prior service costs, postretirement medical benefits 964 — 964 Tax effect of other comprehensive income (572 ) (386 ) (958 ) Foreign currency translation adjustment gains 2,103 — 2,103 Unrealized and realized gains on available-for-sale debt securities 810 — 810 Other comprehensive income (loss), net of income taxes 4,035 (386 ) 3,649 Comprehensive loss (33,265 ) 6,797 (26,468 ) Less: Comprehensive loss attributable to noncontrolling interest (499 ) — (499 ) Comprehensive loss attributable to common shareholders $ (32,766 ) $ 6,797 $ (25,969 ) Consolidated Statement of Cash Flows for the three months ended March 31, 2017 As Reported Adjustments for New Revenue Standard Adjustments for New Cash Flows Standard As Adjusted (In thousands) Cash flows from operating activities: Net loss $ (37,300 ) $ 7,183 $ — $ (30,117 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation, depletion and amortization 36,567 — — 36,567 Accretion of asset retirement obligation 11,295 — — 11,295 Share-based compensation 1,347 — — 1,347 Non-cash interest expense 2,296 — — 2,296 Amortization of deferred financing costs 2,626 — — 2,626 Gain on derivative instruments (2,384 ) — — (2,384 ) Loss on foreign exchange 467 — — 467 Income from equity affiliates (1,520 ) — — (1,520 ) Distributions from equity affiliates 1,671 — — 1,671 Deferred income tax benefit (465 ) 94 — (371 ) Other (1,474 ) — — (1,474 ) Changes in operating assets and liabilities: Receivables 12,250 — — 12,250 Inventories 5,156 — — 5,156 Accounts payable and accrued expenses (21,905 ) — — (21,905 ) Interest payable (7,787 ) — — (7,787 ) Deferred revenue 2,005 273 — 2,278 Unbilled revenues — (7,550 ) — (7,550 ) Other assets and liabilities 7,104 — — 7,104 Asset retirement obligations (10,659 ) — — (10,659 ) Net cash used in operating activities (710 ) — — (710 ) Cash flows from investing activities: Additions to property, plant and equipment (7,210 ) — — (7,210 ) Proceeds from sales of restricted investments 9,589 — — 9,589 Purchases of restricted investments (10,760 ) — (2,671 ) (13,431 ) Cash payments related to acquisitions and other (3,580 ) — — (3,580 ) Proceeds from sales of assets 466 — — 466 Receipts from loan and lease receivables 50,488 — — 50,488 Other (293 ) — — (293 ) Net cash provided by investing activities 38,700 — (2,671 ) 36,029 Cash flows from financing activities: Repayments of long-term debt (22,368 ) — — (22,368 ) Borrowings on revolving lines of credit 123,200 — — 123,200 Repayments on revolving lines of credit (123,200 ) — — (123,200 ) Other (178 ) — — (178 ) Net cash used in financing activities (22,546 ) — — (22,546 ) Effect of exchange rate changes on cash (88 ) — — (88 ) Net increase in cash and cash equivalents, including restricted cash 15,356 — (2,671 ) 12,685 Cash and cash equivalents, including restricted cash, beginning of period 60,082 — 69,533 129,615 Cash and cash equivalents, including restricted cash, end of period $ 75,438 $ — $ 66,862 $ 142,300 Supplemental disclosures of cash flow information: Cash paid for interest $ 31,951 $ — $ — $ 31,951 Non-cash transactions: Accrued purchases of property and equipment $ 2,969 $ — $ — $ 2,969 Capital leases and other financing sources 480 — — 480 Recently Issued Accounting Pronouncements In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . ASU 2018-02 provides an option to reclassify stranded tax effects within accumulated other comprehensive loss to retained earnings due to the change in the U.S. federal tax rate in the Tax Cuts and Jobs Act of 2017. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods therein with early adoption permitted. The Company is currently in the process of analyzing the standard, but does not expect the adoption to have a material impact to our financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires companies leasing assets to recognize on their balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on contracts longer than one year. The new guidance is effective for fiscal years beginning after December 15, 2018, using a modified retrospective approach, with early adoption permitted. The Company has established an implementation team to develop a multi-phase plan to adopt the requirements of the new standard. We will adopt the new guidance in the first quarter of 2019. |
