Registration No. 333-174723
WESTMORELAND PARTNERS
Offer to Exchange
for $150,000,000 10.75% Senior Secured Notes due 2018
that have been registered under the Securities Act of 1933
• | We are offering to exchange up to $150,000,000 of our outstanding unregistered 10.75% Senior Notes due 2018 (“Restricted Notes”) for Exchange Notes with substantially identical terms that have been registered under the Securities Act of 1933, as amended (“Exchange Notes”). |
• | The exchange offer expires at 5:00 p.m., New York City time, on August 29, 2011, unless we decide to extend the expiration date. |
• | We will exchange for an equal principal amount of Exchange Notes all Restricted Notes that you validly tender and do not validly withdraw before the exchange offer expires. |
• | Tenders of Restricted Notes may be withdrawn at any time prior to the expiration date of the exchange offer. |
• | The exchange of Exchange Notes for Restricted Notes should generally not be a taxable event for U.S. federal income tax purposes. |
• | The terms of the Exchange Notes are identical to the terms of the Restricted Notes, except that the Exchange Notes will be registered under the Securities Act of 1933, as amended (the “Securities Act”) and there are certain differences relating to transfer restrictions, registration rights and payment of additional interest in case of non-registration. We will not list the Exchange Notes on any securities exchange. |
PROSPECTUS SUMMARY | 1 | |||
RISK FACTORS | 7 | |||
SELECTED HISTORICAL FINANCIAL DATA | 26 | |||
RATIO OF EARNINGS TO FIXED CHARGES | 29 | |||
USE OF PROCEEDS | 29 | |||
THE EXCHANGE OFFER | 29 | |||
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 37 | |||
BUSINESS, PROPERTIES AND LEGAL PROCEEDINGS | 38 | |||
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 47 | |||
CHANGE IN AUDITORS | 67 | |||
DESCRIPTION OF THE EXCHANGE NOTES | 67 | |||
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS | 131 | |||
PLAN OF DISTRIBUTION | 131 | |||
LEGAL MATTERS | 132 | |||
EXPERTS | 132 | |||
WHERE YOU CAN FIND MORE INFORMATION | 133 | |||
INDEX TO FINANCIAL STATEMENTS | 134 |
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• | changes in our postretirement medical benefit and pension obligations and the impact of the recently enacted healthcare legislation; |
• | changes in our black lung obligations, changes in our experience related to black lung claims, and the impact of the recently enacted healthcare legislation; |
• | our potential inability to expand or continue current coal operations due to limitations in obtaining bonding capacity for new mining permits; |
• | our potential inability to maintain compliance with debt covenant and waiver agreement requirements; |
• | the potential inability of our subsidiaries to pay dividends to us due to restrictions in our debt arrangements, reductions in planned coal deliveries or other business factors; |
• | risks associated with the structure of ROVA’s contracts with its lenders, coal suppliers and power purchaser, which could dramatically affect the overall profitability of ROVA; |
• | the effect of Environmental Protection Agency inquiries and regulations on the operations of ROVA; |
• | the effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers, including the effects of the dispatch of other forms of power, such as hydro; |
• | future legislation and changes in regulations, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases; and | ||
• | other factors, many of which are beyond our control. |
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Exchange Offer | We are offering to exchange $1,000 principal amount of our 10.75% Senior Secured Notes due 2018 registered under the Securities Act, which we refer to as “Exchange Notes,” for each $1,000 principal amount of our outstanding 10.75% Senior Secured Notes due 2018 issued on February 4, 2011 in a private offering, which we refer to as “Restricted Notes.” In order to exchange a Restricted Note, you must follow the required procedures and we must accept the Restricted Note for exchange. We will exchange all Restricted Notes validly offered for exchange, or “tendered,” and not validly withdrawn. As of the date of this prospectus, there is $150,000,000 aggregate principal amount of Restricted Notes outstanding. | |
Expiration Date | The exchange offer expires at 5:00 p.m. New York City time, on August 29, 2011, unless we decide to extend the expiration date. | |
Resale of the Exchange Notes | Based on an interpretation by the staff of the Securities and Exchange Commission (the “SEC”) set forth in no-action letters issued to third parties, we believe that, as long as you are not a broker-dealer, the Exchange Notes issued pursuant to the exchange offer in exchange for Restricted Notes may be offered for resale, resold and otherwise transferred by you (unless you are our “affiliate” within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that: | |
• you are acquiring the Exchange Notes in the ordinary course of your business; | ||
• at the time of the commencement and consummation of the exchange offer, you have not entered into any arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes in violation of the provisions of the Securities Act; and | ||
• you are not acting on behalf of any person who could not truthfully make the foregoing representations. | ||
If you are a broker-dealer and receive Exchange Notes for your own account in exchange for Restricted Notes that you acquired as a result of market-making activities or other trading activities, you must acknowledge that you will deliver this prospectus in connection with any resale of the Exchange Notes. See “Plan of Distribution.” However, by so acknowledging and by delivering this prospectus, you will not be deemed to admit that you are an “underwriter” within the meaning of the Securities Act. During the period ending 180 days after the consummation of the exchange offer, subject to extension in limited circumstances, you may use this prospectus for an offer to sell, a resale or other retransfer of Exchange Notes received in exchange for Restricted Notes that you acquired through market-making activities or other trading activities if you indicate in the letter of transmittal that you will do so. |
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Any holder of Restricted Notes who: | ||
• is our affiliate; | ||
• does not acquire Exchange Notes in the ordinary course of its business; or | ||
• tenders its Restricted Notes in the exchange offer with the intention to participate, or for the purpose of participating, in a distribution of Exchange Notes; | ||
cannot rely on the position of the staff of the SEC enunciated inMorgan Stanley & Co. Incorporated(available June 5, 1991) andExxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the SEC’s letter toShearman & Sterling (available July 2, 1993), or similar no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes. | ||
Consequences If You Do Not Exchange Your Restricted Notes | As a result of the making of, and upon acceptance for exchange of all validly tendered Restricted Notes pursuant to the terms of the exchange offer, we and the guarantors will have fulfilled a covenant under the registration rights agreement. Accordingly, there will be no increase in the interest rate on the Restricted Notes under the circumstances described in the registration rights agreement. If you do not tender your Restricted Notes in the exchange offer, you will continue to be entitled to all of the rights and limitations applicable to the Restricted Notes as set forth in the Indenture, except we and the guarantors will not have any further obligation to you to provide for the exchange and registration of the Restricted Notes under the registration rights agreement. | |
All untendered Restricted Notes will continue to be subject to the restrictions on transfer set forth in the Restricted Notes and in the Indenture. In general, the Restricted Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, we and the guarantors do not currently anticipate that we will register the outstanding Notes under the Securities Act. If you do not participate or properly tender your Restricted Notes in the exchange offer, upon completion of the exchange offer, the liquidity of the market for your Restricted Notes could be adversely affected. | ||
Conditions | The exchange offer is subject to certain customary conditions, which we may waive, as described below under “The Exchange Offer—Conditions to the Exchange Offer.” | |
Procedures for Tendering Restricted Notes | If you wish to accept the exchange offer, the following must be delivered to the exchange agent: | |
• your Restricted Notes by timely confirmation of book-entry transfer through The Depository Trust Company (the “DTC”); | ||
• an agent’s message from the DTC, stating that the tendering participant agrees to be bound by the letter of transmittal and the terms of the exchange offer; and | ||
• all other documents required by the letter of transmittal. | ||
These actions must be completed before the expiration of the exchange offer. | ||
You must comply with DTC’s standard procedures for electronic tenders, by which you will agree to be bound by the letter of transmittal. | ||
Withdrawal of Tenders | You may withdraw your tender of Restricted Notes under the exchange offer at any time prior to the expiration date. | |
Fees and Expenses | We will bear all expenses related to the exchange offer. Please refer to the section in this prospectus entitled “The Exchange Offer—Fees and Expenses.” | |
Use of Proceeds | The issuance of the Exchange Notes will not provide us with any new proceeds. We are making this exchange offer solely to satisfy our obligations under the registration rights agreement. | |
Tax Consequences | The exchange of Exchange Notes for Restricted Notes in the exchange offer should generally not be a taxable event for U.S. federal income tax purposes. Please read “Material U.S. Federal Income Tax Consequences.” |
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Exchange Agent | Wells Fargo Bank, N.A. is serving as exchange agent in connection with the exchange offer. You should direct questions and requests for assistance, for additional copies of this prospectus or the letter of transmittal to the exchange agent addressed as follows: Attn: Wells Fargo Bank, National Association, Corporate Trust Operations, MAC N 9303-121, Sixth & Marquette Ave. Minneapolis Minnesota, 52479, telephone number 800-334-5128. |
Issuers | Westmoreland Coal Company; Westmoreland Partners. | |
Securities | $150,000,000 in aggregate principal amount of 10.750% Senior Secured Notes due 2018. | |
Maturity | February 1, 2018. | |
Interest | We will pay interest in cash on the principal amount of the Notes semiannually at the rate of 10.750% per year, on February 1st and August 1st of each year, beginning on August 1, 2011. | |
Guarantees | The Exchange Notes will be fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by WELLC and WRI, their respective subsidiaries (other than Absaloka Coal, LLC, or Absaloka Coal) and by certain of our other subsidiaries. Not all of our subsidiaries will be subsidiary guarantors. In particular, WML and its subsidiaries, Absaloka Coal and WRM will be restricted subsidiaries, but do not guarantee the Notes. Basin Resources, Inc. will be an unrestricted subsidiary, but the indenture governing the Notes contains a covenant limiting its activities. Westmoreland Terminal Co., Eastern Coal & Coke Co. and Criterion Coal Co. are unrestricted subsidiaries. These entities have no or nominal assets, conduct no operations and are in the process of dissolution. | |
Security | The Exchange Notes and the guarantees will be secured by (i) first-priority liens on substantially all of our, the guarantors’ and Absaloka Coal’s tangible and intangible assets, (ii) a first-priority lien on certain amounts paid by WML to us, and (iii) a first-priority lien on the equity of WRM, in each case subject to permitted liens and certain exclusions. Subject to certain conditions, we will have the ability to enter into a new revolving credit facility, which we refer to as the Revolving Credit Facility, without the consent of holders of the Notes following this offering (see “— Revolving Credit Facility”). If we do so, the Revolving Credit Facility will be secured by a first-priority lien on our, the guarantors’ and Absaloka Coal’s inventory, accounts receivable and proceeds thereof, or the Revolving Facility First-Priority Collateral, and the Notes will then be secured by a second priority lien on that collateral. Some of our assets are excluded from the collateral as described in “Description of the Notes— Security.” | |
Ranking | The Exchange Notes and the guarantees will be our and the guarantors’ senior secured obligations and: | |
• will rank equally in right of payment with all of our and the guarantors’ respective existing and future senior indebtedness; | ||
• will rank effectively senior in right of payment to all of our, the guarantors’ and Absaloka Coal’s respective existing and future unsecured indebtedness; |
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• will be effectively subordinated to indebtedness under the Revolving Credit Facility, if we enter into such a facility, to the extent of the value of the Revolving Facility First-Priority Collateral; and | ||
• will be structurally subordinated to all of the existing and future liabilities (including trade payables but excluding intercompany liabilities) of each of our subsidiaries that does not guarantee the Notes. As of March 31, 2011, we had (i) $125.0 million of outstanding indebtedness under WML’s existing credit agreements, including its term debt agreement, and (ii) $23.1 million of undrawn availability under WML’s revolving credit facility. | ||
Optional Redemption | On or after February 1, 2015, we may redeem the Exchange Notes, in whole or in part, at the redemption prices set forth under “Description of the Exchange Notes.” | |
Prior to February 1, 2015, we may redeem up to 35% of the aggregate principal amount of Exchange Notes at the redemption price set forth under “Description of the Exchange Notes” with the net cash proceeds of certain equity offerings. | ||
Change of Control Offer | If we experience a change of control (as defined in the indenture), the holders of the Exchange Notes will have the right to require us to purchase their Exchange Notes at a price in cash equal to 101% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any, to the date of purchase. See “Description of the Exchange Notes.” | |
Asset Sale Offer or Event of Loss Offer | We may be required to offer to use a portion of the net proceeds of certain asset sales and events of loss to purchase some of the Exchange Notes at 100% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any, to the date of purchase. See “Description of the Exchange Notes.” | |
Excess Cash Flow Offer | We may be required to offer to use 75% of our Excess Cash Flow, as defined under “Description of the Exchange Notes,” for each fiscal year, beginning with the fiscal year ended December 31, 2011, to purchase some of the Exchange Notes at 100% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. See “Description of the Exchange Notes.” | |
Rights Offering | After June 30, 2015, if the Total Leverage Ratio (as defined in “Description of the Exchange Notes”) equals or exceeds 3.5 to 1.0, we will be required, subject to certain conditions, to provide holders of the Exchange Notes with the right to purchase additional Notes, with the proceeds of such sales to be used to repurchase and/or redeem WML’s term debt. | |
Certain Covenants | The indenture governing the Exchange Notes contains covenants that will restrict our ability and the ability of the co-issuer and our restricted subsidiaries to, among other things: | |
• incur additional indebtedness and issue preferred stock; | ||
• pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments; | ||
• enter into agreements that restrict distributions from restricted subsidiaries; | ||
• enter into transactions with affiliates; | ||
• create or incur liens; | ||
• sell or otherwise dispose of assets; | ||
• enter into sale and leaseback transactions; | ||
• sell or issue capital stock of the co-issuer or the restricted subsidiaries; or | ||
• merge or consolidate with or into other companies. | ||
These covenants are subject to important exceptions and qualifications that are described in “Description of the Exchange Notes.” |
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Absence of a Public Market for the Exchange Notes | The Exchange Notes generally will be freely transferable, but will also be new securities for which there will not initially be a market. There can be no assurance as to the development or liquidity of any market for the Exchange Notes. We do not intend to apply for listing of the Exchange Notes on any securities exchange or for the quotation of the Exchange Notes in any automated dealer quotation system. | |
Risk Factors | You should refer to the section of this prospectus entitled “Risk Factors” for a discussion of the factors you should carefully consider before deciding to invest in the Notes, including factors affecting forward-looking statements. |
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• | our operating performance, financial condition and prospects, or the operating performance, financial condition and prospects of companies in the coal and power industries generally; | ||
• | our ability to complete the offer to exchange the Restricted Notes for the Exchange Notes; | ||
• | the interest of securities dealers in making a market for the Notes; | ||
• | prevailing interest rates; and | ||
• | the market for similar securities. |
• | increase our vulnerability to adverse economic, industry or competitive developments; | ||
• | result in an event of default if we fail to satisfy our obligations with respect to the Notes or other debt or fail to comply with the financial and other restrictive covenants contained in the indenture governing the Notes or agreements governing our other indebtedness, which event of default could result in all of our debt becoming immediately due and payable and could permit our lenders to foreclose on our assets securing such debt; | ||
• | require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; | ||
• | make it more difficult for us to satisfy our obligations with respect to the Notes; | ||
• | increase our cost of borrowing; | ||
• | restrict us from making strategic acquisitions or causing us to make non-strategic divestitures; | ||
• | limit our ability to service our indebtedness, including the Notes; | ||
• | limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; | ||
• | limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate, placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who therefore may be able to take advantage of opportunities that our leverage prevents us from exploiting; and |
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• | prevent us from raising the funds necessary to repurchase all Notes tendered to us upon the occurrence of certain changes of control, which failure to repurchase would constitute a default under the indenture governing the Notes. |
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• | incur additional indebtedness; | ||
• | issue certain preferred stock or redeemable stock; | ||
• | pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments; | ||
• | make certain investments; | ||
• | sell, transfer or otherwise convey certain assets; | ||
• | create or incur liens; | ||
• | designate our subsidiaries as unrestricted subsidiaries; | ||
• | consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; | ||
• | enter into a new or different line of business; and | ||
• | enter into certain transactions with our affiliates. |
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• | we or any of the guarantors, as applicable, were insolvent or rendered insolvent by reason of the issuance of the Notes or the incurrence of the guarantees; | ||
• | the issuance of the Notes or the incurrence of the guarantees left us or any of the guarantors, as applicable, with an unreasonably small amount of capital or assets to carry on its business; | ||
• | we or any of the guarantors intended to, or believed that we or such guarantor would, incur debts beyond our or such guarantor’s ability to pay as they mature; or | ||
• | we or any of the guarantors were a defendant in an action for money damages, or had a judgment for money damages docketed against us or such guarantor if, in either case, after final judgment, the judgment is unsatisfied. |
• | the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets; |
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• | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or | ||
• | it could not pay its debts as they became due. |
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• | a sale, transfer or other disposal or liquidation of such collateral in a transaction not prohibited under the indenture governing the Notes; | ||
• | with respect to collateral held by a guarantor, upon the release of such guarantor from its guarantee (and its guarantee of any other indebtedness secured equally and ratably with the Notes) in accordance with the indenture governing the Notes, and | ||
• | with respect to collateral that will secure the Revolving Credit Facility on a first-priority basis (if we enter into such a facility), upon any release, sale or disposition (other than in connection with a cancellation or termination of the Revolving Credit Facility) of such collateral pursuant to the terms of the Revolving Credit Facility resulting in the release of the lien on such collateral securing the Revolving Credit Facility. |
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• | the commencement or continuation of any action or proceeding against the debtor that was or could have been commenced before the commencement of the bankruptcy case to recover a claim against the debtor that arose before the commencement of the bankruptcy case; | ||
• | any act to obtain possession of, or control over, property of the bankruptcy estate or the debtor; | ||
• | any act to create, perfect or enforce any lien against property of the bankruptcy estate; and |
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• | any act to collect or recover a claim against the debtor that arose before the commencement of the bankruptcy case. |
• | limit our ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions, or other general corporate purposes; | ||
• | require us to dedicate a substantial portion of our cash flow from operations to debt service, reducing the availability of cash flow for other purposes; or | ||
• | increase our vulnerability to economic downturns, limit our ability to capitalize on significant business opportunities, and restrict our flexibility to react to changes in market or industry conditions. |
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• | quality of the coal; | ||
• | geological and mining conditions, which may not be fully identified by available exploration data and/or may differ from our experiences in areas where we currently mine; | ||
• | the percentage of coal ultimately recoverable; | ||
• | the assumed effects of regulation, including the issuance of required permits, taxes, including severance and excise taxes and royalties, and other payments to governmental agencies; | ||
• | assumptions concerning the timing for the development of the reserves; and | ||
• | assumptions concerning equipment and productivity, future coal prices, operating costs, including for critical supplies such as fuel, tires and explosives, capital expenditures and development and reclamation costs. |
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Year Ended | Three Months Ended | |||||||||||||||||||||||||||
December 31, | March 31, | |||||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2010 | 2011 | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Consolidated Statement of Operations Data: | ||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Coal | $ | 393,482 | $ | 418,870 | $ | 419,806 | $ | 361,206 | $ | 418,058 | $ | 103,550 | $ | 104,136 | ||||||||||||||
Power | 50,925 | 85,347 | 89,890 | 82,162 | 87,999 | 22,889 | 23,628 | |||||||||||||||||||||
Total revenues | 444,407 | 504,217 | 509,696 | 443,368 | 506,057 | 126,439 | 127,764 | |||||||||||||||||||||
Cost and expenses: | ||||||||||||||||||||||||||||
Cost of sales | 340,005 | 400,346 | 409,795 | 373,070 | 394,827 | 97,677 | 97,510 | |||||||||||||||||||||
Depreciation, depletion, and amortization | 29,340 | 38,123 | 41,387 | 44,254 | 44,690 | 11,392 | 11,245 | |||||||||||||||||||||
Selling and administrative | 42,409 | 44,813 | 40,513 | 40,612 | 39,481 | 9,976 | 9,305 | |||||||||||||||||||||
Heritage health benefit expenses | 32,821 | 27,589 | 33,452 | 28,074 | 14,421 | 3,915 | 3,778 | |||||||||||||||||||||
Restructuring charges | — | 4,523 | 2,009 | — | — | — | — | |||||||||||||||||||||
Gain (loss) on sale of assets | (4,785 | ) | (5,295 | ) | (1,425 | ) | 191 | 226 | 71 | 83 | ||||||||||||||||||
Other operating income | — | — | — | (11,059 | ) | (8,109 | ) | (1,906 | ) | (1,597 | ) | |||||||||||||||||
439,790 | 510,099 | 525,731 | 475,142 | 485,536 | 121,125 | 120,324 | ||||||||||||||||||||||
Operating income (loss) | 4,617 | (5,882 | ) | (16,035 | ) | (31,774 | ) | 20,521 | 5,314 | 7,440 | ||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||
Interest expense | (19,234 | ) | (24,638 | ) | (23,130 | ) | (23,733 | ) | (22,992 | ) | (5,723 | ) | (6,967 | ) | ||||||||||||||
Interest expense attributable to beneficial conversion feature | — | — | (8,146 | ) | — | — | — | — | ||||||||||||||||||||
Loss on extinguishment of debt | — | — | (5,178 | ) | — | — | — | (17,030 | ) | |||||||||||||||||||
Interest income | 6,089 | 8,152 | 5,125 | 3,218 | 1,747 | 410 | 382 | |||||||||||||||||||||
Other income (loss) | 73 | 243 | (284 | ) | 5,991 | (2,587 | ) | (3,836 | ) | (3,017 | ) | |||||||||||||||||
(13,072 | ) | (16,243 | ) | (31,613 | ) | (14,524 | ) | (23,832 | ) | (9,149 | ) | (26,632 | ) | |||||||||||||||
Loss from continuing operations before income taxes | (8,455 | ) | (22,125 | ) | (47,648 | ) | (46,298 | ) | (3,311 | ) | (3,835 | ) | (19,192 | ) | ||||||||||||||
Income tax (benefit) expense from continuing operations | 2,405 | (8,895 | ) | 919 | (17,136 | ) | (141 | ) | (90 | ) | (460 | ) | ||||||||||||||||
Loss from continuing operations | (10,860 | ) | (13,230 | ) | (48,567 | ) | (29,162 | ) | (3,170 | ) | (3,745 | ) | (18,732 | ) | ||||||||||||||
Income from discontinued operations, net of income tax expense | 406 | 1,725 | — | — | — | — | — | |||||||||||||||||||||
Net loss | (10,454 | ) | (11,505 | ) | (48,567 | ) | (29,162 | ) | (3,170 | ) | (3,745 | ) | (18,732 | ) | ||||||||||||||
Less net income (loss) attributable to noncontrolling interest | 2,244 | 1,194 | — | (1,817 | ) | (2,645 | ) | (890 | ) | (1,121 | ) | |||||||||||||||||
Net loss attributable to Parent Company | (12,698 | ) | (12,699 | ) | (48,567 | ) | (27,345 | ) | (525 | ) | (2,855 | ) | (17,611 | ) | ||||||||||||||
Less preferred stock dividend requirements | 1,585 | 1,360 | 1,360 | 1,360 | 1,360 | 340 | 340 | |||||||||||||||||||||
Less premium on exchange of preferred stock for common stock | 791 | — | — | — | — | — | — | |||||||||||||||||||||
Net loss attributable to common shareholders | $ | (15,074 | ) | $ | (14,059 | ) | $ | (49,927 | ) | $ | (28,705 | ) | $ | (1,885 | ) | $ | (3,195 | ) | $ | (17,951 | ) | |||||||
Other Consolidated Financial Data: | ||||||||||||||||||||||||||||
Cash flows provided by (used in): | ||||||||||||||||||||||||||||
Operating activities | 29,434 | 82,516 | 55,245 | 29,448 | 45,353 | 13,296 | 16,182 | |||||||||||||||||||||
Investing activities | (33,922 | ) | (43,259 | ) | (6,588 | ) | (38,597 | ) | (29,180 | ) | (3,941 | ) | (5,884 | ) | ||||||||||||||
Financing activities | 20,010 | (46,259 | ) | (28,452 | ) | (20,273 | ) | (20,917 | ) | (2,114 | ) | 28,911 | ||||||||||||||||
Capital expenditures | 20,852 | (30,412 | ) | (31,320 | ) | (34,546 | ) | (22,814 | ) | (4,337 | ) | (2,923 | ) | |||||||||||||||
Adjusted EBITDA(2) | 40,482 | 41,737 | 38,795 | 30,301 | 81,616 | 21,228 | 23,284 | |||||||||||||||||||||
Ratio of Total Debt to Adjusted EBITDA | 7.6x | 6.5x | 6.9x | 8.4x | 3.0x | 11.9x | 12.6x | |||||||||||||||||||||
Other Operating Data: | ||||||||||||||||||||||||||||
Tons sold by mine: | ||||||||||||||||||||||||||||
Absaloka | 7,079 | 7,347 | 6,418 | 5,911 | 5,467 | 1,293 | 1,399 | |||||||||||||||||||||
Rosebud | 12,430 | 12,583 | 13,026 | 10,332 | 12,231 | 3,139 | 2,361 | |||||||||||||||||||||
Jewett | 6,798 | 6,781 | 6,494 | 5,080 | 4,203 | 906 | 918 | |||||||||||||||||||||
Beulah | 2,702 | 2,946 | 3,046 | 2,585 | 2,898 | 832 | 782 | |||||||||||||||||||||
Savage | 376 | 354 | 359 | 344 | 353 | 91 | 98 | |||||||||||||||||||||
Power production: | ||||||||||||||||||||||||||||
Megawatt hours (000s) | 1,639 | 1,590 | 1,641 | 1,486 | 1,620 | 435 | 435 | |||||||||||||||||||||
Capacity Factor | 92 | % | 86 | % | 89 | % | 81 | % | 88 | % | 95 | % | 96 | % |
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Year Ended December 31, | As of March 31, | |||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||||||||||
(Dollars in thousands) | (Unaudited) | |||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 26,738 | $ | 19,736 | $ | 39,941 | $ | 10,519 | $ | 5,775 | $ | 44,984 | ||||||||||||
Working capital(3) | (66,773 | ) | (94,674 | ) | (24,152 | ) | (74,976 | ) | (35,793 | ) | (1,024 | ) | ||||||||||||
Property, plant and equipment, net | 431,452 | 442,426 | 443,400 | 456,184 | 416,955 | 408,381 | ||||||||||||||||||
Total assets | 761,382 | 782,528 | 812,967 | 772,728 | 750,306 | 787,987 | ||||||||||||||||||
Total debt(1) | 306,007 | 271,448 | 269,153 | 254,695 | 242,104 | 294,362 | ||||||||||||||||||
Shareholders’ deficit | (180,431 | ) | (177,257 | ) | (217,598 | ) | (141,799 | ) | (162,355 | ) | (173,927 | ) |
(1) | Total debt includes revolving lines of credit, long-term debt and current maturities of long-term debt excluding trade and other debt and is shown net of unamortized discounts. | |
(2) | Adjusted EBITDA is defined as net income (loss) before the items set forth in the table below. We present Adjusted EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of high yield issuers, many of which present Adjusted EBITDA when reporting their operating results. This item should be considered in addition to, but not as a substitute for or superior to, operating income, net income, operating cash flow and other measures of financial performance prepared in accordance with GAAP. Management uses Adjusted EBITDA as an internal measure of operating performance, to establish operational goals, to allocate resources and to analyze business trends and financial performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. | |
(3) | Working capital is current assets minus current liabilities. |
Year Ended | Three Months Ended | |||||||||||||||||||||||||||
December 31, | March 31, | |||||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2010 | 2011 | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Consolidated EBITDA and Adjusted EBITDA Reconciliation: | ||||||||||||||||||||||||||||
Net loss | $ | (10,454 | ) | $ | (11,505 | ) | $ | (48,567 | ) | $ | (29,162 | ) | $ | (3,170 | ) | $ | (3,745 | ) | $ | (18,732 | ) | |||||||
Income from discontinued operations, net of income tax expense | (406 | ) | (1,725 | ) | — | — | — | — | — | |||||||||||||||||||
Income tax (benefit) expense from continuing operations | 2,405 | (8,895 | ) | 919 | (17,136 | ) | (141 | ) | (90 | ) | (460 | ) | ||||||||||||||||
Other (income) loss | (73 | ) | (243 | ) | 284 | (5,991 | ) | 2,587 | 3,836 | 3,017 | ||||||||||||||||||
Interest income | (6,089 | ) | (8,152 | ) | (5,125 | ) | (3,218 | ) | (1,747 | ) | (410 | ) | (382 | ) | ||||||||||||||
Loss on extinguishment of debt | — | — | 5,178 | — | — | — | 17,030 | |||||||||||||||||||||
Interest expense attributable to beneficial conversion feature | — | — | 8,146 | — | — | — | — | |||||||||||||||||||||
Interest expense | 19,234 | 24,638 | 23,130 | 23,733 | 22,992 | 5,723 | 6,967 | |||||||||||||||||||||
Depreciation, depletion and amortization | 29,340 | 38,123 | 41,387 | 44,254 | 44,690 | 11,392 | 11,245 | |||||||||||||||||||||
Accretion of ARO and receivable | 7,854 | 9,844 | 9,528 | 9,974 | 11,540 | 3,003 | 2,700 | |||||||||||||||||||||
Amortization of intangible assets and liabilities, net | 493 | (2,043 | ) | 598 | 279 | 590 | 85 | 163 | ||||||||||||||||||||
EBITDA | 42,304 | 40,042 | 35,478 | 22,733 | 77,341 | 19,794 | 21,548 | |||||||||||||||||||||
Restructuring charges | — | 4,523 | 2,009 | — | — | — | — | |||||||||||||||||||||
Customer reclamation claim(1) | — | — | — | 4,825 | — | — | — | |||||||||||||||||||||
(Gain)/loss on sale of assets | (4,785 | ) | (5,295 | ) | (1,425 | ) | 191 | 226 | 71 | 83 | ||||||||||||||||||
Share-based compensation | 2,963 | 2,467 | 2,733 | 2,552 | 4,049 | 1,363 | 1,653 | |||||||||||||||||||||
Adjusted EBITDA | $ | 40,482 | $ | 41,737 | $ | 38,795 | $ | 30,301 | $ | 81,616 | $ | 21,228 | $ | 23,284 | ||||||||||||||
(1) | As a result of a contract dispute at Colstrip Unit 3&4 which occurred in 2008, in the fourth quarter of 2009, we recorded a reduction in revenues by $6.5 million and an offsetting $1.7 million reduction in cost of sales for this claim. |
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Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2010 | 2011 | ||||||||||||||||||||||
Deficiency of Earnings to Fixed Charges | $ | 8,455 | $ | 22,125 | $ | 47,648 | $ | 46,298 | $ | 3,311 | $ | 3,835 | $ | 19,192 |
• | “earnings” consist of loss from continuing operations before income taxes and fixed charges; and | ||
• | “fixed charges” consist of interest (expensed), amortization of premiums, discounts and deferred financing costs, and an estimate of the interest expense within rental expense. |
• | by June 4, 2011 (120 days after February 4, 2011), file a registration statement (the “exchange offer registration statement”), with the SEC with respect to a registered exchange offer to exchange each Restricted Note for a new Exchange Note having terms substantially identical in all material respects to such Restricted Note; | ||
• | use our commercially reasonable efforts to cause the exchange offer registration statement to be declared effective under the Securities Act by September 2, 2011 (210 days after February 4, 2011); | ||
• | promptly after the effectiveness of the exchange offer registration statement, offer the Exchange Notes in exchange for the Restricted Notes; and | ||
• | keep the exchange offer open for not less than 20 business days (or longer if required by applicable law) after the date notice of the exchange offer is mailed to the holders of the Notes. |
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• | any change in law or in applicable interpretations thereof by the staff of the SEC does not permit us to effect the exchange offer; or | ||
• | or if for any reason the exchange offer is not consummated within 255 calendar days after February 4, 2011, |
• | the later of (in the case of change in law or interpretation) (x) the 60th day after the date on which we are no longer permitted to file the exchange offer registration statement and (y) July 4, 2011; | ||
• | in the case the exchange offer is not consummated by October 18, 2011; and | ||
• | in the case such holder is prohibited from participating in the exchange offer, such holder may not resell the Exchange Notes acquired by it in the exchange offer to the public without delivering a prospectus and that the prospectus contained in the exchange offer registration statement is not appropriate or available for such resales, or such holder is a broker-dealer and holds Restricted Notes acquired directly from us, the 45th day after the date on which we receive notice from a holder. |
• | if the exchange offer registration statement is not filed with the SEC on or prior to June 4, 2011; or | ||
• | if the exchange offer registration statement is not declared effective on or prior to September 2, 2011; or | ||
• | if the exchange offer is not consummated on or prior to October 18, 2011; or | ||
• | if a shelf registration statement is not filed or declared effective when required; or | ||
• | if a registration statement is declared effective as required but thereafter fails to remain effective or usable in connection with resales for more than 30 calendar days; or | ||
• | holders are unable to sell under Rule 144 as a result of our failure to meet the adequate current public information requirement of Rule 144(c)(1). |
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• | the Exchange Notes will have a different CUSIP number from the Restricted Notes; | ||
• | the Exchange Notes will be registered under the Securities Act and, therefore, the global securities representing the Exchange Notes will not bear legends restricting the transfer of interests in the Exchange Notes; | ||
• | the Exchange Notes will not be subject to the registration rights relating to the Restricted Notes; and | ||
• | the Exchange Notes will not contain provisions for payment of additional interest in case of non-registration. |
• | you are not an “affiliate” of ours, as defined in Rule 405 of the Securities Act (or if you are such an “affiliate”, you must comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable); | ||
• | you are not engaged in and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of Exchange Notes to be issued in the exchange offer; | ||
• | you acquired the Exchange Notes issued in the exchange offer in the ordinary course of your business; |
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• | you are not a broker-dealer that acquired the Restricted Notes from us or in market-making transactions or other trading activities; and | ||
• | you are not acting on behalf of any person who could not truthfully and completely make the foregoing representations. |
• | you cannot rely on the position of the SEC set forth in the no-action letters referred to above; and | ||
• | you must comply with the applicable registration and prospectus delivery requirements of the Securities Act in connection with a resale of the Exchange Notes. |
• | delay accepting for exchange any Restricted Notes, | ||
• | extend the exchange offer, | ||
• | terminate the exchange offer, or | ||
• | to amend the terms of the exchange offer in any way we determine. |
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• | any law, statute, rule or regulation shall have been proposed, adopted or enacted, or interpreted in a manner, which, in our reasonable judgment, would impair our ability to proceed with the exchange offer; |
• | any action or proceeding is instituted or threatened in any court or by or before the SEC or any other governmental agency with respect to the exchange offer which, in our reasonable judgment, would impair our ability to proceed with the exchange offer; |
• | we have not obtained any governmental approval which we, in our reasonable judgment, consider necessary for the completion of the exchange offer as contemplated by this prospectus; |
• | any change, or any condition, event or development involving a prospective change, shall have occurred or be threatened in the general economic, financial, currency exchange or market conditions in the United States or elsewhere that, in our reasonable judgment, would impair our ability to proceed with the exchange offer; |
• | any other change or development shall have occurred, including a prospective change or development, that, in our reasonable judgment, has or may have a material adverse effect on us, the market price of the Exchange Notes or the Restricted Notes or the value of the exchange offer to us; or |
• | there shall have occurred (i) any suspension or limitation of trading in securities generally on the New York Stock Exchange or the over-the-counter market; (ii) a declaration of a banking moratorium by United States federal or New York authorities; or (iii) a commencement or escalation of a war or armed hostilities involving or relating to a country where we do business or other international or national emergency or crisis directly or indirectly involving the United States. |
• | refuse to accept any Restricted Notes and return all tendered Restricted Notes to the tendering holders and terminate the exchange offer; |
• | extend the exchange offer and retain all Restricted Notes tendered before the expiration of the exchange offer, subject, however, to the rights of holders to withdraw these Restricted Notes; or |
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• | waive unsatisfied conditions relating to the exchange offer and accept all properly tendered Restricted Notes which have not been withdrawn. If this waiver constitutes a material change to the exchange offer, we will disclose this change by means of a prospectus supplement that will be distributed to the registered holders of the Restricted Notes. If the exchange offer would otherwise expire, we will extend the exchange offer for five to ten business days, depending on how significant the waiver is and the manner of disclosure to registered holders. |
• | purchase or make offers for any Restricted Notes that remain outstanding subsequent to the expiration date; and |
• | purchase Restricted Notes in the open market, in privately negotiated transactions or otherwise. |
• | you must instruct DTC and a DTC participant by completing the form “Instructions to DTC Participant From Beneficial Owner” accompanying this prospectus of your intention to tender your Restricted Notes for Exchange Notes; and |
• | DTC participants in turn need to follow the procedures for book-entry transfer as set forth below under “—Book-Entry Transfer” and in the letter of transmittal. |
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• | confirmation of book-entry transfer of the Restricted Notes into the exchange agent’s account; and |
• | receipt by the exchange agent of an “agent’s message” and all other required documents specified in the letter of transmittal. |
• | the aggregate principal amount of Restricted Notes that have been tendered by the participant; |
• | that such participant has received an appropriate letter of transmittal and agrees to be bound by the terms of the letter of transmittal and the terms of the exchange offer; and |
• | that we may enforce such agreement against the participant. |
• | are not an “affiliate” of ours, as defined in Rule 405 of the Securities Act (or if you are such an “affiliate”, you must comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable); |
• | are not engaged in and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of Exchange Notes to be issued in the exchange offer; |
• | acquired the Exchange Notes issued in the exchange offer in the ordinary course of your business; |
• | are not a broker-dealer that acquired the Restricted Notes from us or in market-making transactions or other trading activities; and |
35
• | are not acting on behalf of any person who could not truthfully and completely make the foregoing representations. |
• | SEC registration fees; |
• | fees and expenses of the exchange agent and trustee; |
• | accounting and legal fees and printing costs; and |
• | related fees and expenses. |
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• | holders may resell Restricted Notes only if an exemption from registration is available or, outside the United States, to non-U.S. persons in accordance with the requirements of Regulation S under the Securities Act; and |
• | the remaining Restricted Notes will bear a legend restricting transfer in the absence of registration or an exemption. |
37
Effect of 1% increase | ||||
or 1% decrease | ||||
(In thousands) | ||||
WML’s revolving line of credit | $ | — |
38
Total Cost of | ||||||||||||||||||
Tons Sold | Property, Plant and | |||||||||||||||||
Mining | (In thousands) | Equipment | Employees/Labor | |||||||||||||||
Operation | Prior Operator | Manner of Transport | Machinery | 2008 | 2009 | 2010 | ($ in millions) | Relations(1) | Coal Seam | |||||||||
MONTANA | ||||||||||||||||||
Rosebud | Entech, Inc., a | • Conveyor belt | • 4 drag-lines | 13,026 | 10,332 | 12,231 | $140.9 | 383 employees; | • Rosebud | |||||||||
subsidiary of | • BNSF Rail | • Load-out facility | 297 represented | |||||||||||||||
Montana Power, | • Truck | by Local 400 of | ||||||||||||||||
Purchased 2001 | the IUOE | |||||||||||||||||
Absaloka | Washington Group | • BNSF Rail | • 1 drag-line | 6,418 | 5,911 | 5,467 | $135.1 | 170 employees; 131 | • Rosebud-McKay | |||||||||
International, Inc. | • Truck | • Load-out facility | represented by Local | |||||||||||||||
as contract | 400 of the IUOE | |||||||||||||||||
operator, Ended | ||||||||||||||||||
contract in 2007 | ||||||||||||||||||
Savage | Knife River | • Truck | • 1 dragline | 359 | 344 | 353 | $4.6 | 13 employees; 11 | • Pust | |||||||||
Corporation, a | represented by Local | |||||||||||||||||
subsidiary of MDU | 400 of the IUOE | |||||||||||||||||
Resources Group, | ||||||||||||||||||
Inc., Purchased | ||||||||||||||||||
2001 | ||||||||||||||||||
TEXAS | ||||||||||||||||||
Jewett | Entech, Inc., a | • Conveyor belt | • 4 drag-lines | 6,494 | 5,080 | 4,203 | $32.1 | 327 employees | • Wilcox Group | |||||||||
subsidiary of | ||||||||||||||||||
Montana Power, | ||||||||||||||||||
Purchased 2001 | ||||||||||||||||||
NORTH DAKOTA | ||||||||||||||||||
Beulah | Knife River | • Conveyor belt | • 2 drag-lines | 3,046 | 2,585 | 2,898 | $61.8 | 149 employees; 118 | • Schoolhouse | |||||||||
Corporation, a | • BNSF Rail | • Load-out facility | represented by Local | • Beulah-Zap | ||||||||||||||
subsidiary of MDU | 1101 of the UMWA | |||||||||||||||||
Resources Group, | ||||||||||||||||||
Inc., Purchased | ||||||||||||||||||
2001 | ||||||||||||||||||
TOTALS | ||||||||||||||||||
29,343 | 24,252 | 25,152 | $374.5 | 1,042 employees |
(1) | 557 employees, or approximately 52% of our total employees, are represented by collective bargaining agreements. The labor agreement at the Absaloka Mine, which covers 12% of our workforce, expires during 2011. |
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Absaloka Mine | Rosebud Mine | Jewett Mine | Beulah Mine | Savage Mine | ||||||
Owned by | Westmoreland | Western Energy | Texas Westmoreland | Dakota Westmoreland | Westmoreland Savage | |||||
Resources, Inc. | Company | Coal Co. | Corporation | Corporation | ||||||
Location | Rosebud and | Leon, Freestone and | ||||||||
Treasure Counties, | Limestone Counties, | Mercer and Oliver | ||||||||
Big Horn County, MT | MT | TX | Counties, ND | Richland County, MT | ||||||
Coal reserves (thousands of tons)(1) | ||||||||||
Proven | 66,976 | 200,333 | 44,842 | 45,248 | 13,117 | |||||
Probable | — | — | — | 19,394 | — | |||||
Permitted reserves (thousands of tons) | 61,290 | 115,642 | 44,842 | 21,682 | 1,023 | |||||
2010 production (thousands of tons) | 5,466 | 12,254 | 4,171 | 2,895 | 352 | |||||
Estimated life of permitted reserves(2) | 2020 | 2019 | 2022 | 2015 | 2013 | |||||
Lessor | • Crow Tribe | • Federal Government | • Private parties | • Private parties | • Federal Government | |||||
• Private parties | • State of MT | • State of TX | • State of ND | • Private parties | ||||||
• Great Northern | • Federal Government | |||||||||
Properties | ||||||||||
Lease term | Through exhaustion | Varies | Varies | Varies | Varies | |||||
Current production capacity (thousands of tons) | 7,500 | 13,300 | 7,000 | 3,400 | 400 | |||||
Coal type | Sub-bituminous | Sub-bituminous | Lignite | Lignite | Lignite | |||||
Major customers | • Xcel Energy | • Colstrip 1&2 owners | • NRG Texas Power LLC | • Otter Tail | • MDU | |||||
• Western Fuels Assoc. | • Colstrip 3&4 owners | • MDU | • Sidney Sugars | |||||||
• Midwest Energy | • Minnkota | |||||||||
• Rocky Mountain Power | • Northwestern | |||||||||
Public Service | ||||||||||
Delivery method | Rail / Truck | Truck / Rail / Conveyor | Conveyor | Conveyor / Rail | Truck | |||||
Approx. heat content (BTU/lb.)(3) | 8,571 | 8,534 | 6,652 | 7,002 | 6,380 | |||||
Approx. sulfur content (%)(4) | 0.66 | 0.64 | 0.78 | 0.76 | 0.50 | |||||
Year current complex opened | 1974 | 1968 | 1985 | 1963 | 1958 | |||||
Total tons mined since inception (thousands of tons) | 172,602 | 431,931 | 183,263 | 102,251 | 14,493 |
(1) | The SEC Industry Guide 7 defines reserves as that part of a mineral deposit, which could be economically and legally extracted or produced at the time of the reserve determination. Proven and probable coal reserves are defined by SEC Industry Guide 7 as follows: | |
Proven (Measured) Reserves— Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so close and the geographic character is so well defined that size, shape, depth and mineral content of reserves are well-established. |
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Probable (Indicated) Reserves— Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. | ||
(2) | Approximate year in which permitted reserves would be exhausted, based on current mine plan and production rates. Our Jewett Mine’s permit is expected to be renewed in 2011 while the other permit expires in 2014, but effectively they cover all of the Mine’s reserves for the entire life of the mine. The Absaloka Mine permits expire in 2013 and 2014. | |
(3) | Approximate heat content applies to the coal mined in 2010. | |
(4) | Approximate sulfur content applies to the tons mined in 2010. |
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• | all of our mines are the most economic suppliers to each of their respective principal customers, a result of a transportation advantage over our competitors in that market; |
• | nearly all of the power plants we supply were specifically designed to use our coal; and |
• | the plants we supply are among the lowest cost producers of electric power in their respective regions and are among the cleaner producers of power from solid fossil fuels. |
• | As a result of the foregoing, we believe that our current customers are more likely to be dispatched to produce power and to continue purchasing coal extracted from our mines. |
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2010 | ||||||||
Lost Time Rate | Reportable Rate | |||||||
WCC Mines | 0.88 | 1.31 | ||||||
National Surface Mines | 1.23 | 1.83 |
43
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Year | Megawatt Hours | Capacity Factor | ||||||
2010 | 1,620,000 | 88 | % | |||||
2009 | 1,486,000 | 81 | % | |||||
2008 | 1,641,000 | 89 | % |
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46
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Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Loss on extinguishment of debt | $ | (17,030 | ) | $ | — | |||
Fair value adjustment on derivatives and related amortization of debt discount | (3,215 | ) | (4,824 | ) | ||||
Impact | $ | (20,245 | ) | $ | (4,824 | ) | ||
• | As a result of the Parent Notes offering, we recorded $17.0 million of loss on extinguishment of debt. 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. | ||
• | Upon the retirement of our convertible debt, we recorded an expense of $3.1 million resulting from the mark-to-market accounting for the conversion feature in the notes with $0.1 million of interest expense of a related debt discount. |
48
• | We recorded an expense of $4.5 million resulting from the mark-to-market accounting of the conversion feature in our convertible notes with $0.3 million of interest expense of a related debt discount. |
Three Months | ||||
Ended | ||||
March 31, 2011 | ||||
(In millions) | ||||
Increase in our coal segment operating income primarily driven by the expiration of an unprofitable coal contract at our Rosebud Mine | $ | 1.5 | ||
Increase in interest expense primarily due to higher overall debt levels resulting from the Parent Notes offering | (1.4 | ) | ||
Decrease in other income primarily due to gains on sales of securities during the first quarter of 2010 | (0.6 | ) | ||
Increase in our power segment operating income resulting primarily from contractual price increases | 0.4 | |||
Increase in income tax benefit related to lower taxable income | 0.4 | |||
Increase due to other factors | 0.3 | |||
$ | 0.6 | |||
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Three Months Ended March 31, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
Revenues (in thousands) | $ | 104,136 | $ | 103,550 | $ | 586 | 0.6 | % | ||||||||
Operating income (in thousands) | 8,819 | 7,352 | 1,467 | 20.0 | % | |||||||||||
Adjusted EBITDA (in thousands)1 | 21,285 | 20,237 | 1,048 | 5.2 | % | |||||||||||
Tons sold — millions of equivalent tons | 5.6 | 6.3 | (0.7 | ) | (11.1 | )% | ||||||||||
Operating income per ton sold | $ | 1.57 | $ | 1.17 | $ | 0.40 | $ | 34.9 | % |
1) | Adjusted EBITDA is defined and reconciled to net loss at the end of this “Results of Operations” section. |
Three Months Ended March 31, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues | $ | 23,628 | $ | 22,889 | $ | 739 | 3.2 | % | ||||||||
Operating income | 4,619 | 4,172 | 447 | 10.7 | % | |||||||||||
Adjusted EBITDA1 | 7,352 | 6,881 | 471 | 6.8 | % | |||||||||||
Megawatts hours | 435 | 435 | — | — |
1) | Adjusted EBITDA is defined and reconciled to net loss at the end of this “Results of Operations” section. |
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Three Months Ended March 31, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Health care benefits | $ | 2,454 | $ | 2,676 | $ | (222 | ) | (8.3 | )% | |||||||
Combined benefit fund payments | 686 | 756 | (70 | ) | (9.3 | )% | ||||||||||
Workers’ compensation benefits | 158 | 136 | 22 | 16.2 | % | |||||||||||
Black lung benefits | 480 | 347 | 133 | 38.3 | % | |||||||||||
Total heritage health benefit expenses | 3,778 | 3,915 | (137 | ) | (3.5 | )% | ||||||||||
Selling and administrative costs | 392 | 340 | 52 | 15.3 | % | |||||||||||
Heritage segment operating loss | $ | 4,170 | $ | 4,255 | $ | (85 | ) | (2.0 | )% | |||||||
• | are used widely by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; and | ||
• | help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results. |
51
• | do not reflect our cash expenditures, or future requirements for capital and major maintenance expenditures or contractual commitments; | ||
• | do not reflect income tax expenses or the cash requirements necessary to pay income taxes; | ||
• | do not reflect changes in, or cash requirements for, our working capital needs; and | ||
• | do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on certain of our debt obligations. |
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Reconciliation of Adjusted EBITDA to net loss | ||||||||
Net loss | $ | (18,732 | ) | $ | (3,745 | ) | ||
Income tax benefit from continuing operations | (460 | ) | (90 | ) | ||||
Other loss | 3,017 | 3,836 | ||||||
Interest income | (382 | ) | (410 | ) | ||||
Loss on extinguishment of debt | 17,030 | — | ||||||
Interest expense | 6,967 | 5,723 | ||||||
Depreciation, depletion and amortization | 11,245 | 11,392 | ||||||
Accretion of ARO and receivable | 2,700 | 3,003 | ||||||
Amortization of intangible assets and liabilities | 163 | 85 | ||||||
EBITDA | 21,548 | 19,794 | ||||||
Loss on sale of assets | 83 | 71 | ||||||
Share-based compensation | 1,653 | 1,363 | ||||||
Adjusted EBITDA | $ | 23,284 | $ | 21,228 | ||||
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Adjusted EBITDA by Segment | ||||||||
Coal | $ | 21,285 | $ | 20,237 | ||||
Power | 7,352 | 6,881 | ||||||
Heritage | (4,170 | ) | (4,255 | ) | ||||
Corporate | (1,183 | ) | (1,635 | ) | ||||
Total | $ | 23,284 | $ | 21,228 | ||||
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Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
(In thousands) | ||||||||||||
Fair value adjustment on derivative and related amortization of debt discount | $ | (4,840 | ) | $ | 5,076 | $ | — | |||||
Heritage legal claim settlement | — | 756 | — | |||||||||
Reclamation claim | — | (4,825 | ) | — | ||||||||
Beneficial conversion feature interest expense | — | — | (8,146 | ) | ||||||||
Loss on extinguishment of WML debt | — | — | (3,834 | ) | ||||||||
Loss on extinguishment of ROVA debt | — | — | (1,344 | ) | ||||||||
Settlement of coal royalty dispute | — | — | (2,635 | ) | ||||||||
Gain on sale of interest in Ft. Lupton power project | — | — | 876 | |||||||||
Restructuring charges | — | — | (2,009 | ) | ||||||||
Impact (pre-tax) | $ | (4,840 | ) | $ | 1,007 | $ | (17,092 | ) | ||||
Tax effect of other comprehensive income gains | $ | — | $ | 17,062 | $ | — | ||||||
• | We recorded expense of $3.4 million resulting from the mark-to-market accounting of the conversion feature in our convertible notes, primarily due to an increase in our stock price during 2010, with $1.4 million of interest expense of a related debt discount. |
• | We recorded an income tax benefit of $17.1 million related to a tax effect of other comprehensive income gains, primarily related to a decrease in our postretirement medical obligations. | ||
• | We recorded income of $6.1 million resulting from the mark-to-market accounting of the conversion feature in our convertible notes and a decrease in the value of our warrant offset with $1.0 million of interest expense of a related debt discount. | ||
• | We recorded a gain of $0.8 million related to a settlement of past heritage claims, as a result of efforts to reduce our heritage costs. | ||
• | We recorded $4.8 million in net expense related to the settlement of the reclamation claim at our Rosebud Mine. This included a $6.5 million reduction in revenue, offset with a $1.7 million reduction in cost of sales. |
• | We recorded $8.1 million of expense related to the beneficial conversion feature in the convertible notes we issued in March 2008, as the conversion price was lower than the fair market value of our common stock at the time of issuance. | ||
• | We refinanced both our WML and ROVA debt during 2008 and as a result recorded losses of $3.8 million and $1.3 million, respectively, for the extinguishment of debt. | ||
• | We recorded $2.6 million in net expense related to two coal royalty claims as we reached an agreement with the U.S. Minerals Management Service and the Montana Department of Revenue |
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to settle two long-standing disputes. This included $12.8 million of cost of sales, offset with $10.2 million of revenue. | |||
• | On July 2, 2008, we received $0.9 million for our royalty interest in the gas-fired Ft. Lupton project and recognized a gain of $0.9 million on the sale. | ||
• | In 2007, we initiated a restructuring plan in order to reduce the overall cost structure of the Company. As a result, in 2008 we recorded restructuring charges of $2.0 million. Most of the restructuring charges related to termination benefits, outplacement costs, and lease costs related to the consolidation of corporate office space. |
2010 | ||||
(In millions) | ||||
Increase in coal segment operating income driven by price increases, new agreements, 2009 customer shutdowns, and strong cost management performance at several mines | $ | 27.6 | ||
Decrease in heritage segment operating costs primarily due to the agreement we entered into to modernize how we provide prescription drug benefits to retirees | 16.6 | |||
Increase in our power segment operating income due to increased megawatt hours sold and decreased maintenance expenses due to planned and unplanned maintenance outages, with no comparable outages occurring in 2010 | 4.0 | |||
Increase in the noncontrolling interest adjustment to reduce losses from a partially owned consolidated coal segment subsidiary | 0.8 | |||
Gain on sale of securities | 0.7 | |||
Total | $ | 49.7 | ||
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Year Ended December 31, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues | $ | 418,058 | $ | 361,206 | $ | 56,852 | 15.7 | % | ||||||||
Operating income | 32,922 | 476 | 32,446 | 6816.4 | % | |||||||||||
Adjusted EBITDA(1) | 81,681 | 51,207 | 30,474 | 59.5 | % | |||||||||||
Tons sold — millions of equivalent tons | 25.2 | 24.3 | 0.9 | 3.7 | % | |||||||||||
Operating income per ton sold | $ | 1.31 | $ | 0.02 | $ | 1.29 | 6568.9 | % |
(1) | Adjusted EBITDA is defined and reconciled to net loss at the end of this “Results of Operations” section. |
Year Ended December 31, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues | $ | 87,999 | $ | 82,162 | $ | 5,837 | 7.1 | % | ||||||||
Operating income | 11,721 | 7,672 | 4,049 | 52.8 | % | |||||||||||
Adjusted EBITDA(1) | 22,664 | 18,117 | 4,547 | 25.1 | % | |||||||||||
Megawatts hours | 1,620 | 1,486 | 134 | 9.0 | % |
(1) | Adjusted EBITDA is defined and reconciled to net loss at the end of this “Results of Operations” section. |
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Year Ended December 31, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Health care benefits | $ | 9,927 | $ | 22,490 | $ | (12,563 | ) | (55.9 | )% | |||||||
Combined benefit fund payments | 2,953 | 3,132 | (179 | ) | (5.7 | )% | ||||||||||
Workers’ compensation benefits (credits) | 81 | (485 | ) | 566 | 116.7 | % | ||||||||||
Black lung benefits | 1,460 | 2,937 | (1,477 | ) | (50.3 | )% | ||||||||||
Total heritage health benefit expenses | 14,421 | 28,074 | (13,653 | ) | (48.6 | )% | ||||||||||
Selling and administrative costs | 1,547 | 3,696 | (2,149 | ) | (58.1 | )% | ||||||||||
Heritage segment operating loss | $ | 15,968 | $ | 31,770 | $ | (15,802 | ) | (49.7 | )% | |||||||
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2009 | ||||
(In millions) | ||||
Decrease in coal segment operating income driven by reduced tonnages sold due to the 2009 customer shutdowns and unfavorable energy market conditions, partially offset with income from Indian Coal Tax Credit monetization transaction, and losses from a partially owned consolidated subsidiary | $ | (12.7 | ) | |
Decrease in our power segment operating income due to reduced megawatt hours sold, increased maintenance expenses due to a planned major maintenance outage and a significant 2009 unplanned outage | (8.3 | ) | ||
Decrease in heritage costs due to elimination of postretirement medical benefits for non-represented employees’ costs in the third quarter of 2009, reduced workers compensation expenses due to changes in interest rates and favorable claims experience, offset by an increase in cost containment efforts and unfavorable changes in the valuation of Black Lung benefit’s trust assets and liabilities due to changes in interest rates | 2.9 | |||
Decrease in corporate expenses due to cost control efforts and a reduction in stock compensation expense | 2.7 | |||
Favorable noncontrolling interest adjustment due to losses from a partially owned consolidated subsidiary | 1.8 | |||
Decrease in interest income partially offset with a decrease in interest expense due to debt refinancing and an increase in other income | (1.3 | ) | ||
Decrease in income taxes driven by lower state taxable income due to customer outages | 1.0 | |||
Total | $ | (13.9 | ) | |
Year Ended December 31, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2009 | 2008 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues | $ | 361,206 | $ | 419,806 | $ | (58,600 | ) | (14.0 | )% | |||||||
Operating income | 476 | 15,211 | (14,735 | ) | (96.9 | )% | ||||||||||
Adjusted EBITDA(1) | 51,207 | 57,743 | (6,536 | ) | (11.3 | )% | ||||||||||
Tons sold — millions of equivalent tons | 24.3 | 29.3 | (5.0 | ) | (17.1 | )% | ||||||||||
Operating income per ton sold | $ | 0.02 | $ | 0.52 | $ | (0.50 | ) | (96.2 | )% |
(1) | Adjusted EBITDA is defined and reconciled to net loss at the end of this “Results of Operations” section. |
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Year Ended December 31, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2009 | 2008 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues | $ | 82,162 | $ | 89,890 | $ | (7,728 | ) | (8.6 | )% | |||||||
Operating income | 7,672 | 16,920 | (9,248 | ) | (54.7 | )% | ||||||||||
Adjusted EBITDA(1) | 18,117 | 26,493 | (8,376 | ) | (31.5 | )% | ||||||||||
Megawatts hours | 1,486 | 1,641 | (155 | ) | (9.4 | )% |
(1) | Adjusted EBITDA is defined and reconciled to net loss at the end of this “Results of Operations” section. |
Year Ended December 31, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2009 | 2008 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Health care benefits | $ | 22,490 | $ | 25,588 | $ | (3,098 | ) | (12.1 | )% | |||||||
Combined benefit fund payments | 3,132 | 3,470 | (338 | ) | (9.7 | )% | ||||||||||
Workers’ compensation benefits (credits) | (485 | ) | 4,417 | (4,902 | ) | (111.0 | )% | |||||||||
Black lung benefits (credits) | 2,937 | (23 | ) | 2,960 | 12,869.6 | % | ||||||||||
Total heritage health benefit expenses | 28,074 | 33,452 | (5,378 | ) | (16.1 | )% | ||||||||||
Selling and administrative costs | 3,696 | 2,045 | 1,651 | 80.7 | % | |||||||||||
Gain on sale of assets | — | (25 | ) | 25 | (100.0 | )% | ||||||||||
Heritage segment operating loss | $ | 31,770 | $ | 35,472 | $ | (3,702 | ) | (10.4 | )% | |||||||
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• | are used widely by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; and | ||
• | help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results. |
• | do not reflect our cash expenditures, or future requirements for capital and major maintenance expenditures or contractual commitments; | ||
• | do not reflect income tax expenses or the cash requirements necessary to pay income taxes; | ||
• | do not reflect changes in, or cash requirements for, our working capital needs; and | ||
• | do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on certain of our debt obligations. |
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December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Reconciliation of Adjusted EBITDA to Net Loss | ||||||||||||
Net Loss | $ | (3,170 | ) | $ | (29,162 | ) | $ | (48,567 | ) | |||
Income tax (benefit) expense from continuing operations | (141 | ) | (17,136 | ) | 919 | |||||||
Other (income) loss | 2,587 | (5,991 | ) | 284 | ||||||||
Interest income | (1,747 | ) | (3,218 | ) | (5,125 | ) | ||||||
Loss on extinguishment of debt | — | — | 5,178 | |||||||||
Interest expense attributable to beneficial conversion feature | — | — | 8,146 | |||||||||
Interest expense | 22,992 | 23,733 | 23,130 | |||||||||
Depreciation, depletion and amortization | 44,690 | 44,254 | 41,387 | |||||||||
Accretion of ARO and receivable | 11,540 | 9,974 | 9,528 | |||||||||
Amortization of intangible assets and liabilities | 590 | 279 | 598 | |||||||||
EBITDA | 77,341 | 22,733 | 35,478 | |||||||||
Restructuring charges | — | — | 2,009 | |||||||||
Customer reclamation claim | — | 4,825 | — | |||||||||
(Gain)/loss on sale of assets | 226 | 191 | (1,425 | ) | ||||||||
Share-based compensation | 4,049 | 2,552 | 2,733 | |||||||||
Adjusted EBITDA | $ | 81,616 | $ | 30,301 | $ | 38,795 | ||||||
December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Adjusted EBITDA by Segment | ||||||||||||
Coal | $ | 81,681 | $ | 51,207 | $ | 57,743 | ||||||
Power | 22,664 | 18,117 | 26,493 | |||||||||
Heritage | (15,968 | ) | (31,770 | ) | (35,497 | ) | ||||||
Corporate | (6,761 | ) | (7,253 | ) | (9,944 | ) | ||||||
Total | $ | 81,616 | $ | 30,301 | $ | 38,795 | ||||||
• | We expect significantly higher overall levels of cash and liquidity throughout 2011 as a result of the issuance of the Parent Notes, as well as increased coal operating profits and decreased heritage health benefit expenditures; | ||
• | We expect to take a charge to our earnings in 2011 of approximately $20.0 million as a result of the issuance of the Parent Notes and the mark-to-market accounting of the conversion feature in our convertible notes; |
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• | We expect an increase in the repayments of long-term debt resulting from our WML Notes as well as from the various debt paid off with the proceeds of the Parent Notes; | ||
• | We expect significantly higher overall levels of debt and interest expense throughout 2011 as a result of the issuance of the Parent Notes; | ||
• | We expect to pay approximately $21.0 million of preferred stock dividends in 2011; | ||
• | We expect our overall coal tons delivered to decrease due to the December 31, 2010 expiration of a long-term coal supply contract at our Rosebud Mine. While this decrease will drive a decrease in overall tonnage sold, we expect the expiration of the contract to increase our profits and cash flow as our cost per ton sold was significantly greater than the fixed price per ton we were receiving under the contract; | ||
• | We expect our power operating profit to increase slightly due to the significant maintenance expenses incurred in 2010 relating to a planned maintenance shutdown. In addition, the ROVA credit agreements required us to perform certain maintenance procedures that were not otherwise required. As a result, we expect the termination of those agreements in connection with the completion of the Parent Notes offering will result in further reductions in 2011 maintenance expenses; | ||
• | We expect an increase in our depreciation, depletion, and amortization expense in 2011 due to increases in our asset reclamation obligation studies driving increased depletion expense as well as slightly increased capital spending levels in 2011; | ||
• | We expect to make additional capital investments during 2011 in the range of $40.0 to $50.0 million to improve our mining operations, decrease our equipment maintenance costs, and increase our coal reserves. We expect these capital investments to be funded through our mine’s operating cash flows or, if necessary, WML’s existing credit facility or capital leases; and | ||
• | We expect an increase in our investments in bond collateral in the range of $9.0 to $12.0 million primarily as a result of securing reclamation bonds for new mining areas in 2011. |
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2011 Remaining | ||||||||
Year-to-date | Expected | |||||||
2011 Actual | Amounts | |||||||
(In millions) | ||||||||
Postretirement medical benefits | $ | 3.3 | $ | 10.3 | ||||
Pension contributions | 0.9 | 9.3 | ||||||
CBF premiums | 0.7 | 2.0 | ||||||
Workers’ compensation benefits | 0.2 | 0.8 |
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Historical Sources and Uses of Cash for Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010 | ||
The following is a summary of cash provided by or used in each of the indicated types of activities: |
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Cash provided by (used in): | ||||||||
Operating activities | $ | 16,182 | $ | 13,296 | ||||
Investing activities | (5,884 | ) | (3,941 | ) | ||||
Financing activities | 28,911 | (2,114 | ) |
Historical Sources and Uses of Cash for Year Ended December 31, 2010 Compared to Year Ended December 31, 2009 |
Years Ended December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Cash provided by (used in): | ||||||||
Operating activities | $ | 45,353 | $ | 29,448 | ||||
Investing activities | (29,180 | ) | (38,597 | ) | ||||
Financing activities | (20,917 | ) | (20,273 | ) |
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Payments Due by Period | ||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | After 2015 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Long-term debt obligations(1) (principal and interest) | $ | 279,738 | 51,731 | 40,076 | 61,264 | 38,008 | 35,880 | 52,779 | ||||||||||||||||||||
Capital lease obligations (principal and interest) | 30,293 | 8,714 | 8,319 | 7,077 | 4,461 | 1,617 | 105 | |||||||||||||||||||||
Operating lease obligations | 18,311 | 6,665 | 4,243 | 2,827 | 2,233 | 1,625 | 718 | |||||||||||||||||||||
Purchase obligations(2) | 105,534 | 28,552 | 28,552 | 28,552 | 17,077 | 2,801 | — | |||||||||||||||||||||
Other long-term liabilities(3) | 1,096,065 | 44,442 | 41,937 | 42,308 | 54,298 | 42,763 | 870,317 | |||||||||||||||||||||
Totals | $ | 1,529,941 | 140,104 | 123,127 | 142,028 | 116,077 | 84,686 | 923,919 | ||||||||||||||||||||
ProForma long-term debt obligations(4)(principal and interest) | $ | 435,022 | 26,098 | 39,661 | 43,918 | 40,898 | 41,355 | 243,092 |
(1) | On February 4, 2011, we refinanced our convertible notes, WRI’s term and revolving line of credit and ROVA’s term debt. | |
(2) | Our purchase obligations relate to coal supply agreements for our power plants. | |
(3) | Represents benefit payments for our postretirement medical benefits, black lung, workers’ compensation, and combined benefit fund plans, as well as contributions for our defined benefit pension plans and final reclamation costs. | |
(4) | Amounts shown are subsequent to the Parent Notes offering in February 2011. |
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Postretirement Medical Benefits | ||||||||
Health Care Cost Trend Rate | 1% Increase | 1% Decrease | ||||||
(In thousands) | ||||||||
Effect on service and interest cost components | $ | 1,282 | $ | (1,079 | ) | |||
Effect on postretirement medical benefit obligation | $ | 22,565 | $ | (19,116 | ) |
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Post | ||||||||||||||||||||
Workers’ | Retirement | |||||||||||||||||||
Reclamation | Compensation | Medical Benefit | ||||||||||||||||||
Obligations | Obligations | Obligations | Other | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Surety bonds | $ | 230,367 | $ | 10,303 | $ | 9,432 | $ | 4,245 | $ | 254,347 | ||||||||||
Letters of credit | — | — | — | 8,556 | 8,556 | |||||||||||||||
$ | 230,367 | $ | 10,303 | $ | 9,432 | $ | 12,801 | $ | 262,903 | |||||||||||
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• | an Unrestricted Subsidiary will not be subject to many of the restrictive covenants in the Indenture; | ||
• | a Subsidiary that has previously been a Guarantor and that is designated an Unrestricted Subsidiary will be released from its Note Guarantee, the Indenture and the Security Documents, and any of its assets that constitute Collateral will be released from the Liens of the Security Documents; and | ||
• | the assets, income, cash flow and other financial results of an Unrestricted Subsidiary will not be consolidated with those of the Issuer and Co-Issuer for purposes of calculating compliance with the restrictive covenants contained in the Indenture. |
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Optional | ||||
Year | Redemption Price | |||
2015 | 103.583 | % | ||
2016 | 101.792 | % | ||
2017 and thereafter | 100.000 | % |
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• | tax consequences to holders that may be subject to special tax treatment, such as tax-exempt entities, dealers in securities or foreign currencies, brokers, certain financial institutions or “financial services entities,” insurance companies, regulated investment companies, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, retirement plans, real estate investment trusts, controlled foreign corporations and shareholders of such corporations, passive foreign investment companies and shareholders of such companies, former citizens or long-term residents of the United States, certain U.S. expatriates or corporations that accumulate earnings to avoid U.S. federal income tax; |
• | tax consequences to persons holding notes as part of a hedging, integrated, constructive sale or conversion transaction or a straddle or other risk reduction transaction; |
• | tax consequences to holders whose “functional currency” is not the U.S. Dollar; |
• | tax consequences to persons who hold notes through a partnership or similar pass-through entity; |
• | alternative minimum tax, gift tax or estate tax consequences, if any; or |
• | any state, local or foreign tax consequences. |
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Page | ||||
Westmoreland Coal Company and Subsidiaries | ||||
Consolidated Balance Sheets (Unaudited) as of March 31, 2011 and December 31, 2010 | 136 | |||
Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2011 and 2010 | 138 | |||
Consolidated Statement of Shareholders’ Deficit (Unaudited) for the Three Months Ended March 31, 2011 | 139 | |||
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2011 and 2010 | 140 | |||
Notes to Consolidated Financial Statements (Unaudited) for the Three Months Ended March 31, 2011 and 2010 | 141 | |||
Reports of Independent Registered Public Accounting Firms | 162 | |||
Consolidated Balance Sheets as of December 31, 2010 and 2009 | 164 | |||
Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008 | 166 | |||
Consolidated Statements of Shareholders’ Deficit and Comprehensive Loss for the Years Ended December 31, 2010, 2009 and 2008 | 167 | |||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 | 168 | |||
Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 | 169 | |||
Other Financial Statements of Certain Westmoreland Coal Company Subsidiaries | ||||
The following financial statements for certain of Westmoreland Coal Company’s wholly owned subsidiaries are included pursuant to Regulation S-X, Rule 3-16, “Financial Statements of Affiliates Whose Securities Collateralize an Issue Registered of Being Registered.” | ||||
Westmoreland Resources, Inc. and subsidiary | ||||
Reports of Independent Registered Public Accounting Firms | 216 | |||
Consolidated Balance Sheets as of December 31, 2010 and 2009 | 218 | |||
Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008 | 219 | |||
Consolidated Statements of Shareholder’s Equity and Comprehensive Income (Loss) for the Years Ended December 31, 2010, 2009 and 2008 | 220 | |||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 | 221 | |||
Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 | 222 |
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Page | ||||
Westmoreland Energy LLC | ||||
Reports of Independent Registered Public Accounting Firms | 236 | |||
Consolidated Balance Sheets as of December 31, 2010 and 2009 | 238 | |||
Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008 | 239 | |||
Consolidated Statements of Member’s Equity and Comprehensive Income (Loss) for the Years Ended December 31, 2010, 2009 and 2008 | 240 | |||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 | 241 | |||
Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 | 242 |
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Consolidated Balance Sheets
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | (Audited) | |||||||
(In thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 44,984 | $ | 5,775 | ||||
Receivables: | ||||||||
Trade | 49,776 | 50,578 | ||||||
Contractual third-party reclamation receivables | 7,638 | 7,743 | ||||||
Other | 3,620 | 4,545 | ||||||
61,034 | 62,866 | |||||||
Inventories | 26,180 | 23,571 | ||||||
Other current assets | 5,461 | 5,335 | ||||||
Total current assets | 137,659 | 97,547 | ||||||
Property, plant and equipment: | ||||||||
Land and mineral rights | 83,893 | 83,824 | ||||||
Capitalized asset retirement cost | 114,856 | 114,856 | ||||||
Plant and equipment | 509,013 | 506,661 | ||||||
707,762 | 705,341 | |||||||
Less accumulated depreciation, depletion and amortization | (299,381 | ) | (288,386 | ) | ||||
Net property, plant and equipment | 408,381 | 416,955 | ||||||
Advanced coal royalties | 3,532 | 3,695 | ||||||
Reclamation deposits | 73,007 | 72,274 | ||||||
Restricted investments and bond collateral | 55,701 | 55,384 | ||||||
Contractual third-party reclamation receivables, less current portion | 88,514 | 87,739 | ||||||
Deferred income taxes | 2,900 | 2,458 | ||||||
Intangible assets, net of accumulated amortization of $9.5 million and $9.1 million at March 31, 2011, and December 31, 2010, respectively | 6,137 | 6,555 | ||||||
Other assets | 12,156 | 7,699 | ||||||
Total Assets | $ | 787,987 | $ | 750,306 | ||||
136
Consolidated Balance Sheets
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | (Audited) | |||||||
(In thousands) | ||||||||
Liabilities and Shareholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Current installments of long-term debt | $ | 17,673 | $ | 14,973 | ||||
Accounts payable and accrued expenses: | ||||||||
Trade | 44,354 | 46,247 | ||||||
Production taxes | 28,467 | 26,317 | ||||||
Workers’ compensation | 951 | 954 | ||||||
Postretirement medical benefits | 13,581 | 13,581 | ||||||
SERP | 304 | 304 | ||||||
Deferred revenue | 10,594 | 10,209 | ||||||
Asset retirement obligations | 15,235 | 14,514 | ||||||
Other current liabilities | 7,524 | 6,241 | ||||||
Total current liabilities | 138,683 | 133,340 | ||||||
Long-term debt, less current installments | 276,689 | 208,731 | ||||||
Revolving lines of credit | — | 18,400 | ||||||
Workers’ compensation, less current portion | 9,360 | 9,424 | ||||||
Excess of pneumoconiosis benefit obligation over trust assets | 2,726 | 2,246 | ||||||
Postretirement medical benefits, less current portion | 196,726 | 197,279 | ||||||
Pension and SERP obligations, less current portion | 19,683 | 20,462 | ||||||
Deferred revenue, less current portion | 73,025 | 75,395 | ||||||
Asset retirement obligations, less current portion | 227,117 | 227,129 | ||||||
Intangible liabilities, net of accumulated amortization $9.6 million at March 31, 2011, and $9.4 million at December 31, 2010, respectively | 8,409 | 8,663 | ||||||
Other liabilities | 9,496 | 11,592 | ||||||
Total liabilities | 961,914 | 912,661 | ||||||
Shareholders’ deficit: | ||||||||
Preferred stock of $1.00 par value Authorized 5,000,000 shares; Issued and outstanding 160,129 shares at March 31, 2011, and December 31, 2010 | 160 | 160 | ||||||
Common stock of $2.50 par value Authorized 30,000,000 shares; Issued and outstanding 13,155,263 shares at March 31, 2011, and 11,160,798 shares at December 31, 2010 | 32,887 | 27,901 | ||||||
Other paid-in capital | 120,748 | 98,466 | ||||||
Accumulated other comprehensive loss | (57,507 | ) | (57,680 | ) | ||||
Accumulated deficit | (264,632 | ) | (226,740 | ) | ||||
Total Westmoreland Coal Company shareholders’ deficit | (168,344 | ) | (157,893 | ) | ||||
Noncontrolling interest | (5,583 | ) | (4,462 | ) | ||||
Total deficit | (173,927 | ) | (162,355 | ) | ||||
Total Liabilities and Shareholders’ Deficit | $ | 787,987 | $ | 750,306 | ||||
137
Consolidated Statements of Operations
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands, except | ||||||||
per share data) | ||||||||
Revenues | $ | 127,764 | $ | 126,439 | ||||
Cost, expenses and other: | ||||||||
Cost of sales | 97,510 | 97,677 | ||||||
Depreciation, depletion and amortization | 11,245 | 11,392 | ||||||
Selling and administrative | 9,305 | 9,976 | ||||||
Heritage health benefit expenses | 3,778 | 3,915 | ||||||
Loss on sales of assets | 83 | 71 | ||||||
Other operating income | (1,597 | ) | (1,906 | ) | ||||
120,324 | 121,125 | |||||||
Operating income | 7,440 | 5,314 | ||||||
Other income (expense): | ||||||||
Interest expense | (6,967 | ) | (5,723 | ) | ||||
Loss on extinguishment of debt | (17,030 | ) | — | |||||
Interest income | 382 | 410 | ||||||
Other loss | (3,017 | ) | (3,836 | ) | ||||
(26,632 | ) | (9,149 | ) | |||||
Loss before income taxes | (19,192 | ) | (3,835 | ) | ||||
Income tax benefit from operations | (460 | ) | (90 | ) | ||||
Net loss | (18,732 | ) | (3,745 | ) | ||||
Less net loss attributable to noncontrolling interest | (1,121 | ) | (890 | ) | ||||
Net loss attributable to the Parent company | (17,611 | ) | (2,855 | ) | ||||
Less preferred stock dividend requirements | 340 | 340 | ||||||
Net loss applicable to common shareholders | $ | (17,951 | ) | $ | (3,195 | ) | ||
Net loss per share applicable to common shareholders: | ||||||||
Basic and diluted | $ | (1.45 | ) | $ | (0.30 | ) | ||
Weighted average number of common shares outstanding: | ||||||||
Basic and diluted | 12,369 | 10,521 | ||||||
Net loss (from above) | $ | (18,732 | ) | $ | (3,745 | ) | ||
Other comprehensive loss: | ||||||||
Tax effect of other comprehensive income gains | (110 | ) | — | |||||
Amortization of accumulated actuarial gains or losses and transition obligations, pension | 385 | 228 | ||||||
Amortization of accumulated actuarial gains or losses transition obligations and prior service costs, postretirement medical benefits | (72 | ) | (68 | ) | ||||
Unrealized and realized gain on available-for-sale securities | (30 | ) | (499 | ) | ||||
Comprehensive loss | $ | (18,559 | ) | $ | (4,084 | ) | ||
138
Consolidated Statement of Shareholders’ Deficit
Three Months Ended March 31, 2011
(Unaudited)
Class A | ||||||||||||||||||||||||||||
Convertible | ||||||||||||||||||||||||||||
Exchangeable | Other Paid-In | Accumulated Other | Non- | Total Shareholders’ | ||||||||||||||||||||||||
Preferred Stock | Common Stock | Capital | Compre-hensive Loss | Accumulated Deficit | controlling Interest | Equity (Deficit) | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Balance at December 31, 2010 (160,129 preferred shares and 11,160,798 common shares outstanding) | $ | 160 | $ | 27,901 | $ | 98,466 | $ | (57,680 | ) | $ | (226,740 | ) | $ | (4,462 | ) | $ | (162,355 | ) | ||||||||||
Preferred dividends paid | — | — | — | — | (20,281 | ) | — | (20,281 | ) | |||||||||||||||||||
Common stock issued as compensation (104,019 shares) | — | 260 | 1,393 | — | — | — | 1,653 | |||||||||||||||||||||
Common stock options exercised (12,500 shares) | — | 31 | 100 | — | — | — | 131 | |||||||||||||||||||||
Conversion of convertible notes (1,877,946 shares) | — | 4,695 | 20,789 | — | — | — | 25,484 | |||||||||||||||||||||
Net loss | — | — | — | — | (17,611 | ) | (1,121 | ) | (18,732 | ) | ||||||||||||||||||
Tax effect of other comprehensive income gains | — | — | — | (110 | ) | — | — | (110 | ) | |||||||||||||||||||
Amortization of accumulated actuarial gains or losses and transition obligations, pension | — | — | — | 385 | — | — | 385 | |||||||||||||||||||||
Amortization of accumulated actuarial gains or losses, transition obligations and prior service costs, postretirement medical benefits | — | — | — | (72 | ) | — | — | (72 | ) | |||||||||||||||||||
Unrealized losses on available-for-sale securities | — | — | — | (30 | ) | — | — | (30 | ) | |||||||||||||||||||
Balance at March 31, 2011 (160,129 preferred shares and 13,155,263 common shares outstanding) | $ | 160 | $ | 32,887 | $ | 120,748 | $ | (57,507 | ) | $ | (264,632 | ) | $ | (5,583 | ) | $ | (173,927 | ) | ||||||||||
139
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (18,732 | ) | $ | (3,745 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation, depletion and amortization | 11,245 | 11,392 | ||||||
Accretion of asset retirement obligation and receivable | 2,700 | 3,003 | ||||||
Amortization of intangible assets and liabilities, net | 163 | 85 | ||||||
Non-cash tax benefits | (110 | ) | — | |||||
Share-based compensation | 1,653 | 1,363 | ||||||
Loss on sales of assets | 83 | 71 | ||||||
Non-cash interest expense | — | 388 | ||||||
Amortization of deferred financing costs | 635 | 523 | ||||||
Loss on extinguishment of debt | 17,030 | — | ||||||
Gain on impairment and sales of investment securities | — | (659 | ) | |||||
Loss on derivative instruments | 3,079 | 4,515 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables, net | 3,630 | (3,866 | ) | |||||
Inventories | (2,609 | ) | (1,502 | ) | ||||
Excess of pneumoconiosis benefit obligation over trust assets | 480 | 347 | ||||||
Accounts payable and accrued expenses | 2,009 | 3,770 | ||||||
Deferred revenue | (1,985 | ) | 617 | |||||
Accrual for workers’ compensation | (67 | ) | (51 | ) | ||||
Asset retirement obligation | (2,661 | ) | (1,875 | ) | ||||
Accrual for postretirement medical benefits | (625 | ) | (361 | ) | ||||
Pension and SERP obligations | (394 | ) | (39 | ) | ||||
Other assets and liabilities | 658 | (680 | ) | |||||
Net cash provided by (used) in operating activities | 16,182 | 13,296 | ||||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment | (2,923 | ) | (4,337 | ) | ||||
Change in restricted investments and bond collateral and reclamation deposits | (1,080 | ) | (592 | ) | ||||
Net proceeds from sales of assets | 22 | 379 | ||||||
Proceeds from the sale of investments | — | 1,119 | ||||||
Receivable from customer for property and equipment purchases | (1,903 | ) | (510 | ) | ||||
Net cash used in investing activities | (5,884 | ) | (3,941 | ) | ||||
Cash flows from financing activities: | ||||||||
Change in book overdrafts | 108 | 890 | ||||||
Borrowings from long-term debt, net of debt discount | 142,500 | — | ||||||
Repayments of long-term debt | (60,391 | ) | (8,112 | ) | ||||
Borrowings on revolving lines of credit | 50,700 | 28,400 | ||||||
Repayments of revolving lines of credit | (69,100 | ) | (23,300 | ) | ||||
Debt issuance and other refinancing costs | (14,756 | ) | — | |||||
Preferred dividends paid | (20,281 | ) | — | |||||
Exercise of stock options | 131 | 8 | ||||||
Net cash provided by (used in) financing activities | 28,911 | (2,114 | ) | |||||
Net increase in cash and cash equivalents | 39,209 | 7,241 | ||||||
Cash and cash equivalents, beginning of period | 5,775 | 10,519 | ||||||
Cash and cash equivalents, end of period | $ | 44,984 | $ | 17,760 | ||||
Non-cash transactions: | ||||||||
Capital leases | $ | — | $ | 866 |
140
(Unaudited)
141
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Coal stockpiles | $ | 694 | $ | 678 | ||||
Coal fuel inventories | 3,808 | 1,936 | ||||||
Materials and supplies | 22,258 | 21,538 | ||||||
Reserve for obsolete inventory | (580 | ) | (581 | ) | ||||
Total | $ | 26,180 | $ | 23,571 | ||||
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Coal Segment: | ||||||||
Westmoreland Mining — debt reserve account | $ | 9,964 | $ | 7,514 | ||||
Reclamation bond collateral: | ||||||||
Rosebud Mine | 12,264 | 12,263 | ||||||
Absaloka Mine | 10,974 | 10,956 | ||||||
Jewett Mine | 3,001 | 3,001 | ||||||
Beulah Mine | 1,270 | 1,270 | ||||||
Power Segment: | ||||||||
Letter of credit account | 5,976 | 5,990 | ||||||
Debt protection account | — | 905 | ||||||
Repairs and maintenance account | — | 1,067 | ||||||
Ash reserve account | — | 602 | ||||||
Corporate Segment: | ||||||||
Workers’ compensation bonds | 6,390 | 6,350 | ||||||
Postretirement medical benefit bonds | 5,862 | 5,466 | ||||||
Total restricted investments and bond collateral | $ | 55,701 | $ | 55,384 | ||||
142
Carrying Value | Fair Value | |||||||
(In thousands) | ||||||||
Cash and cash equivalents | $ | 42,606 | $ | 42,606 | ||||
Time deposits | 7,679 | 7,679 | ||||||
Held-to-maturity securities | 2,544 | 2,853 | ||||||
Available-for-sale securities | 2,872 | 2,872 | ||||||
$ | 55,701 | $ | 56,010 | |||||
Amortized cost | $ | 2,544 | ||
Gross unrealized holding gains | 309 | |||
Fair value | $ | 2,853 | ||
Amortized Cost | Fair Value | |||||||
(In thousands) | ||||||||
Due in five years or less | $ | 659 | $ | 730 | ||||
Due after five years to ten years | 772 | 857 | ||||||
Due in more than ten years | 1,113 | 1,266 | ||||||
$ | 2,544 | $ | 2,853 | |||||
Cost basis | $ | 2,566 | ||
Gross unrealized holding gains | 306 | |||
Fair value | $ | 2,872 | ||
143
Total Debt Outstanding | ||||||||
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Corporate: | ||||||||
Senior secured notes | $ | 150,000 | $ | — | ||||
Convertible notes | — | 18,495 | ||||||
Debt discount | (7,383 | ) | (4,823 | ) | ||||
Westmoreland Mining, LLC: | ||||||||
Revolving line of credit | — | 1,500 | ||||||
Term debt | 125,000 | 125,000 | ||||||
Capital lease obligations | 17,184 | 18,407 | ||||||
Other term debt | 2,368 | 2,556 | ||||||
Westmoreland Resources, Inc.: | ||||||||
Revolving line of credit | — | 16,900 | ||||||
Term debt | — | 9,600 | ||||||
Capital lease obligations | 7,193 | 7,821 | ||||||
ROVA: | ||||||||
Term debt | — | 46,220 | ||||||
Debt premiums | — | 428 | ||||||
Total debt outstanding | 294,362 | 242,104 | ||||||
Less current portion | (17,673 | ) | (14,973 | ) | ||||
Total debt outstanding, less current portion | $ | 276,689 | $ | 227,131 | ||||
Remainder of 2011 | $ | 12,934 | ||
2012 | 21,512 | |||
2013 | 24,815 | |||
2014 | 22,565 | |||
2015 | 21,910 | |||
Thereafter | 198,009 | |||
Total | 301,745 | |||
Less: debt discount | (7,383 | ) | ||
Total debt | $ | 294,362 | ||
144
145
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Components of net periodic benefit cost: | ||||||||
Service cost | $ | 153 | $ | 196 | ||||
Interest cost | 1,120 | 1,606 | ||||||
Expected return on plan assets | (1,106 | ) | (1,299 | ) | ||||
Amortization of deferred items | 385 | 228 | ||||||
Total net periodic benefit cost | $ | 552 | $ | 731 | ||||
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Components of net periodic benefit cost: | ||||||||
Service cost | $ | 123 | $ | 141 | ||||
Interest cost | 2,627 | 2,752 | ||||||
Amortization of deferred items | (72 | ) | (68 | ) | ||||
Total net periodic benefit cost | $ | 2,678 | $ | 2,825 | ||||
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Former mining operations | $ | 2,314 | $ | 2,518 | ||||
Current operations | 364 | 307 | ||||||
Total net periodic benefit cost | $ | 2,678 | $ | 2,825 | ||||
146
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Health care benefits | $ | 2,454 | $ | 2,676 | ||||
Combined benefit fund payments | 686 | 756 | ||||||
Workers’ compensation benefits | 158 | 136 | ||||||
Black lung benefits | 480 | 347 | ||||||
Total | $ | 3,778 | $ | 3,915 | ||||
Contractual | ||||||||||||
Asset | Third-Party | |||||||||||
Retirement | Reclamation | Reclamation | ||||||||||
Obligations | Receivables | Deposits | ||||||||||
(In thousands) | ||||||||||||
Rosebud | $ | 107,247 | $ | 14,797 | $ | 73,007 | ||||||
Jewett | 80,816 | 80,816 | — | |||||||||
Absaloka | 32,437 | 539 | — | |||||||||
Beulah | 18,390 | — | — | |||||||||
Savage | 2,733 | — | — | |||||||||
ROVA | 729 | — | — | |||||||||
Total | $ | 242,352 | $ | 96,152 | $ | 73,007 | ||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Asset retirement obligations, beginning of period | $ | 241,643 | $ | 244,615 | ||||
Accretion | 5,019 | 4,792 | ||||||
Liabilities settled | (4,310 | ) | (3,906 | ) | ||||
Asset retirement obligations, end of period | 242,352 | 245,501 | ||||||
Less current portion | (15,235 | ) | (16,675 | ) | ||||
Asset retirement obligations, less current portion | $ | 227,117 | $ | 228,826 | ||||
147
Carrying Value | Fair Value | |||||||
(In thousands) | ||||||||
Cash and cash equivalents | $ | 36,146 | $ | 36,146 | ||||
Held-to-maturity securities | 18,767 | 20,036 | ||||||
Time deposits | 15,903 | 15,903 | ||||||
Available-for-sale securities | 2,191 | 2,191 | ||||||
$ | 73,007 | $ | 74,276 | |||||
Amortized cost | $ | 18,767 | ||
Gross unrealized holding gains | 1,341 | |||
Gross unrealized holding losses | (72 | ) | ||
Fair value | $ | 20,036 | ||
Amortized Cost | Fair Value | |||||||
(In thousands) | ||||||||
Due in five years or less | $ | 7,529 | $ | 7,854 | ||||
Due after five years to ten years | 4,067 | 4,177 | ||||||
Due in more than ten years | 7,171 | 8,005 | ||||||
$ | 18,767 | $ | 20,036 | |||||
Cost basis | $ | 2,000 | ||
Gross unrealized holding gains | 191 | |||
Fair value | $ | 2,191 | ||
148
Stock Price | Bond Yield | |
$13.57 | 4.55% |
Balance Sheet | March 31, | December 31, | ||||||||||
Derivative Instruments | Location | 2011 | 2010 | |||||||||
(In thousands) | ||||||||||||
Convertible debt — conversion feature | Other liabilities | $ | — | $ | 3,588 |
Three Months Ended | ||||||||||||
Statement of | March 31, | |||||||||||
Derivative Instruments | Operations Location | 2011 | 2010 | |||||||||
(In thousands) | ||||||||||||
Convertible debt — conversion feature | Other income (loss) | $ | (3,079 | ) | $ | (4,521 | ) | |||||
Warrant | Other income (loss) | — | 6 |
• | Level 1, defined as observable inputs such as quoted prices in active markets for identical assets. | ||
• | 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. |
149
Fair Value at | ||||
March 31, 2011 | ||||
Level 1 | ||||
(In thousands) | ||||
Assets: | ||||
Available-for-sale investments included in Restricted investments and bond collateral | $ | 2,872 | ||
Available-for-sale investments included in Reclamation deposits | 2,191 | |||
Total assets | $ | 5,063 | ||
Three Months Ended | ||||
March 31, 2011 | ||||
(In thousands) | ||||
Beginning balance | $ | 3,588 | ||
Change in fair value | 3,079 | |||
Settlements | (6,667 | ) | ||
Ending balance | $ | — | ||
Carrying Value | Fair Value | |||||||
(In thousands) | ||||||||
December 31, 2010 | $ | 185,320 | $ | 196,483 | ||||
March 31, 2011 | $ | 267,617 | $ | 278,465 |
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Recognition of fair value of restricted stock units, stock options, and stock appreciation rights over vesting period; and issuance of common stock | $ | 569 | $ | 225 | ||||
Contributions of stock to the Company’s 401(k) plan | 1,084 | 1,138 | ||||||
Total share-based compensation expense | $ | 1,653 | $ | 1,363 | ||||
150
Restricted Stock Units |
Weighted Average | Unamortized | |||||||||||
Grant-Date Fair | Compensation Expense | |||||||||||
Units | Value | (In thousands) | ||||||||||
Non-vested at December 31, 2010 | 192,697 | $ | 8.13 | |||||||||
Non-vested at March 31, 2011 | 192,697 | $ | 8.13 | $ | 1,118 | (1) | ||||||
1 | Expected to be recognized over the next two years. |
Weighted | Unamortized | |||||||||||||||||||
Average Remaining | Aggregate Intrinsic | Compensation | ||||||||||||||||||
Weighted Average | Contractual Life | Value | Expense | |||||||||||||||||
Stock Options | Exercise Price | (in years) | (In thousands) | (In thousands) | ||||||||||||||||
Outstanding at December 31, 2010 | 318,590 | $ | 18.99 | |||||||||||||||||
Exercised | (12,500 | ) | $ | 10.48 | $ | 49 | ||||||||||||||
Expired or forfeited | (20,000 | ) | $ | 12.04 | ||||||||||||||||
Outstanding at March 31, 2011 | 286,090 | $ | 19.86 | 4.5 | $ | 17 | ||||||||||||||
Options exercisable at March 31, 2011 | 241,334 | $ | 19.57 | 4.0 | $ | 17 | $ | 131 | (1) | |||||||||||
1 | Expected to be recognized over the next three months. |
Weighted Average | Unamortized | |||||||||||||||||||
Remaining Contractual | Aggregate Intrinsic | Compensation | ||||||||||||||||||
Weighted Average | Life | Value | Expense | |||||||||||||||||
SARs | Base Price | (in years) | (In thousands) | (In thousands) | ||||||||||||||||
Outstanding at December 31, 2010 | 118,934 | $ | 22.13 | |||||||||||||||||
Outstanding and exercisable at March 31, 2011 | 118,934 | $ | 22.13 | 4.2 | $ | — | $ | — | ||||||||||||
151
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Convertible notes and securities | 1,094 | 2,859 | ||||||
Restricted stock units, stock options, SARs, and warrant shares | 598 | 776 | ||||||
Total shares excluded from diluted shares calculation | 1,692 | 3,635 | ||||||
Coal | Power | Heritage | Corporate | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Three Months Ended March 31, 2011 | ||||||||||||||||||||
Revenues | $ | 104,136 | $ | 23,628 | $ | — | $ | — | $ | 127,764 | ||||||||||
Depreciation, depletion, and amortization | 8,613 | 2,553 | — | 79 | 11,245 | |||||||||||||||
Operating income (loss) | 8,819 | 4,619 | (4,170 | ) | (1,828 | ) | 7,440 | |||||||||||||
Total assets | 516,725 | 206,894 | 12,541 | 51,827 | 787,987 | |||||||||||||||
Capital expenditures | 2,688 | 227 | — | 8 | 2,923 | |||||||||||||||
Three Months Ended March 31, 2010 | ||||||||||||||||||||
Revenues | $ | 103,550 | $ | 22,889 | $ | — | $ | — | $ | 126,439 | ||||||||||
Depreciation, depletion, and amortization | 8,757 | 2,536 | — | 99 | 11,392 | |||||||||||||||
Operating income (loss) | 7,352 | 4,172 | (4,255 | ) | (1,955 | ) | 5,314 | |||||||||||||
Total assets | 538,886 | 220,127 | 11,247 | 8,258 | 778,518 | |||||||||||||||
Capital expenditures | 3,829 | 68 | — | 440 | 4,337 |
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Operating income | $ | 7,440 | $ | 5,314 | ||||
Interest expense | (6,967 | ) | (5,723 | ) | ||||
Loss on extinguishment of debt | (17,030 | ) | — | |||||
Interest income | 382 | 410 | ||||||
Other loss | (3,017 | ) | (3,836 | ) | ||||
Loss before income taxes | $ | (19,192 | ) | $ | (3,835 | ) | ||
152
153
March 31, 2011
(In thousands)
Parent/ | Guarantor | Non-Guarantor | Consolidating | |||||||||||||||||||||
Assets | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 36,770 | $ | 3,715 | $ | 161 | $ | 4,338 | $ | — | $ | 44,984 | ||||||||||||
Receivables: | ||||||||||||||||||||||||
Trade | — | 13,880 | 9 | 35,887 | — | 49,776 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 127 | 7,511 | — | 7,638 | ||||||||||||||||||
Intercompany receivable/payable | (20,135 | ) | — | 10,050 | (23,504 | ) | 33,589 | — | ||||||||||||||||
Other | 161 | 221 | 8,973 | 109 | (5,844 | ) | 3,620 | |||||||||||||||||
(19,974 | ) | 14,101 | 19,159 | 20,003 | 27,745 | 61,034 | ||||||||||||||||||
Inventories | — | 3,808 | 4,209 | 18,163 | — | 26,180 | ||||||||||||||||||
Other current assets | 745 | 423 | 554 | 3,739 | — | 5,461 | ||||||||||||||||||
Total current assets | 17,541 | 22,047 | 24,083 | 46,243 | 27,745 | 137,659 | ||||||||||||||||||
Property, plant and equipment: | ||||||||||||||||||||||||
Land and mineral rights | — | 1,156 | 17,806 | 64,931 | — | 83,893 | ||||||||||||||||||
Capitalized asset retirement cost | — | 239 | 20,463 | 94,154 | — | 114,856 | ||||||||||||||||||
Plant and equipment | 2,619 | 216,391 | 117,447 | 172,556 | — | 509,013 | ||||||||||||||||||
2,619 | 217,786 | 155,716 | 331,641 | — | 707,762 | |||||||||||||||||||
Less accumulated depreciation, depletion and amortization | (2,066 | ) | (44,709 | ) | (84,290 | ) | (168,316 | ) | — | (299,381 | ) | |||||||||||||
Net property, plant and equipment | 553 | 173,077 | 71,426 | 163,325 | — | 408,381 | ||||||||||||||||||
Advanced coal royalties | — | — | 848 | 2,684 | — | 3,532 | ||||||||||||||||||
Reclamation deposits | — | — | — | 73,007 | — | 73,007 | ||||||||||||||||||
Restricted investments and bond collateral | 12,251 | 5,976 | 10,975 | 26,499 | — | 55,701 | ||||||||||||||||||
Contractual third-party reclamation receivables, less current portion | — | — | 412 | 88,102 | — | 88,514 | ||||||||||||||||||
Deferred income taxes | — | — | — | — | 2,900 | 2,900 | ||||||||||||||||||
Intangible assets | — | 5,793 | — | 344 | — | 6,137 | ||||||||||||||||||
Investment in subsidiaries | 157,792 | — | (717 | ) | 3,770 | (160,845 | ) | — | ||||||||||||||||
Other assets | 7,385 | — | 1,387 | 3,384 | — | 12,156 | ||||||||||||||||||
Total assets | $ | 195,522 | $ | 206,893 | $ | 108,414 | $ | 407,358 | $ | (130,200 | ) | $ | 787,987 | |||||||||||
154
March 31, 2011
(In thousands)
Parent/ | Guarantor | Non-Guarantor | Consolidating | |||||||||||||||||||||
Liabilities and Stockholders’ Deficit | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Current installments of long-term debt | $ | (735 | ) | $ | — | $ | 2,296 | $ | 16,112 | $ | — | $ | 17,673 | |||||||||||
Accounts payable and accrued expenses: | ||||||||||||||||||||||||
Trade | 2,688 | 9,733 | 3,067 | 35,015 | (6,149 | ) | 44,354 | |||||||||||||||||
Production taxes | — | 334 | 1,354 | 26,779 | — | 28,467 | ||||||||||||||||||
Workers’ compensation | 951 | — | — | — | — | 951 | ||||||||||||||||||
Postretirement medical benefits | 12,198 | — | — | 1,383 | — | 13,581 | ||||||||||||||||||
SERP | 304 | — | — | — | — | 304 | ||||||||||||||||||
Deferred revenue | — | 8,689 | 37 | 1,868 | — | 10,594 | ||||||||||||||||||
Asset retirement obligations | — | — | 3,184 | 12,051 | — | 15,235 | ||||||||||||||||||
Other current liabilities | 2,571 | — | 2,000 | 2,925 | 28 | 7,524 | ||||||||||||||||||
Total current liabilities | 17,977 | 18,756 | 11,938 | 96,133 | (6,121 | ) | 138,683 | |||||||||||||||||
Long-term debt, less current installments | 143,352 | — | 4,897 | 128,440 | — | 276,689 | ||||||||||||||||||
Workers’ compensation, less current portion | 9,360 | — | — | — | — | 9,360 | ||||||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets | 2,726 | — | — | — | — | 2,726 | ||||||||||||||||||
Postretirement medical benefits, less current portion | 168,953 | — | — | 27,773 | — | 196,726 | ||||||||||||||||||
Pension and SERP obligations, less current portion | 15,709 | 150 | — | 3,824 | — | 19,683 | ||||||||||||||||||
Deferred revenue, less current portion | — | 65,050 | — | 7,975 | — | 73,025 | ||||||||||||||||||
Asset retirement obligations, less current portion | — | 728 | 29,253 | 197,136 | — | 227,117 | ||||||||||||||||||
Intangible liabilities | ��� | 8,409 | — | — | — | 8,409 | ||||||||||||||||||
Other liabilities | 473 | — | 4,518 | 1,435 | 3,070 | 9,496 | ||||||||||||||||||
Intercompany receivable/payable | 10,899 | — | 6,878 | 28,507 | (46,284 | ) | — | |||||||||||||||||
Total liabilities | 369,449 | 93,093 | 57,484 | 491,223 | (49,335 | ) | 961,914 | |||||||||||||||||
Shareholders’ Deficit | ||||||||||||||||||||||||
Preferred stock | 160 | — | — | — | — | 160 | ||||||||||||||||||
Common stock | 32,887 | 5 | 110 | 132 | (247 | ) | 32,887 | |||||||||||||||||
Other paid-in capital | 120,748 | 52,699 | 16,583 | 52,717 | (121,999 | ) | 120,748 | |||||||||||||||||
Accumulated other comprehensive loss | (57,507 | ) | (200 | ) | 94 | (14,113 | ) | 14,219 | (57,507 | ) | ||||||||||||||
Accumulated deficit | (264,632 | ) | 61,296 | 34,143 | (122,601 | ) | 27,162 | (264,632 | ) | |||||||||||||||
Total Westmoreland Coal Company shareholders’ deficit | (168,344 | ) | 113,800 | 50,930 | (83,865 | ) | (80,865 | ) | (168,344 | ) | ||||||||||||||
Noncontrolling interest | (5,583 | ) | — | — | — | — | (5,583 | ) | ||||||||||||||||
Total deficit | (173,927 | ) | 113,800 | 50,930 | (83,865 | ) | (80,865 | ) | (173,927 | ) | ||||||||||||||
Total liabilities and stockholders’ deficit | $ | 195,522 | $ | 206,893 | $ | 108,414 | $ | 407,358 | $ | (130,200 | ) | $ | 787,987 | |||||||||||
155
December 31, 2010
(In thousands)
Parent/ | Guarantor | Non-Guarantor | Consolidating | |||||||||||||||||||||
Assets | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 271 | $ | 880 | $ | — | $ | 4,624 | $ | — | $ | 5,775 | ||||||||||||
Receivables: | ||||||||||||||||||||||||
Trade | — | 14,148 | 65 | 36,365 | — | 50,578 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 135 | 7,608 | — | 7,743 | ||||||||||||||||||
Intercompany receivable/payable | — | — | 10,193 | (21,544 | ) | 11,351 | — | |||||||||||||||||
Other | 66 | 198 | 4,917 | 1,530 | (2,166 | ) | 4,545 | |||||||||||||||||
66 | 14,346 | 15,310 | 23,959 | 9,185 | 62,866 | |||||||||||||||||||
Inventories | — | 1,935 | 4,624 | 17,012 | — | 23,571 | ||||||||||||||||||
Other current assets | 796 | 224 | 469 | 3,944 | (98 | ) | 5,335 | |||||||||||||||||
Total current assets | 1,133 | 17,385 | 20,403 | 49,539 | 9,087 | 97,547 | ||||||||||||||||||
Property, plant and equipment: | ||||||||||||||||||||||||
Land and mineral rights | — | 1,156 | 17,806 | 64,862 | — | 83,824 | ||||||||||||||||||
Capitalized asset retirement cost | — | 239 | 20,463 | 94,154 | — | 114,856 | ||||||||||||||||||
Plant and equipment | 2,611 | 215,851 | 117,360 | 170,839 | — | 506,661 | ||||||||||||||||||
2,611 | 217,246 | 155,629 | 329,855 | — | 705,341 | |||||||||||||||||||
Less accumulated depreciation, depletion and amortization | (1,987 | ) | (42,156 | ) | (82,239 | ) | (162,004 | ) | — | (288,386 | ) | |||||||||||||
Net property, plant and equipment | 624 | 175,090 | 73,390 | 167,851 | — | 416,955 | ||||||||||||||||||
Advanced coal royalties | — | — | 998 | 2,697 | — | 3,695 | ||||||||||||||||||
Reclamation deposits | — | — | — | 72,274 | — | 72,274 | ||||||||||||||||||
Restricted investments and bond collateral | 11,816 | 8,563 | 10,956 | 24,049 | — | 55,384 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 390 | 87,349 | — | 87,739 | ||||||||||||||||||
Deferred income taxes | — | — | — | — | 2,458 | 2,458 | ||||||||||||||||||
Intangible assets | — | 6,203 | — | 352 | — | 6,555 | ||||||||||||||||||
Investment in subsidiaries | 115,612 | — | (717 | ) | 3,770 | (118,665 | ) | — | ||||||||||||||||
Other assets | 2,060 | 401 | 1,683 | 3,555 | — | 7,699 | ||||||||||||||||||
Total assets | $ | 131,245 | $ | 207,642 | $ | 107,103 | $ | 411,436 | $ | (107,120 | ) | $ | 750,306 | |||||||||||
156
December 31, 2010
(In thousands)
Parent/ | Guarantor | Non-Guarantor | Consolidating | |||||||||||||||||||||
Liabilities and Stockholders’ Deficit | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Current installments of long-term debt | $ | — | $ | — | $ | 2,255 | $ | 12,718 | $ | — | $ | 14,973 | ||||||||||||
Accounts payable and accrued expenses: | ||||||||||||||||||||||||
Trade | 5,187 | 8,549 | 3,283 | 31,709 | (2,481 | ) | 46,247 | |||||||||||||||||
Production taxes | — | 2 | 1,084 | 25,231 | — | 26,317 | ||||||||||||||||||
Workers’ compensation | 954 | — | — | — | — | 954 | ||||||||||||||||||
Postretirement medical benefits | 12,198 | — | — | 1,383 | — | 13,581 | ||||||||||||||||||
SERP | 304 | — | — | — | — | 304 | ||||||||||||||||||
Deferred revenue | — | 8,805 | 349 | 1,055 | — | 10,209 | ||||||||||||||||||
Asset retirement obligations | — | — | 3,371 | 11,143 | — | 14,514 | ||||||||||||||||||
Other current liabilities | 249 | 782 | 3,138 | 2,164 | (92 | ) | 6,241 | |||||||||||||||||
Total current liabilities | 18,892 | 18,138 | 13,480 | 85,403 | (2,573 | ) | 133,340 | |||||||||||||||||
Long-term debt, less current installments | 13,671 | 46,648 | 15,166 | 133,246 | — | 208,731 | ||||||||||||||||||
Revolving lines of credit, less current portion | — | — | 16,900 | 1,500 | — | 18,400 | ||||||||||||||||||
Workers’ compensation, less current portion | 9,424 | — | — | — | — | 9,424 | ||||||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets | 2,246 | — | — | — | — | 2,246 | ||||||||||||||||||
Postretirement medical benefits, less current portion | 169,677 | — | — | 27,602 | — | 197,279 | ||||||||||||||||||
Pension and SERP obligations, less current portion | 16,105 | 154 | — | 4,203 | — | 20,462 | ||||||||||||||||||
Deferred revenue, less current portion | — | 67,308 | — | 8,087 | — | 75,395 | ||||||||||||||||||
Asset retirement obligations, less current portion | — | 715 | 28,967 | 197,447 | — | 227,129 | ||||||||||||||||||
Intangible liabilities | — | 8,663 | — | — | — | 8,663 | ||||||||||||||||||
Other liabilities | 4,153 | — | 3,149 | 1,409 | 2,881 | 11,592 | ||||||||||||||||||
Intercompany receivable/payable | 59,432 | — | (19,590 | ) | 26,424 | (66,266 | ) | — | ||||||||||||||||
Total liabilities | 293,600 | 141,626 | 58,072 | 485,321 | (65,958 | ) | 912,661 | |||||||||||||||||
Shareholders’ Deficit | ||||||||||||||||||||||||
Preferred stock | 160 | — | — | — | — | 160 | ||||||||||||||||||
Common stock | 27,901 | 5 | 110 | 132 | (247 | ) | 27,901 | |||||||||||||||||
Other paid-in capital | 98,466 | 30 | 16,036 | 53,264 | (69,330 | ) | 98,466 | |||||||||||||||||
Accumulated other comprehensive income | (57,680 | ) | (203 | ) | 120 | (14,353 | ) | 14,436 | (57,680 | ) | ||||||||||||||
Accumulated earnings (deficit) | (226,740 | ) | 66,184 | 32,765 | (112,928 | ) | 13,979 | (226,740 | ) | |||||||||||||||
Total Westmoreland Coal Company shareholders’ deficit | (157,893 | ) | 66,016 | 49,031 | (73,885 | ) | (41,162 | ) | (157,893 | ) | ||||||||||||||
Noncontrolling interest | (4,462 | ) | — | — | — | — | (4,462 | ) | ||||||||||||||||
Total equity (deficit) | (162,355 | ) | 66,016 | 49,031 | (73,885 | ) | (41,162 | ) | (162,355 | ) | ||||||||||||||
Total liabilities and stockholders’ deficit | $ | 131,245 | $ | 207,642 | $ | 107,103 | $ | 411,436 | $ | (107,120 | ) | $ | 750,306 | |||||||||||
157
Three Months Ended March 31, 2011
(In thousands)
Parent/ | Guarantor | Non-Guarantor | Consolidating | |||||||||||||||||||||
Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | |||||||||||||||||||
Revenues | $ | — | $ | 23,628 | $ | 14,824 | $ | 103,197 | $ | (13,885 | ) | $ | 127,764 | |||||||||||
Costs, expenses: | ||||||||||||||||||||||||
Cost of sales | — | 15,559 | 11,152 | 84,684 | (13,885 | ) | 97,510 | |||||||||||||||||
Depreciation, depletion and amortization | 79 | 2,553 | 2,051 | 6,562 | — | 11,245 | ||||||||||||||||||
Selling and administrative | 2,379 | 897 | 1,008 | 5,021 | — | �� | 9,305 | |||||||||||||||||
Heritage health benefit expenses | 3,576 | — | — | 202 | — | 3,778 | ||||||||||||||||||
Loss on sales of assets | — | — | — | 83 | — | 83 | ||||||||||||||||||
Other operating income | — | — | (1,597 | ) | — | — | (1,597 | ) | ||||||||||||||||
6,034 | 19,009 | 12,614 | 96,552 | (13,885 | ) | 120,324 | ||||||||||||||||||
Operating income (loss) | (6,034 | ) | 4,619 | 2,210 | 6,645 | — | 7,440 | |||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest expense | (3,073 | ) | (428 | ) | (301 | ) | (3,184 | ) | 19 | (6,967 | ) | |||||||||||||
Loss on extinguishment of debt | (7,873 | ) | (9,073 | ) | (84 | ) | — | — | (17,030 | ) | ||||||||||||||
Interest income | 60 | 6 | 68 | 267 | (19 | ) | 382 | |||||||||||||||||
Other income (loss) | (3,079 | ) | — | 33 | 29 | — | (3,017 | ) | ||||||||||||||||
(13,965 | ) | (9,495 | ) | (284 | ) | (2,888 | ) | — | (26,632 | ) | ||||||||||||||
Income (loss) from operations before income taxes | (19,999 | ) | (4,876 | ) | 1,926 | 3,757 | — | (19,192 | ) | |||||||||||||||
Equity in income of subsidiaries | (1,104 | ) | — | — | — | 1,104 | — | |||||||||||||||||
(18,895 | ) | (4,876 | ) | 1,926 | 3,757 | (1,104 | ) | (19,192 | ) | |||||||||||||||
Income tax (benefit) expense from operations | (163 | ) | — | 547 | 1,566 | (2,410 | ) | (460 | ) | |||||||||||||||
Net income (loss) | (18,732 | ) | (4,876 | ) | 1,379 | 2,191 | 1,306 | (18,732 | ) | |||||||||||||||
Less net income attributable to noncontrolling interest | (1,121 | ) | — | — | — | — | (1,121 | ) | ||||||||||||||||
Net income (loss) attributable to the Parent company | $ | (17,611 | ) | $ | (4,876 | ) | $ | 1,379 | $ | 2,191 | $ | 1,306 | $ | (17,611 | ) | |||||||||
158
Three Months Ended March 31, 2010
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | |||||||||||||||||||
Revenues | $ | (33 | ) | $ | 22,889 | $ | 12,721 | $ | 103,253 | $ | (12,391 | ) | $ | 126,439 | ||||||||||
Costs, expenses: | ||||||||||||||||||||||||
Cost of sales | — | 15,045 | 11,637 | 83,419 | (12,424 | ) | 97,677 | |||||||||||||||||
Depreciation, depletion and amortization | 99 | 2,537 | 1,921 | 6,835 | — | 11,392 | ||||||||||||||||||
Selling and administrative | 2,356 | 1,136 | 1,115 | 5,369 | — | 9,976 | ||||||||||||||||||
Heritage health benefit expenses | 3,681 | — | — | 234 | — | 3,915 | ||||||||||||||||||
Loss on sales of assets | — | — | — | 71 | — | 71 | ||||||||||||||||||
Other operating income | — | — | (1,906 | ) | — | — | (1,906 | ) | ||||||||||||||||
6,136 | 18,718 | 12,767 | 95,928 | (12,424 | ) | 121,125 | ||||||||||||||||||
Operating income (loss) | (6,169 | ) | 4,171 | (46 | ) | 7,325 | 33 | 5,314 | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest expense | (724 | ) | (1,218 | ) | (641 | ) | (3,140 | ) | — | (5,723 | ) | |||||||||||||
Interest income | 53 | 18 | (133 | ) | 477 | (5 | ) | 410 | ||||||||||||||||
Other income (loss) | (4,424 | ) | 5 | — | 583 | — | (3,836 | ) | ||||||||||||||||
(5,095 | ) | (1,195 | ) | (774 | ) | (2,080 | ) | (5 | ) | (9,149 | ) | |||||||||||||
Income (loss) from operations before income taxes | (11,264 | ) | 2,976 | (820 | ) | 5,245 | 28 | (3,835 | ) | |||||||||||||||
Equity in income of subsidiaries | (8,408 | ) | — | — | — | 8,408 | — | |||||||||||||||||
(2,856 | ) | 2,976 | (820 | ) | 5,245 | (8,380 | ) | (3,835 | ) | |||||||||||||||
Income tax (benefit) expense from operations | — | 32 | (246 | ) | 2,737 | (2,613 | ) | (90 | ) | |||||||||||||||
Net income (loss) | (2,856 | ) | 2,944 | (574 | ) | 2,508 | (5,767 | ) | (3,745 | ) | ||||||||||||||
Less net income attributable to noncontrolling interest | — | — | — | — | (890 | ) | (890 | ) | ||||||||||||||||
Net income (loss) attributable to the Parent company | $ | (2,856 | ) | $ | 2,944 | $ | (574 | ) | $ | 2,508 | $ | (4,877 | ) | $ | (2,855 | ) | ||||||||
159
Three Months Ended March 31, 2011
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Statements of Cash Flows | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income (loss) | $ | (18,732 | ) | $ | (4,875 | ) | $ | 1,378 | $ | 2,192 | $ | 1,305 | $ | (18,732 | ) | |||||||||
Adjustments to reconcile net loss to net cash provided by operation activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | (1,104 | ) | — | — | — | 1,104 | — | |||||||||||||||||
Depreciation, depletion, and amortization | 79 | 2,553 | 2,051 | 6,562 | — | 11,245 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 14 | 758 | 1,928 | — | 2,700 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 155 | — | 8 | — | 163 | ||||||||||||||||||
Non-cash tax benefits | — | — | — | — | (110 | ) | (110 | ) | ||||||||||||||||
Share-based compensation | 1,653 | — | — | — | — | 1,653 | ||||||||||||||||||
Loss on sale of assets | — | — | — | 83 | — | 83 | ||||||||||||||||||
Amortization of deferred financing costs | 377 | (21 | ) | 109 | 170 | — | 635 | |||||||||||||||||
Loss on extinguishment of debt | 7,873 | 9,073 | 84 | — | — | 17,030 | ||||||||||||||||||
Gain (loss) on derivative | 3,079 | — | — | — | — | 3,079 | ||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | (95 | ) | 245 | (4,001 | ) | 3,803 | 3,678 | 3,630 | ||||||||||||||||
Inventories | — | (1,873 | ) | 415 | (1,151 | ) | — | (2,609 | ) | |||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets | 480 | — | — | — | — | 480 | ||||||||||||||||||
Accounts payable and accrued expenses | (2,499 | ) | 533 | (147 | ) | 7,791 | (3,669 | ) | 2,009 | |||||||||||||||
Deferred revenue | — | (2,374 | ) | (312 | ) | 701 | — | (1,985 | ) | |||||||||||||||
Accrual for workers’ compensation | (67 | ) | — | — | — | — | (67 | ) | ||||||||||||||||
Asset retirement obligations | — | — | (673 | ) | (1,988 | ) | — | (2,661 | ) | |||||||||||||||
Accrual for postretirement medical benefits | (870 | ) | — | — | 245 | — | (625 | ) | ||||||||||||||||
Pension and SERP obligations | (193 | ) | — | — | (201 | ) | — | (394 | ) | |||||||||||||||
Other assets and liabilities | 2,425 | (314 | ) | 1,202 | (2,425 | ) | (230 | ) | 658 | |||||||||||||||
Net cash provided by (used in) operating activities | (7,594 | ) | 3,116 | 864 | 17,718 | 2,078 | 16,182 | |||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Distributions received by subsidiaries | 11,700 | — | — | — | (11,700 | ) | — | |||||||||||||||||
Additions to property, plant and equipment | (8 | ) | (227 | ) | (112 | ) | (2,576 | ) | — | (2,923 | ) | |||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | (440 | ) | 2,587 | (45 | ) | (3,182 | ) | — | (1,080 | ) | ||||||||||||||
Net proceeds from sales of assets | — | — | — | 22 | — | 22 | ||||||||||||||||||
Receivable from customer for property and equipment purchases | — | — | — | (1,903 | ) | — | (1,903 | ) | ||||||||||||||||
Net cash provided by (used in) investing activities | 11,252 | 2,360 | (157 | ) | (7,639 | ) | (11,700 | ) | (5,884 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Bank overdrafts | (146 | ) | — | (674 | ) | 928 | — | 108 | ||||||||||||||||
Borrowings of long-term debt, net of debt discount | 142,500 | — | — | — | — | 142,500 | ||||||||||||||||||
Repayments of long-term debt | (2,532 | ) | (46,220 | ) | (10,230 | ) | (1,409 | ) | — | (60,391 | ) | |||||||||||||
Borrowings on revolving lines of credit | — | 1,500 | 12,200 | 37,000 | — | 50,700 | ||||||||||||||||||
Repayments on revolving lines of credit | — | (1,500 | ) | (29,100 | ) | (38,500 | ) | — | (69,100 | ) | ||||||||||||||
Debt issuance and other refinancing costs | (5,779 | ) | (9,077 | ) | 100 | — | — | (14,756 | ) | |||||||||||||||
Dividends/distributions | (20,281 | ) | — | — | (11,700 | ) | 11,700 | (20,281 | ) | |||||||||||||||
Exercise of stock options | 131 | — | — | — | — | 131 | ||||||||||||||||||
Transactions with Parent/affiliates | (81,051 | ) | 52,656 | 27,158 | 3,315 | (2,078 | ) | — | ||||||||||||||||
Net cash provided by (used in) financing activities | 32,842 | (2,641 | ) | (546 | ) | (10,366 | ) | 9,622 | 28,911 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 36,500 | 2,835 | 161 | (287 | ) | — | 39,209 | |||||||||||||||||
Cash and cash equivalents, beginning of year | 271 | 880 | — | 4,624 | — | 5,775 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 36,771 | $ | 3,715 | $ | 161 | $ | 4,337 | $ | — | 44,984 | |||||||||||||
160
Three Months Ended March 31, 2010
(In thousands)
Parent/ | Guarantor | Non-Guarantor | Consolidating | |||||||||||||||||||||
Statements of Cash Flows | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income (loss) | $ | (11,264 | ) | $ | 2,943 | $ | (573 | ) | $ | 2,507 | $ | 2,642 | $ | (3,745 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by operation activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | (8,408 | ) | — | — | — | 8,408 | — | |||||||||||||||||
Depreciation, depletion, and amortization | 99 | 2,537 | 1,921 | 6,835 | — | 11,392 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 13 | 752 | 2,238 | — | 3,003 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 155 | — | (70 | ) | — | 85 | |||||||||||||||||
Share-based compensation | 1,363 | — | — | — | — | 1,363 | ||||||||||||||||||
Loss on sale of assets | — | — | — | 71 | — | 71 | ||||||||||||||||||
Non-cash interest expense | 388 | — | — | — | — | 388 | ||||||||||||||||||
Amortization of deferred financing costs | 335 | (86 | ) | 125 | 149 | — | 523 | |||||||||||||||||
Gain on impairments and sales of investment securities | (97 | ) | — | — | (562 | ) | — | (659 | ) | |||||||||||||||
Gain (loss) on derivative | 4,521 | (6 | ) | — | — | — | 4,515 | |||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | 359 | (432 | ) | (2,540 | ) | (2,609 | ) | 1,356 | (3,866 | ) | ||||||||||||||
Inventories | — | (1,363 | ) | 116 | (255 | ) | — | (1,502 | ) | |||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets | 347 | — | — | — | — | 347 | ||||||||||||||||||
Accounts payable and accrued expenses | (322 | ) | 3,069 | 134 | 2,597 | (1,708 | ) | 3,770 | ||||||||||||||||
Deferred revenue | — | (572 | ) | — | 1,189 | — | 617 | |||||||||||||||||
Accrual for workers’ compensation | (51 | ) | — | — | — | — | (51 | ) | ||||||||||||||||
Asset retirement obligations | — | — | (188 | ) | (1,687 | ) | — | (1,875 | ) | |||||||||||||||
Accrual for postretirement medical benefits | (522 | ) | — | — | 161 | — | (361 | ) | ||||||||||||||||
Pension and SERP obligations | 280 | 1 | — | (320 | ) | — | (39 | ) | ||||||||||||||||
Other assets and liabilities | (634 | ) | (187 | ) | 680 | (417 | ) | (122 | ) | (680 | ) | |||||||||||||
Net cash provided by (used in) operating activities | (13,606 | ) | 6,072 | 427 | 9,827 | 10,576 | 13,296 | |||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Distributions received by subsidiaries | 8,100 | — | — | — | (8,100 | ) | — | |||||||||||||||||
Additions to property, plant and equipment | (440 | ) | (68 | ) | (635 | ) | (3,194 | ) | — | (4,337 | ) | |||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | (579 | ) | 1,691 | 131 | (1,835 | ) | — | (592 | ) | |||||||||||||||
Net proceeds from sales of assets | — | — | — | 379 | — | 379 | ||||||||||||||||||
Proceeds from the sale of investments | 156 | — | — | 963 | — | 1,119 | ||||||||||||||||||
Receivable from customer for property and equipment purchases | — | — | — | (510 | ) | — | (510 | ) | ||||||||||||||||
Net cash provided by (used in) investing activities | 7,237 | 1,623 | (504 | ) | (4,197 | ) | (8,100 | ) | (3,941 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Bank overdrafts | (76 | ) | — | (14 | ) | 980 | — | 890 | ||||||||||||||||
Borrowings of long-term debt | — | — | — | — | — | — | ||||||||||||||||||
Repayments of long-term debt | — | (5,405 | ) | (1,118 | ) | (1,589 | ) | — | (8,112 | ) | ||||||||||||||
Borrowings on revolving lines of credit | — | 3,800 | 20,100 | 4,500 | — | 28,400 | ||||||||||||||||||
Repayments on revolving lines of credit | — | — | (18,800 | ) | (4,500 | ) | — | (23,300 | ) | |||||||||||||||
Debt issuance costs | — | — | — | — | — | — | ||||||||||||||||||
Exercise of stock options | 8 | — | — | — | — | 8 | ||||||||||||||||||
Dividends/distributions | — | — | — | (8,100 | ) | 8,100 | — | |||||||||||||||||
Transactions with Parent/affiliates | 6,186 | (163 | ) | (75 | ) | 4,628 | (10,576 | ) | — | |||||||||||||||
Net cash provided by (used in) financing activities | 6,118 | (1,768 | ) | 93 | (4,081 | ) | (2,476 | ) | (2,114 | ) | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | (251 | ) | 5,927 | 16 | 1,549 | — | 7,241 | |||||||||||||||||
Cash and cash equivalents, beginning of year | 755 | 138 | — | 9,626 | — | 10,519 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 504 | $ | 6,065 | $ | 16 | $ | 11,175 | $ | — | 17,760 | |||||||||||||
161
March 11, 2011, except as to Note 19 as to which the date is June 3, 2011
162
Westmoreland Coal Company:
March 13, 2009, except as to Note 19 to the consolidated financial statements as to which the date is June 3, 2011
163
Consolidated Balance Sheets
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 5,775 | $ | 10,519 | ||||
Receivables: | ||||||||
Trade | 50,578 | 46,393 | ||||||
Contractual third-party reclamation receivables | 7,743 | 7,257 | ||||||
Other | 4,545 | 3,162 | ||||||
62,866 | 56,812 | |||||||
Inventories | 23,571 | 25,871 | ||||||
Other current assets | 5,335 | 6,047 | ||||||
Total current assets | 97,547 | 99,249 | ||||||
Property, plant and equipment: | ||||||||
Land and mineral rights | 83,824 | 83,694 | ||||||
Capitalized asset retirement cost | 114,856 | 134,821 | ||||||
Plant and equipment | 506,661 | 486,238 | ||||||
705,341 | 704,753 | |||||||
Less accumulated depreciation, depletion and amortization | (288,386 | ) | (248,569 | ) | ||||
Net property, plant and equipment | 416,955 | 456,184 | ||||||
Advanced coal royalties | 3,695 | 3,056 | ||||||
Reclamation deposits | 72,274 | 73,067 | ||||||
Restricted investments and bond collateral | 55,384 | 48,188 | ||||||
Contractual third-party reclamation receivables, less current portion | 87,739 | 74,989 | ||||||
Deferred income taxes | 2,458 | 2,341 | ||||||
Intangible assets, net of accumulated amortization of $9.1 million and $6.8 million at December 31, 2010 and December 31, 2009, respectively | 6,555 | 8,781 | ||||||
Other assets | 7,699 | 6,873 | ||||||
Total Assets | $ | 750,306 | $ | 772,728 | ||||
164
Consolidated Balance Sheets
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Liabilities and Shareholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Current installments of long-term debt | $ | 14,973 | $ | 41,089 | ||||
Revolving lines of credit | — | 16,400 | ||||||
Accounts payable and accrued expenses: | ||||||||
Trade | 46,247 | 39,264 | ||||||
Production taxes | 26,317 | 24,510 | ||||||
Workers’ compensation | 954 | 1,031 | ||||||
Postretirement medical benefits | 13,581 | 14,501 | ||||||
SERP | 304 | 306 | ||||||
Deferred revenue | 10,209 | 8,760 | ||||||
Asset retirement obligations | 14,514 | 15,513 | ||||||
Other current liabilities | 6,241 | 12,851 | ||||||
Total current liabilities | 133,340 | 174,225 | ||||||
Long-term debt, less current installments | 208,731 | 197,206 | ||||||
Revolving lines of credit, less current portion | 18,400 | — | ||||||
Workers’ compensation, less current portion | 9,424 | 10,188 | ||||||
Excess of pneumoconiosis benefit obligation over trust assets | 2,246 | 786 | ||||||
Postretirement medical benefits, less current portion | 197,279 | 175,722 | ||||||
Pension and SERP obligations, less current portion | 20,462 | 26,827 | ||||||
Deferred revenue, less current portion | 75,395 | 84,243 | ||||||
Asset retirement obligations, less current portion | 227,129 | 229,102 | ||||||
Intangible liabilities, net of accumulated amortization $9.4 million at December 31, 2010 and $7.7 million at December 31, 2009, respectively | 8,663 | 10,300 | ||||||
Other liabilities | 11,592 | 5,928 | ||||||
Total liabilities | 912,661 | 914,527 | ||||||
Shareholders’ deficit: | ||||||||
Preferred stock of $1.00 par value Authorized 5,000,000 shares; Issued and outstanding 160,129 shares at December 31, 2010, and December 31, 2009 | 160 | 160 | ||||||
Common stock of $2.50 par value Authorized 30,000,000 shares; Issued and outstanding 11,160,798 shares at December 31, 2010 and 10,345,927 shares at December 31, 2009 | 27,901 | 25,864 | ||||||
Other paid-in capital | 98,466 | 91,432 | ||||||
Accumulated other comprehensive loss | (57,680 | ) | (31,223 | ) | ||||
Accumulated deficit | (226,740 | ) | (226,215 | ) | ||||
Total Westmoreland Coal Company shareholders’ deficit | (157,893 | ) | (139,982 | ) | ||||
Noncontrolling interest | (4,462 | ) | (1,817 | ) | ||||
Total deficit | (162,355 | ) | (141,799 | ) | ||||
Total Liabilities and Shareholders’ Deficit | $ | 750,306 | $ | 772,728 | ||||
165
Consolidated Statements of Operations
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Revenues | $ | 506,057 | $ | 443,368 | $ | 509,696 | ||||||
Cost and expenses: | ||||||||||||
Cost of sales | 394,827 | 373,070 | 409,795 | |||||||||
Depreciation, depletion and amortization | 44,690 | 44,254 | 41,387 | |||||||||
Selling and administrative | 39,481 | 40,612 | 40,513 | |||||||||
Heritage health benefit expenses | 14,421 | 28,074 | 33,452 | |||||||||
Restructuring charges | — | — | 2,009 | |||||||||
Loss (gain) on sales of assets | 226 | 191 | (1,425 | ) | ||||||||
Other operating income | (8,109 | ) | (11,059 | ) | — | |||||||
485,536 | 475,142 | 525,731 | ||||||||||
Operating income (loss) | 20,521 | (31,774 | ) | (16,035 | ) | |||||||
Other income (expense): | ||||||||||||
Interest expense | (22,992 | ) | (23,733 | ) | (23,130 | ) | ||||||
Interest expense attributable to beneficial conversion feature | — | — | (8,146 | ) | ||||||||
Loss on extinguishment of debt | — | — | (5,178 | ) | ||||||||
Interest income | 1,747 | 3,218 | 5,125 | |||||||||
Other income (loss) | (2,587 | ) | 5,991 | (284 | ) | |||||||
(23,832 | ) | (14,524 | ) | (31,613 | ) | |||||||
Loss before income taxes | (3,311 | ) | (46,298 | ) | (47,648 | ) | ||||||
Income tax (benefit) expense | (141 | ) | (17,136 | ) | 919 | |||||||
Net loss | (3,170 | ) | (29,162 | ) | (48,567 | ) | ||||||
Less net loss attributable to noncontrolling interest | (2,645 | ) | (1,817 | ) | — | |||||||
Net loss attributable to the Parent company | (525 | ) | (27,345 | ) | (48,567 | ) | ||||||
Less preferred stock dividend requirements | 1,360 | 1,360 | 1,360 | |||||||||
Net loss applicable to common shareholders | $ | (1,885 | ) | $ | (28,705 | ) | $ | (49,927 | ) | |||
Net loss per share applicable to common shareholders: | ||||||||||||
Basic and diluted | $ | (0.17 | ) | $ | (2.88 | ) | $ | (5.25 | ) | |||
Weighted average number of common shares outstanding | ||||||||||||
Basic and diluted | 10,791 | 9,967 | 9,512 |
166
Consolidated Statements of Shareholders’ Deficit and Comprehensive Loss
Years Ended December 31, 2010, 2009 and 2008
Class A | |||||||||||||||||||||||||||||
Convertible | Accumulated | Total | |||||||||||||||||||||||||||
Exchangeable | Other | Non- | Shareholders' | ||||||||||||||||||||||||||
Preferred | Common | Other Paid-In | Comprehensive | Accumulated | controlling | Equity | |||||||||||||||||||||||
Stock | Stock | Capital | Loss | Deficit | Interest | (Deficit) | |||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||
Balance at December 31, 2007 (160,129 preferred shares and 9,427,203 common shares outstanding) | $ | 160 | $ | 23,567 | $ | 85,352 | $ | (125,187 | ) | $ | (161,149 | ) | $ | — | $ | (177,257 | ) | ||||||||||||
Common stock issued as compensation (221,933 shares) | — | 554 | 2,242 | — | — | — | 2,796 | ||||||||||||||||||||||
Common stock options exercised (40,882 shares) | — | 102 | 101 | — | — | — | 203 | ||||||||||||||||||||||
Warrant repriced in lieu of registration requirement | — | — | 355 | — | — | — | 355 | ||||||||||||||||||||||
Beneficial conversion feature on convertible debt | — | — | 8,146 | — | — | — | 8,146 | ||||||||||||||||||||||
Net loss | — | — | — | — | (48,567 | ) | — | (48,567 | ) | ||||||||||||||||||||
Adjustments to accumulated actuarial losses of pension plans | — | — | — | (17,589 | ) | — | — | (17,589 | ) | ||||||||||||||||||||
Amortization of accumulated actuarial losses of pension plans | — | — | — | 351 | — | — | 351 | ||||||||||||||||||||||
Adjustments to accumulated actuarial losses, prior service costs and transition obligations of postretirement medical benefit plans | — | — | — | 5,533 | — | — | 5,533 | ||||||||||||||||||||||
Amortization of accumulated actuarial losses, prior service costs and transition obligations of postretirement medical benefit plans | — | — | — | 8,319 | — | — | 8,319 | ||||||||||||||||||||||
Unrealized loss on available-for-sale securities | — | — | — | (788 | ) | — | — | (788 | ) | ||||||||||||||||||||
Other than temporary impairment of available-for-sale securities recognized in earnings | — | — | — | 900 | — | — | 900 | ||||||||||||||||||||||
Comprehensive loss | (51,841 | ) | |||||||||||||||||||||||||||
Balance at December 31, 2008 (160,129 preferred shares and 9,690,018 common shares outstanding) | 160 | 24,223 | 96,196 | (128,461 | ) | (209,716 | ) | — | (217,598 | ) | |||||||||||||||||||
Cumulative effect of adoption of ASC 815-40 | — | — | (9,847 | ) | — | 10,846 | — | 999 | |||||||||||||||||||||
Common stock issued as compensation (255,909 shares, less 100,000 shares forfeited) | — | 391 | 2,180 | — | — | — | 2,571 | ||||||||||||||||||||||
Contributions of Company stock to pension plans assets (500,000 shares) | — | 1,250 | 2,903 | — | — | — | 4,153 | ||||||||||||||||||||||
Net loss | — | — | — | — | (27,345 | ) | (1,817 | ) | (29,162 | ) | |||||||||||||||||||
Tax effect of other comprehensive income gains | — | — | — | (17,062 | ) | — | — | (17,062 | ) | ||||||||||||||||||||
Adjustments to accumulated actuarial losses and transition obligations, pension | — | — | — | (1,459 | ) | — | — | (1,459 | ) | ||||||||||||||||||||
Amortization of accumulated actuarial losses and transition obligations, pension | — | — | — | 1,845 | — | — | 1,845 | ||||||||||||||||||||||
Amortization of accumulated actuarial losses and transition obligations, postretirement medical benefit | — | — | — | 7,079 | — | — | 7,079 | ||||||||||||||||||||||
Effect of pension plan freeze | — | — | — | 10,670 | — | — | 10,670 | ||||||||||||||||||||||
Effect of postretirement medical benefit plan amendments | — | — | — | 95,313 | — | — | 95,313 | ||||||||||||||||||||||
Unrealized gain on available-for-sale securities | — | — | — | 852 | — | — | 852 | ||||||||||||||||||||||
Comprehensive income | 68,076 | ||||||||||||||||||||||||||||
Balance at December 31, 2009 (160,129 preferred shares and 10,345,927 common shares outstanding) | 160 | 25,864 | 91,432 | (31,223 | ) | (226,215 | ) | (1,817 | ) | (141,799 | ) | ||||||||||||||||||
Common stock issued as compensation (337,371 shares) | — | 843 | 3,206 | — | — | — | 4,049 | ||||||||||||||||||||||
Common stock options exercised (2,500 shares) | — | 6 | 2 | — | — | — | 8 | ||||||||||||||||||||||
Contributions of Company stock to pension plan assets (475,000 shares) | — | 1,188 | 3,826 | — | — | — | 5,014 | ||||||||||||||||||||||
Net loss | — | — | — | — | (525 | ) | (2,645 | ) | (3,170 | ) | |||||||||||||||||||
Amortization of accumulated actuarial losses and transition obligations, pension | — | — | — | 1,312 | — | — | 1,312 | ||||||||||||||||||||||
Adjustments to accumulated actuarial losses and transition obligations, pension | — | — | — | (3,860 | ) | — | — | (3,860 | ) | ||||||||||||||||||||
Amortization of accumulated actuarial gains and transition obligations, postretirement medical benefits | — | — | — | (275 | ) | — | — | (275 | ) | ||||||||||||||||||||
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits | — | — | — | (23,195 | ) | — | — | (23,195 | ) | ||||||||||||||||||||
Unrealized and realized gains on available-for-sale securities | — | — | — | (439 | ) | — | — | (439 | ) | ||||||||||||||||||||
Comprehensive loss | (29,627 | ) | |||||||||||||||||||||||||||
Balance at December 31, 2010 (160,129 preferred shares and 11,160,798 common shares outstanding) | $ | 160 | $ | 27,901 | $ | 98,466 | $ | (57,680 | ) | $ | (226,740 | ) | $ | (4,462 | ) | $ | (162,355 | ) | |||||||||||
167
Consolidated Statements of Cash Flows
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | (3,170 | ) | $ | (29,162 | ) | $ | (48,567 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
Depreciation, depletion and amortization | 44,690 | 44,254 | 41,387 | |||||||||
Accretion of asset retirement obligation and receivable | 11,540 | 9,974 | 9,528 | |||||||||
Non-cash tax benefits | — | (17,062 | ) | — | ||||||||
Amortization of intangible assets and liabilities, net | 590 | 279 | 598 | |||||||||
Restructuring charges | — | — | 2,009 | |||||||||
Share-based compensation | 4,049 | 2,552 | 2,733 | |||||||||
Loss (gain) on sales of assets | 226 | 191 | (1,425 | ) | ||||||||
Non-cash interest expense | 1,236 | 1,470 | 8,934 | |||||||||
Amortization of deferred financing costs | 2,304 | 1,975 | 839 | |||||||||
Loss on extinguishment of debt | — | — | 2,292 | |||||||||
Loss (gain) on impairment and sales of investment securities | (604 | ) | 412 | 900 | ||||||||
Loss (gain) on derivative instruments | 3,456 | (6,122 | ) | — | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Receivables, net | (4,728 | ) | 15,503 | (6,240 | ) | |||||||
Inventories | 2,300 | (1,217 | ) | 4,144 | ||||||||
Excess of pneumoconiosis benefit obligation over trust assets | 1,460 | 3,025 | (23 | ) | ||||||||
Accounts payable and accrued expenses | 9,041 | (13,802 | ) | 2,001 | ||||||||
Deferred revenue | (7,399 | ) | 10,486 | 29,177 | ||||||||
Accrual for workers’ compensation | (841 | ) | (1,619 | ) | 3,316 | |||||||
Asset retirement obligations | (7,783 | ) | (2,219 | ) | (889 | ) | ||||||
Accrual for postretirement medical benefits | (2,832 | ) | 7,762 | 10,021 | ||||||||
Pension and SERP obligations | (3,902 | ) | 3,173 | (2,116 | ) | |||||||
Other assets and liabilities | (4,280 | ) | (405 | ) | (3,374 | ) | ||||||
Net cash provided by operating activities | 45,353 | 29,448 | 55,245 | |||||||||
Cash flows from investing activities: | ||||||||||||
Additions to property, plant and equipment | (22,814 | ) | (34,546 | ) | (31,320 | ) | ||||||
Change in restricted investments and bond collateral and reclamation deposits | (8,545 | ) | (4,601 | ) | 24,319 | |||||||
Net proceeds from sales of assets | 712 | 937 | 2,641 | |||||||||
Proceeds from the sale of investments | 2,307 | 796 | — | |||||||||
Receivable from customer for property and equipment purchases | (840 | ) | (1,183 | ) | (2,228 | ) | ||||||
Net cash used in investing activities | (29,180 | ) | (38,597 | ) | (6,588 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Change in book overdrafts | (595 | ) | 596 | (5,043 | ) | |||||||
Borrowings from long-term debt | — | 8,562 | 205,377 | |||||||||
Repayments of long-term debt | (20,405 | ) | (35,275 | ) | (219,785 | ) | ||||||
Borrowings on revolving lines of credit | 170,900 | 94,116 | 169,600 | |||||||||
Repayments on revolving lines of credit | (168,900 | ) | (88,016 | ) | (173,500 | ) | ||||||
Debt issuance costs | (1,925 | ) | (256 | ) | (5,304 | ) | ||||||
Exercise of stock options | 8 | — | 203 | |||||||||
Net cash used in financing activities | (20,917 | ) | (20,273 | ) | (28,452 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | (4,744 | ) | (29,422 | ) | 20,205 | |||||||
Cash and cash equivalents, beginning of year | 10,519 | 39,941 | 19,736 | |||||||||
Cash and cash equivalents, end of year | $ | 5,775 | $ | 10,519 | $ | 39,941 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Cash paid during the year for: | ||||||||||||
Interest | $ | 19,744 | $ | 20,418 | $ | 22,226 | ||||||
Income taxes (refunds) | (236 | ) | 2,263 | 2,227 | ||||||||
Non-cash transactions: | ||||||||||||
Accrued purchases of property and equipment | 628 | 949 | 2,715 | |||||||||
Capital leases and other financing sources | 3,748 | 11,286 | 14,859 |
168
Notes to Consolidated Financial Statements
169
Notes to Consolidated Financial Statements (Cont.)
170
Notes to Consolidated Financial Statements (Cont.)
Years | ||||
Buildings and improvements | 15 to 30 | |||
Machinery and equipment | 3 to 36 |
171
Notes to Consolidated Financial Statements (Cont.)
Amortization | ||||
Expense (Revenue) | ||||
(In thousands) | ||||
2011 | $ | 657 | ||
2012 | 657 | |||
2013 | 657 | |||
2014 | 10 | |||
2015 | (798 | ) |
172
Notes to Consolidated Financial Statements (Cont.)
173
Notes to Consolidated Financial Statements (Cont.)
174
Notes to Consolidated Financial Statements (Cont.)
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Convertible notes and securities | 2,943 | 2,820 | 2,673 | |||||||||
Restricted stock units, stock options, SARs, and warrant shares | 630 | 779 | 870 | |||||||||
Total shares excluded from diluted shares calculation | 3,573 | 3,599 | 3,543 | |||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Coal | $ | 678 | $ | 1,158 | ||||
Materials and supplies | 23,474 | 25,713 | ||||||
Reserve for obsolete inventory | (581 | ) | (1,000 | ) | ||||
Total | $ | 23,571 | $ | 25,871 | ||||
175
Notes to Consolidated Financial Statements (Cont.)
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Coal Segment: | ||||||||
Westmoreland Mining — debt reserve account | $ | 7,514 | $ | 5,064 | ||||
Reclamation bond collateral: | ||||||||
Rosebud Mine | 12,263 | 12,462 | ||||||
Absaloka Mine | 10,956 | 9,228 | ||||||
Jewett Mine | 3,001 | 1,502 | ||||||
Beulah Mine | 1,270 | 1,270 | ||||||
Power Segment: | ||||||||
Letter of credit account | 5,990 | 6,037 | ||||||
Debt protection account | 905 | 2,067 | ||||||
Repairs and maintenance account | 1,067 | — | ||||||
Ash reserve account | 602 | 600 | ||||||
Corporate Segment: | ||||||||
Workers’ compensation bonds | 6,350 | 6,118 | ||||||
Postretirement medical benefit bonds | 5,466 | 3,840 | ||||||
Total restricted investments and bond collateral | $ | 55,384 | $ | 48,188 | ||||
Carrying Value | Fair Value | |||||||
(In thousands) | ||||||||
Cash and cash equivalents | $ | 39,557 | $ | 39,557 | ||||
Time deposits | 10,266 | 10,266 | ||||||
Held-to-maturity securities | 2,672 | 3,012 | ||||||
Available-for-sale securities | 2,889 | 2,889 | ||||||
$ | 55,384 | $ | 55,724 | |||||
176
Notes to Consolidated Financial Statements (Cont.)
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Amortized cost | $ | 2,672 | $ | 3,479 | ||||
Gross unrealized holding gains | 340 | 113 | ||||||
Gross unrealized holding losses | — | (2 | ) | |||||
Fair value | $ | 3,012 | $ | 3,590 | ||||
Amortized Cost | Fair Value | |||||||
(In thousands) | ||||||||
Due in five years or less | $ | 652 | $ | 730 | ||||
Due after five years to ten years | 762 | 859 | ||||||
Due in more than ten years | 1,258 | 1,423 | ||||||
$ | 2,672 | $ | 3,012 | |||||
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Cost basis | $ | 2,566 | $ | 2,625 | ||||
Gross unrealized holding gains | 323 | 281 | ||||||
Gross unrealized holding losses | — | (27 | ) | |||||
Fair value | $ | 2,889 | $ | 2,879 | ||||
177
Notes to Consolidated Financial Statements (Cont.)
Total Debt Outstanding | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Westmoreland Mining, LLC: | ||||||||
Revolving line of credit | $ | 1,500 | $ | — | ||||
Term debt | 125,000 | 125,000 | ||||||
Capital lease obligations | 18,407 | 22,360 | ||||||
Other term debt | 2,556 | 1,463 | ||||||
Westmoreland Resources, Inc.: | ||||||||
Revolving line of credit | 16,900 | 16,400 | ||||||
Term debt | 9,600 | 12,000 | ||||||
Capital lease obligations | 7,821 | 9,864 | ||||||
ROVA: | ||||||||
Term debt | 46,220 | 55,575 | ||||||
Debt premiums | 428 | 880 | ||||||
Corporate: | ||||||||
Convertible notes | 18,495 | 17,258 | ||||||
Debt discount | (4,823 | ) | (6,105 | ) | ||||
Total debt outstanding | 242,104 | 254,695 | ||||||
Less current portion | (14,973 | ) | (57,489 | ) | ||||
Total debt outstanding, less current portion | $ | 227,131 | $ | 197,206 | ||||
Subsequent | ||||||||
As of | to Parent | |||||||
December 31, | Notes | |||||||
2010 | Offering | |||||||
(In thousands) | ||||||||
2011 | $ | 42,298 | $ | 14,973 | ||||
2012 | 32,732 | 21,512 | ||||||
2013 | 56,855 | 26,315 | ||||||
2014 | 34,435 | 22,565 | ||||||
2015 | 32,170 | 21,910 | ||||||
Thereafter | 48,009 | 198,009 | ||||||
Total | 246,499 | 305,284 | ||||||
Less: debt discount | (4,395 | ) | (7,500 | ) | ||||
Total debt | $ | 242,104 | $ | 297,784 | ||||
178
Notes to Consolidated Financial Statements (Cont.)
179
Notes to Consolidated Financial Statements (Cont.)
180
Notes to Consolidated Financial Statements (Cont.)
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Change in benefit obligations: | ||||||||
Net benefit obligation at beginning of year | $ | 190,223 | $ | 284,851 | ||||
Service cost | 539 | 735 | ||||||
Interest cost | 10,498 | 16,233 | ||||||
Plan participant contributions | 153 | 140 | ||||||
Actuarial (gain) loss | 23,195 | (60,155 | ) | |||||
Gross benefits paid | (14,797 | ) | (17,816 | ) | ||||
Federal subsidy on benefits paid | 1,049 | 1,315 | ||||||
Plan amendments | — | (35,080 | ) | |||||
Net benefit obligation at end of year | 210,860 | 190,223 | ||||||
Change in plan assets: | ||||||||
Employer contributions | 14,644 | 17,676 | ||||||
Plan participant contributions | 153 | 140 | ||||||
Gross benefits paid | (14,797 | ) | (17,816 | ) | ||||
Fair value of plan assets at end of year | — | — | ||||||
Unfunded status at end of year | $ | (210,860 | ) | $ | (190,223 | ) | ||
Amounts recognized in the balance sheet consist of: | ||||||||
Current liabilities | $ | (13,581 | ) | $ | (14,501 | ) | ||
Noncurrent liabilities | (197,279 | ) | (175,722 | ) | ||||
Accumulated other comprehensive loss (gain) | 8,336 | (15,134 | ) | |||||
Net amount recognized | $ | (202,524 | ) | $ | (205,357 | ) | ||
Amounts recognized in accumulated other comprehensive loss consists of: | ||||||||
Net actuarial loss (gain) | $ | 15,777 | $ | (7,151 | ) | |||
Prior service credit | (7,627 | ) | (8,262 | ) | ||||
Transition obligation | 186 | 279 | ||||||
$ | 8,336 | $ | (15,134 | ) | ||||
181
Notes to Consolidated Financial Statements (Cont.)
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Components of net periodic benefit cost: | ||||||||||||
Service cost | $ | 539 | $ | 735 | $ | 677 | ||||||
Interest cost | 10,498 | 16,233 | 17,107 | |||||||||
Amortization of: | ||||||||||||
Transition obligation | 93 | 3,381 | 3,613 | |||||||||
Prior service cost (credit) | (636 | ) | 924 | 1,325 | ||||||||
Actuarial loss | 268 | 2,774 | 3,381 | |||||||||
Total net periodic benefit cost | $ | 10,762 | $ | 24,047 | $ | 26,103 | ||||||
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Former mining operations | $ | 9,225 | $ | 22,186 | $ | 24,553 | ||||||
Current operations | 1,537 | 1,861 | 1,550 | |||||||||
Total net periodic benefit cost | $ | 10,762 | $ | 24,047 | $ | 26,103 | ||||||
December 31, | ||||||||
2010 | 2009 | |||||||
Discount rate | 5.15 | % | 5.71 | % | ||||
Measurement date | December 31, 2010 | December 31, 2009 |
December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Discount rate | 5.71 | % | 5.45% - 6.05 | % | 6.10 | % | ||||||
Measurement date | December 31, 2009 | December 31, 2008 | December 31, 2007 |
182
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Health care cost trend rate assumed for next year | 7.50 | % | 8.00 | % | ||||
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 | 2016 | 2016 |
Postretirement Medical Benefits | ||||||||
1 % Increase | 1 % Decrease | |||||||
(In thousands) | ||||||||
Effect on service and interest cost components | $ | 1,282 | $ | (1,079 | ) | |||
Effect on postretirement medical benefit obligation | $ | 22,565 | $ | (19,116 | ) |
Postretirement | Medicare D | Net Postretirement | ||||||||||
Medical Benefits | Subsidy | Medical Benefits | ||||||||||
(In thousands) | ||||||||||||
2011 | $ | 14,734 | $ | (1,153 | ) | $ | 13,581 | |||||
2012 | 15,088 | (1,215 | ) | 13,873 | ||||||||
2013 | 15,428 | (1,270 | ) | 14,158 | ||||||||
2014 | 15,617 | (1,318 | ) | 14,299 | ||||||||
2015 | 15,903 | (1,350 | ) | 14,553 | ||||||||
Years 2016 — 2020 | 78,962 | (7,201 | ) | 71,761 |
183
Notes to Consolidated Financial Statements (Cont.)
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Workers’ compensation , beginning of year (including current portion) | $ | 11,219 | $ | 12,838 | ||||
Accretion | 429 | 300 | ||||||
Claims paid | (633 | ) | (806 | ) | ||||
Actuarial changes | (637 | ) | (1,113 | ) | ||||
Workers’ compensation, end of year | 10,378 | 11,219 | ||||||
Less current portion | (954 | ) | (1,031 | ) | ||||
Workers’ compensation, less current portion | $ | 9,424 | $ | 10,188 | ||||
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Actuarial present value of benefit obligation: | ||||||||
Expected claims from terminated employees | $ | 949 | $ | 937 | ||||
Amounts owed to existing claimants | 13,108 | 13,723 | ||||||
Total present value of benefit obligation | 14,057 | 14,660 | ||||||
Plan assets at fair value, primarily government-backed securities | 11,811 | 13,874 | ||||||
Excess of the pneumoconiosis benefit obligation over trust assets | $ | (2,246 | ) | $ | (786 | ) | ||
184
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, 2010 | ||||||||||||
Quoted Prices | Significant | |||||||||||
in Active | Other | |||||||||||
Markets for | Observable | |||||||||||
Identical Assets | Inputs | |||||||||||
Fair Value | Level 1 | Level 2 | ||||||||||
(In thousands) | ||||||||||||
U.S. treasury securities | $ | 10,416 | $ | — | $ | 10,416 | ||||||
Mortgage-backed securities | 682 | — | 682 | |||||||||
Cash and cash equivalents | 713 | 713 | — | |||||||||
$ | 11,811 | $ | 713 | $ | 11,098 | |||||||
Year Ended December 31, 2009 | ||||||||||||
Quoted Prices | Significant | |||||||||||
in Active | Other | |||||||||||
Markets for | Observable | |||||||||||
Identical Assets | Inputs | |||||||||||
Fair Value | Level 1 | Level 2 | ||||||||||
(In thousands) | ||||||||||||
U.S. treasury securities | $ | 12,860 | $ | — | $ | 12,860 | ||||||
Mortgage-backed securities | 839 | — | 839 | |||||||||
Cash and cash equivalents | 175 | 175 | — | |||||||||
$ | 13,874 | $ | 175 | $ | 13,699 | |||||||
6.PENSION AND OTHER SAVING PLANS |
185
Notes to Consolidated Financial Statements (Cont.)
Defined Benefit Pension | SERP | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Change in benefit obligation: | ||||||||||||||||
Net benefit obligation at beginning of year | $ | 76,084 | $ | 76,672 | $ | 3,200 | $ | 3,279 | ||||||||
Service cost | 610 | 1,577 | — | — | ||||||||||||
Interest cost | 4,490 | 4,650 | 183 | 191 | ||||||||||||
Actuarial loss | 7,025 | 3,171 | 175 | 36 | ||||||||||||
Benefits paid | (2,762 | ) | (1,610 | ) | (306 | ) | (306 | ) | ||||||||
Plan amendments | — | 204 | — | — | ||||||||||||
Curtailments | — | (8,580 | ) | — | — | |||||||||||
Net benefit obligation at end of year | 85,447 | 76,084 | 3,252 | 3,200 | ||||||||||||
Change in plan assets: | ||||||||||||||||
Fair value of plan assets at the beginning of year | 52,152 | 40,783 | — | — | ||||||||||||
Actual return on plan assets | 7,732 | 7,196 | — | — | ||||||||||||
Employer contributions | 10,811 | 5,782 | 306 | 306 | ||||||||||||
Benefits paid | (2,762 | ) | (1,610 | ) | (306 | ) | (306 | ) | ||||||||
Fair value of plan assets at end of year | 67,933 | 52,151 | — | — | ||||||||||||
Funded status at end of year | $ | (17,514 | ) | $ | (23,933 | ) | $ | (3,252 | ) | $ | (3,200 | ) | ||||
Amounts recognized in the accompanying balance sheet consist of: | ||||||||||||||||
Current liability | $ | — | $ | — | $ | (304 | ) | $ | (306 | ) | ||||||
Noncurrent liability | (17,514 | ) | (23,933 | ) | (2,948 | ) | (2,894 | ) | ||||||||
Accumulated other comprehensive loss | 22,946 | 20,542 | 770 | 625 | ||||||||||||
Net amount recognized at end of year | $ | 5,432 | $ | (3,391 | ) | $ | (2,482 | ) | $ | (2,575 | ) | |||||
Amounts recognized in accumulated other comprehensive loss consist of: | ||||||||||||||||
Net actuarial loss | $ | 22,946 | $ | 20,542 | $ | 765 | $ | 610 | ||||||||
Prior service costs | — | — | 5 | 15 | ||||||||||||
$ | 22,946 | $ | 20,542 | $ | 770 | $ | 625 | |||||||||
186
Notes to Consolidated Financial Statements (Cont.)
Defined Benefit Pension | SERP | |||||||||||||||||||||||
Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Components of net periodic benefit cost: | ||||||||||||||||||||||||
Service cost | $ | 610 | $ | 1,577 | $ | 2,597 | $ | — | $ | — | $ | — | ||||||||||||
Interest cost | 4,490 | 4,650 | 4,390 | 183 | 191 | 198 | ||||||||||||||||||
Expected return on plan assets | (4,393 | ) | (3,359 | ) | (4,416 | ) | — | — | — | |||||||||||||||
Curtailment loss | — | 204 | — | — | — | — | ||||||||||||||||||
Amortization of: | ||||||||||||||||||||||||
Prior service cost | — | — | — | 10 | 10 | 10 | ||||||||||||||||||
Actuarial loss | 1,282 | 1,817 | 340 | 20 | 18 | 11 | ||||||||||||||||||
Total net periodic pension cost | $ | 1,989 | $ | 4,889 | $ | 2,911 | $ | 213 | $ | 219 | $ | 219 | ||||||||||||
Defined Benefit Pension | SERP | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Discount rate | 5.15% - 5.40 | % | 5.96 | % | 5.40 | % | 6.00 | % | ||||||||
Rate of compensation increase | N/A | N/A | N/A | N/A | ||||||||||||
Measurement date | December 31, 2010 | December 31, 2009 | December 31, 2010 | December 31, 2009 |
Defined Benefit Pension | SERP | |||||||||||||||||||||||
Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
Discount rate | 5.75%-6.00 | % | 6.10 | % | 6.20%-6.30 | % | 6.00 | % | 6.10 | % | 6.30 | % | ||||||||||||
Expected return on plan assets | 7.80 | % | 7.96 | % | 8.50 | % | N/A | N/A | N/A | |||||||||||||||
Rate of compensation increase | N/A | 4.00%-7.50 | % | 4.00%-7.50 | % | N/A | 4.00%-7.50 | % | 4.00%-7.50 | % | ||||||||||||||
Measurement date | December 31, 2009 | December 31, 2008 | December 31, 2007 | December 31, 2009 | December 31, 2008 | December 31, 2007 |
187
Notes to Consolidated Financial Statements (Cont.)
Target | ||||
Allocation | ||||
Asset category | ||||
Cash and equivalents | 0% - 10 | % | ||
Equity securities funds | 40% - 70 | % | ||
Debt securities funds | 30% - 60 | % | ||
Other | 0% - 10 | % | ||
Total |
Year Ended December 31, 2010 | ||||||||||||||||
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
(In thousands) | ||||||||||||||||
Equity securities funds: | ||||||||||||||||
U.S. | $ | 29,233 | $ | 29,233 | $ | — | $ | — | ||||||||
International | 6,659 | 6,659 | — | — | ||||||||||||
Debt securities funds: | ||||||||||||||||
U.S. bonds | 22,736 | — | 22,736 | — | ||||||||||||
Short-term securities | 1,313 | 1,313 | — | — | ||||||||||||
Limited partnerships and limited liability companies | 1,359 | — | — | 1,359 | ||||||||||||
Westmoreland Coal common stock | 6,045 | 6,045 | — | — | ||||||||||||
Cash and cash equivalents | 588 | 588 | — | — | ||||||||||||
$ | 67,933 | $ | 43,838 | $ | 22,736 | $ | 1,359 | |||||||||
188
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, 2009 | ||||||||||||||||
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
(In thousands) | ||||||||||||||||
Equity securities funds: | ||||||||||||||||
U.S. | $ | 24,850 | $ | 24,850 | $ | — | $ | — | ||||||||
International | 2,467 | 2,467 | — | — | ||||||||||||
Debt securities funds: | ||||||||||||||||
U.S. bonds | 15,065 | — | 15,065 | — | ||||||||||||
Short-term securities | 967 | 967 | — | — | ||||||||||||
Limited partnerships and limited liability companies | 1,697 | — | — | 1,697 | ||||||||||||
Westmoreland Coal common stock | 3,240 | 3,240 | — | — | ||||||||||||
Cash and cash equivalents | 3,865 | 3,865 | — | — | ||||||||||||
$ | 52,151 | $ | 35,389 | $ | 15,065 | $ | 1,697 | |||||||||
Limited partnerships and limited | ||||||||
liability companies | ||||||||
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Beginning balance | $ | 1,697 | $ | 5,866 | ||||
Realized loss | — | (283 | ) | |||||
Unrealized (loss) gain | 197 | (234 | ) | |||||
Settlements | (535 | ) | (3,652 | ) | ||||
Ending balance | $ | 1,359 | $ | 1,697 | ||||
189
Notes to Consolidated Financial Statements (Cont.)
Pension Benefits | ||||
(In thousands) | ||||
2011 | $ | 2,674 | ||
2012 | 3,049 | |||
2013 | 3,476 | |||
2014 | 3,899 | |||
2015 | 4,277 | |||
Years 2016 - 2020 | 27,412 |
7.HERITAGE HEALTH BENEFIT EXPENSES |
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Health care benefits | $ | 9,927 | $ | 22,490 | $ | 25,588 | ||||||
Combined benefit fund payments | 2,953 | 3,132 | 3,470 | |||||||||
Workers’ compensation benefits (credit) | 81 | (485 | ) | 4,417 | ||||||||
Black lung benefits (credit) | 1,460 | 2,937 | (23 | ) | ||||||||
Total | $ | 14,421 | $ | 28,074 | $ | 33,452 | ||||||
190
Notes to Consolidated Financial Statements (Cont.)
8. | ASSET RETIREMENT OBLIGATIONS, CONTRACTUAL THIRD-PARTY RECLAMATION RECEIVABLE, AND RECLAMATION DEPOSITS |
Contractual | ||||||||||||
Asset | Third-Party | |||||||||||
Retirement | Reclamation | Reclamation | ||||||||||
Obligation | Receivable | Deposits | ||||||||||
(In thousands) | ||||||||||||
Rosebud | $ | 106,990 | $ | 14,622 | $ | 72,274 | ||||||
Jewett | 80,335 | 80,335 | — | |||||||||
Absaloka | 32,338 | 525 | — | |||||||||
Beulah | 18,588 | — | — | |||||||||
Savage | 2,676 | — | — | |||||||||
ROVA | 716 | — | — | |||||||||
Total | $ | 241,643 | $ | 95,482 | $ | 72,274 | ||||||
Years Ended December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Asset retirement obligations, beginning of year (including current portion) | $ | 244,615 | $ | 222,708 | ||||
Accretion | 19,773 | 17,436 | ||||||
Liabilities settled | (15,351 | ) | (9,434 | ) | ||||
Changes due to amount and timing of reclamation | (7,394 | ) | 13,905 | |||||
Asset retirement obligations, end of year | 241,643 | 244,615 | ||||||
Less current portion | (14,514 | ) | (15,513 | ) | ||||
Asset retirement obligations, less current portion | $ | 227,129 | $ | 229,102 | ||||
191
Notes to Consolidated Financial Statements (Cont.)
Carrying Value | Fair Value | |||||||
(In thousands) | ||||||||
Cash and cash equivalents | $ | 38,534 | $ | 38,534 | ||||
Held-to-maturity securities | 15,633 | 17,044 | ||||||
Time deposits | 15,903 | 15,903 | ||||||
Available-for-sale securities | 2,204 | 2,204 | ||||||
$ | 72,274 | $ | 73,685 | |||||
Years Ended December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Amortized cost | $ | 15,633 | $ | 21,099 | ||||
Gross unrealized holding gains | 1,453 | 1,418 | ||||||
Gross unrealized holding losses | (42 | ) | (9 | ) | ||||
Fair value | $ | 17,044 | $ | 22,508 | ||||
Amortized Cost | Fair Value | |||||||
(In thousands) | ||||||||
Due in five years or less | $ | 3,350 | $ | 3,732 | ||||
Due after five years to ten years | 4,207 | 4,335 | ||||||
Due in more than ten years | 8,076 | 8,977 | ||||||
$ | 15,633 | $ | 17,044 | |||||
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Cost basis | $ | 2,000 | $ | 2,402 | ||||
Gross unrealized holding gains | 204 | 712 | ||||||
Fair value | $ | 2,204 | $ | 3,114 | ||||
192
Notes to Consolidated Financial Statements (Cont.)
9. | DERIVATIVE INSTRUMENTS |
Other | ||||||||||||||||
Debt Discount | Derivative Liability | Paid-In-Capital | Accumulated Deficit | |||||||||||||
(In thousands) | ||||||||||||||||
Record January 1, 2009, debt discount and derivative instrument liability related to convertible debt | $ | 7,734 | $ | 5,605 | $ | — | $ | (2,129 | ) | |||||||
Record January 1, 2009, derivative instrument liability related to warrant | — | 477 | — | 477 | ||||||||||||
Record amortization of debt discount from March 4, 2008, through December 31, 2008 | (653 | ) | — | — | 653 | |||||||||||
Record the reversal of the beneficial conversion feature expensed in 2008 under ASC 470-20 | — | — | (8,147 | ) | (8,147 | ) | ||||||||||
Record the reversal of prior accounting related to the warrant | — | — | (1,700 | ) | (1,700 | ) | ||||||||||
$ | 7,081 | $ | 6,082 | $ | (9,847 | ) | $ | (10,846 | ) | |||||||
Stock Price | Bond Yield | |||
$11.94 | 5.16 | % |
Number of | ||||||||||||||||
Shares Included in | Expected Life | |||||||||||||||
Warrant | Dividend Yield | Volatility | Risk Free Rate | (in years) | ||||||||||||
173,228 | None | 65 | % | 0.20 | % | 1.0 |
193
Notes to Consolidated Financial Statements (Cont.)
December 31, | ||||||||||||
Derivative Instruments | Balance Sheet Location | 2010 | 2009 | |||||||||
Convertible debt -conversion feature | Other liabilities | $ | 3,588 | $ | — | |||||||
Warrant | Other liabilities | — | 30 |
Income (Expense) | ||||||||||||
Recognized in Earnings on | ||||||||||||
Derivatives | ||||||||||||
Statement of | Year Ended December 31, | |||||||||||
Derivative Instruments | Operations Location | 2010 | 2009 | |||||||||
Convertible debt -conversion feature | Other income (loss) | $ | (3,486 | ) | $ | 5,674 | ||||||
Warrant | Other income (loss) | 30 | 448 |
Carrying Value | Fair Value | |||||||
(In thousands) | ||||||||
December 31, 2009 | $ | 192,608 | $ | 201,352 | ||||
December 31, 2010 | $ | 185,320 | $ | 196,483 |
• | 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. The Company had no Level 2 inputs at December 31, 2010. | ||
• | 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 convertible notes’ conversion feature and warrant were classified as Level 3. These items were valued using the Binomial Lattice model and the Black-Scholes model, respectively. |
194
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, 2010 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Available-for-sale investments included in Restricted investments and bond collateral | $ | 2,889 | $ | — | $ | — | $ | 2,889 | ||||||||
Available-for-sale investments included in Reclamation deposits | 2,204 | — | — | 2,204 | ||||||||||||
Total assets | $ | 5,093 | $ | — | $ | — | $ | 5,093 | ||||||||
Liabilities: | ||||||||||||||||
Convertible debt — conversion feature | $ | — | $ | — | $ | 3,588 | $ | 3,588 | ||||||||
Total liabilities | $ | — | $ | — | $ | 3,588 | $ | 3,588 | ||||||||
Year Ended December 31, 2009 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Available-for-sale investments included in Restricted investments and bond collateral | $ | 2,879 | $ | — | $ | — | $ | 2,879 | ||||||||
Available-for-sale investments included in Reclamation deposits | 3,114 | — | — | 3,114 | ||||||||||||
Total assets | $ | 5,993 | $ | — | $ | — | $ | 5,993 | ||||||||
Liabilities: | ||||||||||||||||
Warrant | $ | — | $ | — | $ | 30 | $ | 30 | ||||||||
Total liabilities | $ | — | $ | — | $ | 30 | $ | 30 | ||||||||
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Beginning balance | $ | 30 | $ | — | ||||
January 1, 2010, beginning balance adjustment pursuant to adoption ofASC 815-40 | — | 6,082 | ||||||
Additional debt discount | 102 | 70 | ||||||
Change in fair value | 3,456 | (6,122 | ) | |||||
Ending balance | $ | 3,588 | $ | 30 | ||||
195
Notes to Consolidated Financial Statements (Cont.)
Extended Total | ||||||||||||
Shares | Per Share | (in thousands) | ||||||||||
Dividends accumulated(1) | 160,129 | $ | 124.53 | $ | 19,940 | |||||||
Redemption value | 160,129 | $ | 100.00 | 16,013 | ||||||||
Total | $ | 35,953 | ||||||||||
(1) | In February 2011, the Company paid the $19.9 million of accumulated dividends as of January 1, 2011. |
12. | RESTRICTED STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS |
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Recognition of fair value of restricted stock, stock options and SARs over vesting period | $ | 1,058 | $ | 702 | $ | 1,227 | ||||||
Contributions of stock to the Company’s 401(k) plan | 2,991 | 1,869 | 1,569 | |||||||||
Compensation credit for performance units plan(1) | — | (19 | ) | (63 | ) | |||||||
Total share-based compensation expense(2) | $ | 4,049 | $ | 2,552 | $ | 2,733 | ||||||
(1) | The Company’s only active performance unit plan expired June 30, 2009. | |
(2) | These costs are recorded inCost of salesandSelling and administrative expenses in the accompanying statement of operations. |
196
Notes to Consolidated Financial Statements (Cont.)
December 31, 2008 | ||||
Assumptions (weighted average): | ||||
Risk-free interest rate | 3.62 | % | ||
Expected dividend yield | None | |||
Expected volatility | 50 | % | ||
Expected life (in years) | 7.0 |
Unamortized | ||||||||||||
Weighted Average | Compensation | |||||||||||
Common | Grant-Date Fair | Expense | ||||||||||
Shares | Value | (In thousands) | ||||||||||
Non-vested at December 31, 2009 | 96,558 | $ | 8.36 | |||||||||
Granted | 157,833 | $ | 8.31 | |||||||||
Vested | (47,656 | ) | $ | 9.21 | ||||||||
Forfeited | (14,038 | ) | $ | 8.14 | ||||||||
Non-vested at December 31, 2010 | 192,697 | $ | 8.13 | $ | 1,265 | (1) | ||||||
(1) | Expected to be recognized over the next three years. |
197
Notes to Consolidated Financial Statements (Cont.)
Weighted Average | ||||||||||||||||||||
Remaining | Unamortized | |||||||||||||||||||
Weighted | Contractual | Aggregate | Compensation | |||||||||||||||||
Average | Life | Intrinsic | Expense | |||||||||||||||||
Stock Options | Exercise Price | (in years) | Value | (In thousands) | ||||||||||||||||
Outstanding at December 31, 2009 | 354,224 | $ | 18.73 | |||||||||||||||||
Exercised | (2,500 | ) | $ | 3.38 | $ | 16,588 | ||||||||||||||
Expired | (28,466 | ) | $ | 17.40 | ||||||||||||||||
Forfeited | (4,668 | ) | $ | 21.40 | ||||||||||||||||
Outstanding at December 31, 2010 | 318,590 | $ | 18.99 | 4.4 | $ | 16,938 | ||||||||||||||
Exercisable at December 31, 2010 | 273,834 | $ | 18.60 | 3.9 | $ | 16,938 | $ | 259 | (1) | |||||||||||
(1) | Expected to be recognized over the next year. |
Weighted | ||||||||||||||||||||
Average | Unamortized | |||||||||||||||||||
Weighted | Remaining | Compensation | ||||||||||||||||||
Average | Contractual Life | Aggregate Intrinsic | Expense | |||||||||||||||||
SARs | Base Price | (in years) | Value | (In thousands) | ||||||||||||||||
Outstanding at December 31, 2009 | 155,334 | $ | 21.91 | |||||||||||||||||
Expired | (36,400 | ) | $ | 21.18 | ||||||||||||||||
Outstanding at December 31, 2010 | 118,934 | $ | 22.13 | 4.6 | $ | — | ||||||||||||||
Exercisable at December 31, 2010 | 118,934 | $ | 22.13 | 4.6 | $ | — | $ | — | ||||||||||||
198
Notes to Consolidated Financial Statements (Cont.)
13. | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
Pension and | Tax Effect of Other | |||||||||||||||
Postretirement | Available for Sale | Comprehensive | Accumulated Other | |||||||||||||
Medical Benefits | Securities | Income Gains | Comprehensive Loss | |||||||||||||
(In thousands) | ||||||||||||||||
Balance at January 1, 2008 | $ | (116,093 | ) | $ | — | $ | (9,094 | ) | $ | (125,187 | ) | |||||
2008 activity | (3,386 | ) | 112 | — | (3,274 | ) | ||||||||||
Balance at December 31, 2008 | (119,479 | ) | 112 | (9,094 | ) | (128,461 | ) | |||||||||
Postretirement medical benefit plan amendments and pension plan freeze adjustments | 105,983 | — | — | 105,983 | ||||||||||||
2009 activity | 7,465 | 852 | (17,062 | ) | (8,745 | ) | ||||||||||
Balance at December 31, 2009 | (6,031 | ) | 964 | (26,156 | ) | (31,223 | ) | |||||||||
2010 activity | (26,018 | ) | (439 | ) | — | (26,457 | ) | |||||||||
Balance at December 31, 2010 | $ | (32,049 | ) | $ | 525 | $ | (26,156 | ) | $ | (57,680 | ) | |||||
14. | INCOME TAX |
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Current: | ||||||||||||
Federal | $ | (10 | ) | $ | (323 | ) | $ | — | ||||
State | (14 | ) | 1,168 | 919 | ||||||||
(24 | ) | 845 | 919 | |||||||||
Deferred: | ||||||||||||
Federal | — | (15,977 | ) | — | ||||||||
State | (117 | ) | (2,004 | ) | — | |||||||
(117 | ) | (17,981 | ) | — | ||||||||
Income tax expense (benefit) | $ | (141 | ) | $ | (17,136 | ) | $ | 919 | ||||
199
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Computed tax benefit at statutory rate | $ | (1,126 | ) | $ | (15,619 | ) | $ | (16,200 | ) | |||
Increase (decrease) in tax expense resulting from: | ||||||||||||
Tax depletion in excess of basis | (4,019 | ) | (713 | ) | (2,643 | ) | ||||||
Non-deductible interest expense and convertible debt valuation | 2,076 | (1,074 | ) | 3,156 | ||||||||
Noncontrolling interest | 899 | 618 | — | |||||||||
State income taxes, net | (1,090 | ) | (2,467 | ) | (3,214 | ) | ||||||
Change in valuation allowance for net deferred tax assets | (3,312 | ) | 2,902 | 24,628 | ||||||||
Medicare Part D subsidy law change | 7,159 | — | — | |||||||||
Indian Coal Tax Credits | (120 | ) | (96 | ) | (5,893 | ) | ||||||
Other, net | (608 | ) | (687 | ) | 1,085 | |||||||
Income tax expense (benefit) | $ | (141 | ) | $ | (17,136 | ) | $ | 919 | ||||
Loss From | ||||||||||||
Continuing | Other | Total | ||||||||||
Operations | Comprehensive Income | Comprehensive Income | ||||||||||
(In thousands) | ||||||||||||
Pre-allocation | $ | (46,224 | ) | $ | 114,300 | $ | 68,076 | |||||
Tax allocation | 17,062 | $ | (17,062 | ) | — | |||||||
As presented | $ | (29,162 | ) | $ | 97,238 | $ | 68,076 | |||||
200
Notes to Consolidated Financial Statements (Cont.)
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Deferred tax assets: | ||||||||
Federal net operating loss carryforwards | $ | 74,061 | $ | 67,133 | ||||
State net operating loss carryforwards | 24,627 | 14,983 | ||||||
Alternative minimum tax credit carryforwards | 7,009 | 5,683 | ||||||
Charitable contribution carryforwards | 169 | 179 | ||||||
Indian Coal Tax Credit carryforwards | 25,552 | 26,654 | ||||||
Accruals for the following: | ||||||||
Workers’ compensation | 4,013 | 4,338 | ||||||
Postretirement medical benefit and pension obligations | 80,116 | 81,764 | ||||||
Incentive plans | 1,843 | 900 | ||||||
Asset retirement obligations | 68,561 | 66,839 | ||||||
Deferred revenues | 29,430 | 31,757 | ||||||
Gain on sale of partnership interest | 6,402 | 8,061 | ||||||
Other accruals | 5,618 | 7,147 | ||||||
Total gross deferred assets | 327,401 | 315,438 | ||||||
Less valuation allowance | (247,086 | ) | (232,575 | ) | ||||
Net deferred tax assets | 80,315 | 82,863 | ||||||
Deferred tax liabilities: | ||||||||
Property, plant and equipment, differences due to depreciation and amortization | (76,656 | ) | (77,562 | ) | ||||
Change in accounting method | (354 | ) | (2,137 | ) | ||||
Other | (847 | ) | (823 | ) | ||||
Total gross deferred tax liabilities | (77,857 | ) | (80,522 | ) | ||||
Net deferred tax asset | $ | 2,458 | $ | 2,341 | ||||
201
Notes to Consolidated Financial Statements (Cont.)
Expiration Date | Regular Tax | |||
(In thousands) | ||||
2011 | $ | 32,698 | ||
2012 | 449 | |||
2018 | 28 | |||
2019 | 88,429 | |||
2020 | 32 | |||
after 2020 | 96,165 | |||
Total | $ | 217,801 | ||
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Balance of unrecognized tax benefits at beginning of year | $ | 2,861 | $ | 1,748 | ||||
Additions for tax positions related to current year | 18 | 1,113 | ||||||
Balance of unrecognized tax benefits at end of year | $ | 2,879 | $ | 2,861 | ||||
202
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, 2010 | ||||||||
Capital Leases | Operating Leases | |||||||
(In thousands) | ||||||||
2011 | $ | 8,714 | $ | 6,665 | ||||
2012 | 8,319 | 4,243 | ||||||
2013 | 7,077 | 2,827 | ||||||
2014 | 4,461 | 2,233 | ||||||
2015 | 1,617 | 1,625 | ||||||
Thereafter | 105 | 718 | ||||||
Total minimum lease payments | $ | 30,293 | $ | 18,311 | ||||
Less imputed interest | (4,064 | ) | ||||||
Present value of minimum capital lease payments | $ | 26,229 | ||||||
203
Notes to Consolidated Financial Statements (Cont.)
Coal | Power | Heritage | Corporate | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
December 31, 2010 | ||||||||||||||||||||
Revenues | $ | 418,058 | $ | 87,999 | $ | — | $ | — | $ | 506,057 | ||||||||||
Operating income (loss) | 32,922 | 11,721 | (15,968 | ) | (8,154 | ) | 20,521 | |||||||||||||
Total assets | 520,722 | 207,643 | 12,283 | 9,658 | 750,306 | |||||||||||||||
Capital expenditures | 20,056 | 2,207 | — | 551 | 22,814 | |||||||||||||||
December 31, 2009 | ||||||||||||||||||||
Revenues | $ | 361,206 | $ | 82,162 | $ | — | $ | — | $ | 443,368 | ||||||||||
Operating income (loss) | 476 | 7,672 | (31,770 | ) | (8,152 | ) | (31,774 | ) | ||||||||||||
Total assets | 537,924 | 216,685 | 4,634 | 13,485 | 772,728 | |||||||||||||||
Capital expenditures | 30,078 | 4,251 | — | 217 | 34,546 | |||||||||||||||
December 31, 2008 | ||||||||||||||||||||
Revenues | $ | 419,806 | $ | 89,890 | $ | — | $ | — | $ | 509,696 | ||||||||||
Restructuring charges | 155 | — | — | 1,854 | 2,009 | |||||||||||||||
Operating income (loss) | 15,211 | 16,920 | (35,472 | ) | (12,694 | ) | (16,035 | ) | ||||||||||||
Total assets | 557,245 | 239,083 | 5,301 | 11,338 | 812,967 | |||||||||||||||
Capital expenditures | 29,534 | 1,711 | — | 75 | 31,320 |
Year Ended | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Income (loss) from operations | $ | 20,521 | $ | (31,774 | ) | $ | (16,035 | ) | ||||
Interest expense attributable to beneficial conversion feature | — | — | (8,146 | ) | ||||||||
Loss on extinguishment of debt | — | — | (5,178 | ) | ||||||||
Interest expense | (22,992 | ) | (23,733 | ) | (23,130 | ) | ||||||
Interest income | 1,747 | 3,218 | 5,125 | |||||||||
Other income (loss) | (2,587 | ) | 5,991 | (284 | ) | |||||||
Loss before income taxes | $ | (3,311 | ) | $ | (46,298 | ) | $ | (47,648 | ) | |||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Customer A —coal | $ | 119,633 | $ | 79,502 | $ | 131,859 | ||||||
Customer B —coal | 80,493 | 85,334 | 80,581 | |||||||||
Customer C —power | 86,926 | 81,037 | 88,651 | |||||||||
Customer D —coal(1) | 64,968 | 51,187 | — | |||||||||
Customer E —coal(2) | — | 49,670 | — | |||||||||
Percentage of total revenue | 70 | % | 78 | % | 60 | % | ||||||
(1) | The revenue from Customer D did not exceed 10% in 2008. | |
(2) | The revenue from Customer E did not exceed 10% in 2010 and 2008. |
204
Notes to Consolidated Financial Statements (Cont.)
Three Months Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
(In thousands; except per share data) | ||||||||||||||||
2010: | ||||||||||||||||
Revenues | $ | 126,439 | $ | 127,632 | $ | 124,080 | $ | 127,906 | ||||||||
Operating income (loss) | 5,314 | 1,333 | 7,839 | 6,035 | ||||||||||||
Net income (loss) applicable to common shareholders | (3,195 | ) | 919 | 2,513 | (2,122 | ) | ||||||||||
Basic income (loss) per common share | $ | (0.30 | ) | $ | 0.09 | $ | 0.23 | $ | (0.19 | ) | ||||||
2009: | ||||||||||||||||
Revenues | $ | 121,798 | $ | 104,780 | $ | 112,404 | $ | 104,386 | ||||||||
Operating loss | (4,402 | ) | (6,249 | ) | (9,751 | ) | (11,372 | ) | ||||||||
Net loss applicable to common shareholders | (5,629 | ) | (7,232 | ) | (7,837 | ) | (8,007 | ) | ||||||||
Basic and diluted loss per common share | $ | (0.59 | ) | $ | (0.75 | ) | $ | (0.77 | ) | $ | (0.78 | ) |
205
Notes to Consolidated Financial Statements (Cont.)
December 31, 2009
(In thousands)
Parent/ | Guarantor | Non-Guarantor | Consolidating | |||||||||||||||||||||
Assets | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 755 | $ | 138 | $ | — | $ | 9,626 | $ | — | $ | 10,519 | ||||||||||||
Receivables: | ||||||||||||||||||||||||
Trade | — | 13,737 | 29 | 32,824 | (197 | ) | 46,393 | |||||||||||||||||
Contractual third-party reclamation receivables | — | — | 180 | 7,077 | — | 7,257 | ||||||||||||||||||
Intercompany receivable/payable | — | — | 11,429 | (16,592 | ) | 5,163 | — | |||||||||||||||||
Other | 424 | — | 2,686 | 672 | (620 | ) | 3,162 | |||||||||||||||||
424 | 13,737 | 14,324 | 23,981 | 4,346 | 56,812 | |||||||||||||||||||
Inventories | — | 2,571 | 4,415 | 18,885 | — | 25,871 | ||||||||||||||||||
Other current assets | 454 | 176 | 540 | 4,877 | — | 6,047 | ||||||||||||||||||
Total current assets | 1,633 | 16,622 | 19,279 | 57,369 | 4,346 | 99,249 | ||||||||||||||||||
Property, plant and equipment: | ||||||||||||||||||||||||
Land and mineral rights | — | 1,156 | 17,764 | 64,774 | — | 83,694 | ||||||||||||||||||
Capitalized asset retirement cost | — | 239 | 22,016 | 112,566 | — | 134,821 | ||||||||||||||||||
Plant and equipment | 2,295 | 214,531 | 113,388 | 156,024 | — | 486,238 | ||||||||||||||||||
2,295 | 215,926 | 153,168 | 333,364 | — | 704,753 | |||||||||||||||||||
Less accumulated depreciation, depletion and amortization | (1,830 | ) | (32,953 | ) | (74,566 | ) | (139,220 | ) | — | (248,569 | ) | |||||||||||||
Net property, plant and equipment | 465 | 182,973 | 78,602 | 194,144 | — | 456,184 | ||||||||||||||||||
Advanced coal royalties | — | — | — | 3,056 | — | 3,056 | ||||||||||||||||||
Reclamation deposits | — | — | — | 73,067 | — | 73,067 | ||||||||||||||||||
Restricted investments and bond collateral | 9,958 | 8,705 | 9,226 | 20,299 | — | 48,188 | ||||||||||||||||||
Contractual third-party reclamation receivables, less current portion | — | — | 120 | 74,869 | — | 74,989 | ||||||||||||||||||
Deferred income taxes | — | — | — | — | 2,341 | 2,341 | ||||||||||||||||||
Intangible assets | — | 7,842 | — | 939 | — | 8,781 | ||||||||||||||||||
Investment in subsidiaries | 110,341 | — | (664 | ) | 3,770 | (113,447 | ) | — | ||||||||||||||||
Other assets | 451 | 543 | 1,926 | 3,953 | — | 6,873 | ||||||||||||||||||
Total assets | $ | 122,848 | $ | 216,685 | $ | 108,489 | $ | 431,466 | $ | (106,760 | ) | $ | 772,728 | |||||||||||
206
Notes to Consolidated Financial Statements (Cont.)
December 31, 2009
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Liabilities and Stockholders’ Deficit | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Current installments of long-term debt | $ | 11,154 | $ | 9,806 | $ | 14,469 | $ | 5,660 | $ | — | $ | 41,089 | ||||||||||||
Revolving lines of credit | — | — | 16,400 | — | — | 16,400 | ||||||||||||||||||
Accounts payable and accrued expenses: | ||||||||||||||||||||||||
Trade | 2,854 | 7,469 | 2,887 | 27,033 | (979 | ) | 39,264 | |||||||||||||||||
Production taxes | — | 2 | 2,406 | 22,102 | — | 24,510 | ||||||||||||||||||
Workers’ compensation | 1,031 | — | — | — | — | 1,031 | ||||||||||||||||||
Postretirement medical benefits | 13,198 | — | — | 1,303 | — | 14,501 | ||||||||||||||||||
SERP | 306 | — | — | — | — | 306 | ||||||||||||||||||
Deferred revenue | — | 6,840 | 724 | 1,196 | — | 8,760 | ||||||||||||||||||
Asset retirement obligations | — | — | 4,512 | 11,001 | — | 15,513 | ||||||||||||||||||
Other current liabilities | 853 | 942 | 3,777 | 7,279 | — | 12,851 | ||||||||||||||||||
Total current liabilities | 29,396 | 25,059 | 45,175 | 75,574 | (979 | ) | 174,225 | |||||||||||||||||
Long-term debt, less current installments | — | 46,648 | 7,745 | 142,813 | — | 197,206 | ||||||||||||||||||
Workers’ compensation, less current portion | 10,188 | — | — | — | — | 10,188 | ||||||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets | 786 | — | — | — | — | 786 | ||||||||||||||||||
Postretirement medical benefits, less current portion | 151,057 | — | — | 24,665 | — | 175,722 | ||||||||||||||||||
Pension and SERP obligations, less current portion | 20,626 | 178 | — | 6,023 | — | 26,827 | ||||||||||||||||||
Deferred revenue, less current portion | — | 75,283 | — | 8,960 | — | 84,243 | ||||||||||||||||||
Asset retirement obligations, less current portion | — | 664 | 27,916 | 200,522 | — | 229,102 | ||||||||||||||||||
Intangible liabilities | — | 9,682 | — | 618 | — | 10,300 | ||||||||||||||||||
Other liabilities | 656 | 30 | 538 | 1,684 | 3,020 | 5,928 | ||||||||||||||||||
Intercompany receivable/payable | 51,938 | — | (20,896 | ) | 28,891 | (59,933 | ) | — | ||||||||||||||||
Total liabilities | 264,647 | 157,544 | 60,478 | 489,750 | (57,892 | ) | 914,527 | |||||||||||||||||
Shareholders’ deficit: | ||||||||||||||||||||||||
Preferred stock | 160 | — | — | — | — | 160 | ||||||||||||||||||
Common stock | 25,864 | 5 | 110 | 132 | (247 | ) | 25,864 | |||||||||||||||||
Other paid-in capital | 91,432 | 1 | 15,921 | 48,646 | (64,568 | ) | 91,432 | |||||||||||||||||
Accumulated other comprehensive income (loss) | (31,223 | ) | (164 | ) | 106 | (11,199 | ) | 11,257 | (31,223 | ) | ||||||||||||||
Accumulated earnings (deficit) | (226,215 | ) | 59,299 | 31,874 | (95,863 | ) | 4,690 | (226,215 | ) | |||||||||||||||
Total Westmoreland Coal Company shareholders’ deficit | (139,982 | ) | 59,141 | 48,011 | (58,284 | ) | (48,868 | ) | (139,982 | ) | ||||||||||||||
Noncontrolling interest | (1,817 | ) | — | — | — | — | (1,817 | ) | ||||||||||||||||
Total equity (deficit) | (141,799 | ) | 59,141 | 48,011 | (58,284 | ) | (48,868 | ) | (141,799 | ) | ||||||||||||||
Total liabilities and shareholders’ deficit | $ | 122,848 | $ | 216,685 | $ | 108,489 | $ | 431,466 | $ | (106,760 | ) | $ | 772,728 | |||||||||||
207
Notes to Consolidated Financial Statements (Cont.)
December 31, 2010
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Assets | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 271 | $ | 880 | $ | — | $ | 4,624 | $ | — | $ | 5,775 | ||||||||||||
Receivables: | ||||||||||||||||||||||||
Trade | — | 14,148 | 65 | 36,365 | — | 50,578 | ||||||||||||||||||
Contractual third-party reclamation receivables | — | — | 135 | 7,608 | — | 7,743 | ||||||||||||||||||
Intercompany receivable/payable | — | — | 10,193 | (21,544 | ) | 11,351 | — | |||||||||||||||||
Other | 66 | 198 | 4,917 | 1,530 | (2,166 | ) | 4,545 | |||||||||||||||||
66 | 14,346 | 15,310 | 23,959 | 9,185 | 62,866 | |||||||||||||||||||
Inventories | — | 1,935 | 4,624 | 17,012 | — | 23,571 | ||||||||||||||||||
Other current assets | 796 | 224 | 469 | 3,944 | (98 | ) | 5,335 | |||||||||||||||||
Total current assets | 1,133 | 17,385 | 20,403 | 49,539 | 9,087 | 97,547 | ||||||||||||||||||
Property, plant and equipment: | ||||||||||||||||||||||||
Land and mineral rights | — | 1,156 | 17,806 | 64,862 | — | 83,824 | ||||||||||||||||||
Capitalized asset retirement cost | — | 239 | 20,463 | 94,154 | — | 114,856 | ||||||||||||||||||
Plant and equipment | 2,611 | 215,851 | 117,360 | 170,839 | — | 506,661 | ||||||||||||||||||
2,611 | 217,246 | 155,629 | 329,855 | — | 705,341 | |||||||||||||||||||
Less accumulated depreciation, depletion and amortization | (1,987 | ) | (42,156 | ) | (82,239 | ) | (162,004 | ) | — | (288,386 | ) | |||||||||||||
Net property, plant and equipment | 624 | 175,090 | 73,390 | 167,851 | — | 416,955 | ||||||||||||||||||
Advanced coal royalties | — | — | 998 | 2,697 | — | 3,695 | ||||||||||||||||||
Reclamation deposits | — | — | — | 72,274 | — | 72,274 | ||||||||||||||||||
Restricted investments and bond collateral | 11,816 | 8,563 | 10,956 | 24,049 | — | 55,384 | ||||||||||||||||||
Contractual third-party reclamation receivables, less current portion | — | — | 390 | 87,349 | — | 87,739 | ||||||||||||||||||
Deferred income taxes | — | — | — | — | 2,458 | 2,458 | ||||||||||||||||||
Intangible assets | — | 6,203 | — | 352 | — | 6,555 | ||||||||||||||||||
Investment in subsidiaries | 115,612 | — | (717 | ) | 3,770 | (118,665 | ) | — | ||||||||||||||||
Other assets | 2,060 | 401 | 1,683 | 3,555 | — | 7,699 | ||||||||||||||||||
Total assets | $ | 131,245 | $ | 207,642 | $ | 107,103 | $ | 411,436 | $ | (107,120 | ) | $ | 750,306 | |||||||||||
208
Notes to Consolidated Financial Statements (Cont.)
December 31, 2010
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Liabilities and Stockholders’ Deficit | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Current installments of long-term debt | $ | — | $ | — | $ | 2,255 | $ | 12,718 | $ | — | $ | 14,973 | ||||||||||||
Accounts payable and accrued expenses: | ||||||||||||||||||||||||
Trade | 5,187 | 8,549 | 3,283 | 31,709 | (2,481 | ) | 46,247 | |||||||||||||||||
Production taxes | — | 2 | 1,084 | 25,231 | — | 26,317 | ||||||||||||||||||
Workers’ compensation | 954 | — | — | — | — | 954 | ||||||||||||||||||
Postretirement medical benefits | 12,198 | — | — | 1,383 | — | 13,581 | ||||||||||||||||||
SERP | 304 | — | — | — | — | 304 | ||||||||||||||||||
Deferred revenue | — | 8,805 | 349 | 1,055 | — | 10,209 | ||||||||||||||||||
Asset retirement obligations | — | — | 3,371 | 11,143 | — | 14,514 | ||||||||||||||||||
Other current liabilities | 249 | 782 | 3,138 | 2,164 | (92 | ) | 6,241 | |||||||||||||||||
Total current liabilities | 18,892 | 18,138 | 13,480 | 85,403 | (2,573 | ) | 133,340 | |||||||||||||||||
Long-term debt, less current installments | 13,671 | 46,648 | 15,166 | 133,246 | — | 208,731 | ||||||||||||||||||
Revolving lines of credit, less current portion | — | — | 16,900 | 1,500 | — | 18,400 | ||||||||||||||||||
Workers’ compensation, less current portion | 9,424 | — | — | — | — | 9,424 | ||||||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets | 2,246 | — | — | — | — | 2,246 | ||||||||||||||||||
Postretirement medical benefits, less current portion | 169,677 | — | — | 27,602 | — | 197,279 | ||||||||||||||||||
Pension and SERP obligations, less current portion | 16,105 | 154 | — | 4,203 | — | 20,462 | ||||||||||||||||||
Deferred revenue, less current portion | — | 67,308 | — | 8,087 | — | 75,395 | ||||||||||||||||||
Asset retirement obligations, less current portion | — | 715 | 28,967 | 197,447 | — | 227,129 | ||||||||||||||||||
Intangible liabilities | — | 8,663 | — | — | — | 8,663 | ||||||||||||||||||
Other liabilities | 4,153 | — | 3,149 | 1,409 | 2,881 | 11,592 | ||||||||||||||||||
Intercompany receivable/payable | 59,432 | — | (19,590 | ) | 26,424 | (66,266 | ) | — | ||||||||||||||||
Total liabilities | 293,600 | 141,626 | 58,072 | 485,321 | (65,958 | ) | 912,661 | |||||||||||||||||
Shareholders’ deficit: | ||||||||||||||||||||||||
Preferred stock | 160 | — | — | — | — | 160 | ||||||||||||||||||
Common stock | 27,901 | 5 | 110 | 132 | (247 | ) | 27,901 | |||||||||||||||||
Other paid-in capital | 98,466 | 30 | 16,036 | 53,264 | (69,330 | ) | 98,466 | |||||||||||||||||
Accumulated other comprehensive income (loss) | (57,680 | ) | (203 | ) | 120 | (14,353 | ) | 14,436 | (57,680 | ) | ||||||||||||||
Accumulated earnings (deficit) | (226,740 | ) | 66,184 | 32,765 | (112,928 | ) | 13,979 | (226,740 | ) | |||||||||||||||
Total Westmoreland Coal Company shareholders’ deficit | (157,893 | ) | 66,016 | 49,031 | (73,885 | ) | (41,162 | ) | (157,893 | ) | ||||||||||||||
Noncontrolling interest | (4,462 | ) | — | — | — | — | (4,462 | ) | ||||||||||||||||
Total equity (deficit) | (162,355 | ) | 66,016 | 49,031 | (73,885 | ) | (41,162 | ) | (162,355 | ) | ||||||||||||||
Total liabilities and stockholders’ deficit | $ | 131,245 | $ | 207,642 | $ | 107,103 | $ | 411,436 | $ | (107,120 | ) | $ | 750,306 | |||||||||||
209
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, 2008
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | |||||||||||||||||||
Revenues | $ | — | $ | 90,006 | $ | 76,367 | $ | 354,939 | $ | (11,616 | ) | $ | 509,696 | |||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Cost of sales | — | 59,761 | 62,922 | 298,728 | (11,616 | ) | 409,795 | |||||||||||||||||
Depreciation, depletion and amortization | 381 | 9,780 | 6,898 | 24,328 | — | 41,387 | ||||||||||||||||||
Selling and administrative | 12,585 | 3,867 | 4,872 | 19,189 | — | 40,513 | ||||||||||||||||||
Heritage health benefit expenses | 32,104 | — | — | 1,348 | — | 33,452 | ||||||||||||||||||
Restructuring charges | 1,854 | — | 120 | 35 | — | 2,009 | ||||||||||||||||||
Gain (loss) on sales of assets | 1 | (876 | ) | (6 | ) | (544 | ) | — | (1,425 | ) | ||||||||||||||
46,925 | 72,532 | 74,806 | 343,084 | (11,616 | ) | 525,731 | ||||||||||||||||||
Operating income (loss) | (46,925 | ) | 17,474 | 1,561 | 11,855 | — | (16,035 | ) | ||||||||||||||||
Other income (expense): | — | — | ||||||||||||||||||||||
Interest expense | (9,385 | ) | (1,351 | ) | (1,542 | ) | (10,852 | ) | — | (23,130 | ) | |||||||||||||
Interest expense attributable to beneficial conversion feature | — | (8,146 | ) | — | — | — | (8,146 | ) | ||||||||||||||||
Loss on extinguishment of debt | — | (1,345 | ) | — | (3,833 | ) | — | (5,178 | ) | |||||||||||||||
Interest income | 532 | 511 | 265 | 4,017 | (200 | ) | 5,125 | |||||||||||||||||
Other income (loss) | 66 | — | — | (350 | ) | — | (284 | ) | ||||||||||||||||
(8,787 | ) | (10,331 | ) | (1,277 | ) | (11,018 | ) | (200 | ) | (31,613 | ) | |||||||||||||
Loss before income taxes and income of consolidated subsidiaries | (55,712 | ) | 7,143 | 284 | 837 | (200 | ) | (47,648 | ) | |||||||||||||||
Equity in income of subsidiaries | (7,172 | ) | — | — | — | 7,172 | — | |||||||||||||||||
Loss before income taxes | (48,540 | ) | 7,143 | 284 | 837 | (7,372 | ) | (47,648 | ) | |||||||||||||||
Income tax expense (benefit) | 27 | 11,883 | 138 | 4,510 | (15,639 | ) | 919 | |||||||||||||||||
Net income (loss) | $ | (48,567 | ) | $ | (4,740 | ) | $ | 146 | $ | (3,673 | ) | $ | 8,267 | $ | (48,567 | ) | ||||||||
210
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, 2009
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | |||||||||||||||||||
Revenues | $ | — | $ | 82,162 | $ | 52,643 | $ | 360,117 | $ | (51,554 | ) | $ | 443,368 | |||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Cost of sales | — | 60,504 | 46,966 | 317,154 | (51,554 | ) | 373,070 | |||||||||||||||||
Depreciation, depletion and amortization | 418 | 9,764 | 8,265 | 25,807 | — | 44,254 | ||||||||||||||||||
Selling and administrative | 11,585 | 4,231 | 4,682 | 20,114 | — | 40,612 | ||||||||||||||||||
Heritage health benefit expenses | 26,813 | — | — | 1,261 | — | 28,074 | ||||||||||||||||||
Gain (loss) on sales of assets | — | 12 | 78 | 101 | — | 191 | ||||||||||||||||||
Other operating income | — | — | (11,059 | ) | — | — | (11,059 | ) | ||||||||||||||||
38,816 | 74,511 | 48,932 | 364,437 | (51,554 | ) | 475,142 | ||||||||||||||||||
Operating income (loss) | (38,816 | ) | 7,651 | 3,711 | (4,320 | ) | — | (31,774 | ) | |||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest expense | (2,618 | ) | (5,946 | ) | (2,195 | ) | (12,977 | ) | 3 | (23,733 | ) | |||||||||||||
Interest income | 376 | 120 | 446 | 2,344 | (68 | ) | 3,218 | |||||||||||||||||
Other income (loss) | 5,691 | 448 | 28 | (176 | ) | — | 5,991 | |||||||||||||||||
3,449 | (5,378 | ) | (1,721 | ) | (10,809 | ) | (65 | ) | (14,524 | ) | ||||||||||||||
Loss before income taxes and income of consolidated subsidiaries | (35,367 | ) | 2,273 | 1,990 | (15,129 | ) | (65 | ) | (46,298 | ) | ||||||||||||||
Equity in income of subsidiaries | 10,869 | — | — | — | (10,869 | ) | — | |||||||||||||||||
Loss before income taxes | (46,236 | ) | 2,273 | 1,990 | (15,129 | ) | 10,804 | (46,298 | ) | |||||||||||||||
Income tax expense (benefit) | (17,074 | ) | 3,812 | 106 | (4,224 | ) | 244 | (17,136 | ) | |||||||||||||||
Net income (loss) | (29,162 | ) | (1,539 | ) | 1,884 | (10,905 | ) | 10,560 | (29,162 | ) | ||||||||||||||
Less net loss attributable to noncontrolling interest | (1,817 | ) | — | — | — | — | (1,817 | ) | ||||||||||||||||
Net loss attributable to the Parent company | $ | (27,345 | ) | $ | (1,539 | ) | $ | 1,884 | $ | (10,905 | ) | $ | 10,560 | $ | (27,345 | ) | ||||||||
211
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, 2010
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | |||||||||||||||||||
Revenues | $ | — | $ | 87,999 | $ | 52,201 | $ | 416,410 | $ | (50,553 | ) | $ | 506,057 | |||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Cost of sales | — | 61,739 | 44,943 | 338,698 | (50,553 | ) | 394,827 | |||||||||||||||||
Depreciation, depletion and amortization | 391 | 10,131 | 7,897 | 26,271 | — | 44,690 | ||||||||||||||||||
Selling and administrative | 9,292 | 4,287 | 4,140 | 21,905 | (143 | ) | 39,481 | |||||||||||||||||
Heritage health benefit expenses | 13,732 | — | — | 689 | — | 14,421 | ||||||||||||||||||
Gain (loss) on sales of assets | — | 122 | (5 | ) | 109 | — | 226 | |||||||||||||||||
Other operating income | — | — | (8,109 | ) | — | — | (8,109 | ) | ||||||||||||||||
23,415 | 76,279 | 48,866 | 387,672 | (50,696 | ) | 485,536 | ||||||||||||||||||
Operating income (loss) | (23,415 | ) | 11,720 | 3,335 | 28,738 | 143 | 20,521 | |||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest expense | (3,195 | ) | (4,659 | ) | (2,534 | ) | (12,723 | ) | 119 | (22,992 | ) | |||||||||||||
Interest income | 246 | 36 | 141 | 1,448 | (124 | ) | 1,747 | |||||||||||||||||
Other income (loss) | (3,389 | ) | 30 | 48 | 724 | — | (2,587 | ) | ||||||||||||||||
(6,338 | ) | (4,593 | ) | (2,345 | ) | (10,551 | ) | (5 | ) | (23,832 | ) | |||||||||||||
Loss before income taxes and income of consolidated subsidiaries | (29,753 | ) | 7,127 | 990 | 18,187 | 138 | (3,311 | ) | ||||||||||||||||
Equity in income of subsidiaries | (26,268 | ) | — | — | — | 26,268 | — | |||||||||||||||||
Loss before income taxes | (3,485 | ) | 7,127 | 990 | 18,187 | (26,130 | ) | (3,311 | ) | |||||||||||||||
Income tax expense (benefit) | (315 | ) | 368 | 21 | 3,945 | (4,160 | ) | (141 | ) | |||||||||||||||
Net income (loss) | (3,170 | ) | 6,759 | 969 | 14,242 | (21,970 | ) | (3,170 | ) | |||||||||||||||
Less net loss attributable to noncontrolling interest | (2,645 | ) | — | — | — | — | (2,645 | ) | ||||||||||||||||
Net loss attributable to the Parent company | $ | (525 | ) | $ | 6,759 | $ | 969 | $ | 14,242 | $ | (21,970 | ) | $ | (525 | ) | |||||||||
212
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, 2008
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Statements of Cash Flows | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net loss | $ | (48,567 | ) | $ | (4,740 | ) | $ | 146 | $ | (3,673 | ) | $ | 8,267 | $ | (48,567 | ) | ||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | (7,172 | ) | — | — | — | 7,172 | — | |||||||||||||||||
Depreciation, depletion, and amortization | 381 | 9,780 | 6,898 | 24,328 | — | 41,387 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 32 | 950 | 8,546 | — | 9,528 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 620 | 24 | (46 | ) | — | 598 | |||||||||||||||||
Share-based compensation | 2,733 | — | — | — | — | 2,733 | ||||||||||||||||||
Restructuring charges | 1,854 | — | 120 | 35 | — | 2,009 | ||||||||||||||||||
Loss (gain) on sale of assets | 1 | (876 | ) | (6 | ) | (544 | ) | — | (1,425 | ) | ||||||||||||||
Loss on extinguishment of debt | — | 1,102 | — | 1,190 | — | 2,292 | ||||||||||||||||||
Amortization of deferred financing costs | 78 | (105 | ) | 132 | 734 | — | 839 | |||||||||||||||||
Non-cash interest expense | 8,934 | — | — | — | — | 8,934 | ||||||||||||||||||
Loss on investments securities | 271 | — | — | 629 | — | 900 | ||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | (526 | ) | (3,546 | ) | 4,510 | (8,579 | ) | 1,901 | (6,240 | ) | ||||||||||||||
Inventories | — | 959 | (787 | ) | 3,972 | — | 4,144 | |||||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets | (23 | ) | — | — | — | — | (23 | ) | ||||||||||||||||
Accounts payable and accrued expenses | (1,010 | ) | (406 | ) | (6,105 | ) | 10,446 | (924 | ) | 2,001 | ||||||||||||||
Deferred revenue | — | 28,774 | 133 | 270 | — | 29,177 | ||||||||||||||||||
Accrual for workers’ compensation | 3,316 | — | — | — | — | 3,316 | ||||||||||||||||||
Asset retirement obligations | — | — | — | (889 | ) | — | (889 | ) | ||||||||||||||||
Accrual for postretirement medical benefits | 3,175 | — | — | 6,846 | — | 10,021 | ||||||||||||||||||
Pension and SERP obligations | (6,701 | ) | — | — | 4,822 | (237 | ) | (2,116 | ) | |||||||||||||||
Other assets and liabilities | (750 | ) | (2,302 | ) | 2,892 | (2,611 | ) | (603 | ) | (3,374 | ) | |||||||||||||
Net cash provided by (used in) operating activities | (44,006 | ) | 29,292 | 8,907 | 45,476 | 15,576 | 55,245 | |||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Distributions received from subsidiaries | 35,525 | — | — | — | (35,525 | ) | — | |||||||||||||||||
Additions to property, plant and equipment | (75 | ) | (1,711 | ) | (2,364 | ) | (27,170 | ) | — | (31,320 | ) | |||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | (1,274 | ) | 19,868 | (2,252 | ) | 8,024 | (47 | ) | 24,319 | |||||||||||||||
Net proceeds from sales of assets | — | 876 | 672 | 1,093 | — | 2,641 | ||||||||||||||||||
Receivable from customer for property and equipment purchases | — | — | — | (2,228 | ) | — | (2,228 | ) | ||||||||||||||||
Net cash provided by (used in) investing activities | 34,176 | 19,033 | (3,944 | ) | (20,281 | ) | (35,572 | ) | (6,588 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Change in book overdrafts | 59 | — | 344 | (5,446 | ) | — | (5,043 | ) | ||||||||||||||||
Borrowings from long-term debt | 15,000 | 64,880 | — | 125,497 | — | 205,377 | ||||||||||||||||||
Repayments of long-term debt | — | (132,070 | ) | (2,680 | ) | (85,035 | ) | — | (219,785 | ) | ||||||||||||||
Borrowings on revolving lines of credit | — | — | 70,100 | 99,500 | — | 169,600 | ||||||||||||||||||
Repayments on revolving lines of credit | — | — | (71,500 | ) | (102,000 | ) | — | (173,500 | ) | |||||||||||||||
Debt issuance costs | (623 | ) | (296 | ) | (225 | ) | (4,160 | ) | — | (5,304 | ) | |||||||||||||
Exercise of stock options | 203 | — | — | — | — | 203 | ||||||||||||||||||
Dividends/distributions | — | (21,000 | ) | — | (14,525 | ) | 35,525 | — | ||||||||||||||||
Transactions with Parent/affiliates | (4,159 | ) | 30,151 | (1,599 | ) | (8,864 | ) | (15,529 | ) | — | ||||||||||||||
Net cash provided by (used in) financing activities | 10,480 | (58,335 | ) | (5,560 | ) | 4,967 | 19,996 | (28,452 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 650 | (10,010 | ) | (597 | ) | 30,162 | — | 20,205 | ||||||||||||||||
Cash and cash equivalents, beginning of year | 306 | 15,674 | 597 | 3,159 | — | 19,736 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 956 | $ | 5,664 | $ | — | $ | 33,321 | $ | — | $ | 39,941 | ||||||||||||
213
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, 2009
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Statements of Cash Flows | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net loss | $ | (29,162 | ) | $ | (1,539 | ) | $ | 1,884 | $ | (10,905 | ) | $ | 10,560 | $ | (29,162 | ) | ||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | 10,869 | — | — | — | (10,869 | ) | — | |||||||||||||||||
Gain on derivative instruments | (5,674 | ) | (448 | ) | — | — | — | (6,122 | ) | |||||||||||||||
Depreciation, depletion, and amortization | 418 | 9,764 | 8,265 | 25,807 | — | 44,254 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 34 | 1,291 | 8,649 | — | 9,974 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 621 | — | (342 | ) | — | 279 | |||||||||||||||||
Non-cash tax benefits | (17,062 | ) | — | — | — | — | (17,062 | ) | ||||||||||||||||
Share-based compensation | 2,552 | — | — | — | — | 2,552 | ||||||||||||||||||
Loss (gain) on sale of assets | — | 12 | 78 | 101 | — | 191 | ||||||||||||||||||
Amortization of deferred financing costs | 1,143 | (313 | ) | 572 | 573 | — | 1,975 | |||||||||||||||||
Non-cash interest expense | 1,470 | — | — | — | — | 1,470 | ||||||||||||||||||
Gain (loss) on investments securities | (11 | ) | — | — | 423 | — | 412 | |||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | 102 | 8,341 | 661 | 7,910 | (1,511 | ) | 15,503 | |||||||||||||||||
Inventories | — | (730 | ) | (617 | ) | 130 | — | (1,217 | ) | |||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets | 3,025 | — | — | — | — | 3,025 | ||||||||||||||||||
Accounts payable and accrued expenses | (123 | ) | (61 | ) | (3,990 | ) | (9,577 | ) | (51 | ) | (13,802 | ) | ||||||||||||
Deferred revenue | — | 11,216 | (139 | ) | (591 | ) | — | 10,486 | ||||||||||||||||
Accrual for workers’ compensation | (1,619 | ) | — | — | — | — | (1,619 | ) | ||||||||||||||||
Asset retirement obligations | — | — | (307 | ) | (1,912 | ) | — | (2,219 | ) | |||||||||||||||
Accrual for postretirement medical benefits | (3,362 | ) | — | — | 11,124 | — | 7,762 | |||||||||||||||||
Pension and SERP obligations | 2,682 | — | — | 491 | — | 3,173 | ||||||||||||||||||
Other assets and liabilities | (1,220 | ) | (2,427 | ) | (2,307 | ) | 5,879 | (330 | ) | (405 | ) | |||||||||||||
Net cash provided by (used in) operating activities | (35,972 | ) | 24,470 | 5,391 | 37,760 | (2,201 | ) | 29,448 | ||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Distributions received from subsidiaries | 26,399 | — | — | — | (26,399 | ) | — | |||||||||||||||||
Additions to property, plant and equipment | (218 | ) | (4,251 | ) | (3,919 | ) | (26,158 | ) | — | (34,546 | ) | |||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | (2,239 | ) | 2,266 | (1,399 | ) | (3,229 | ) | — | (4,601 | ) | ||||||||||||||
Net proceeds from sales of assets | — | — | 105 | 832 | — | 937 | ||||||||||||||||||
Proceeds from the sale of investments | 415 | — | — | 381 | — | 796 | ||||||||||||||||||
Receivable from customer for property and equipment purchases | — | — | — | (1,183 | ) | — | (1,183 | ) | ||||||||||||||||
Net cash provided by (used in) investing activities | 24,357 | (1,985 | ) | (5,213 | ) | (29,357 | ) | (26,399 | ) | (38,597 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Change in book overdrafts | (291 | ) | — | 244 | 643 | — | 596 | |||||||||||||||||
Borrowings from long-term debt | — | — | 7,764 | 798 | — | 8,562 | ||||||||||||||||||
Repayments of long-term debt | — | (25,845 | ) | (3,719 | ) | (5,711 | ) | — | (35,275 | ) | ||||||||||||||
Borrowings on revolving lines of credit | — | — | 79,116 | 15,000 | — | 94,116 | ||||||||||||||||||
Repayments on revolving lines of credit | — | — | (73,016 | ) | (15,000 | ) | — | (88,016 | ) | |||||||||||||||
Debt issuance costs | — | — | (256 | ) | — | — | (256 | ) | ||||||||||||||||
Dividends/distributions | — | (7,706 | ) | — | (18,693 | ) | 26,399 | — | ||||||||||||||||
Transactions with Parent/affiliates | 11,705 | 5,540 | (10,311 | ) | (9,135 | ) | 2,201 | — | ||||||||||||||||
Net cash provided by (used in) financing activities | 11,414 | (28,011 | ) | (178 | ) | (32,098 | ) | 28,600 | (20,273 | ) | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | (201 | ) | (5,526 | ) | — | (23,695 | ) | — | (29,422 | ) | ||||||||||||||
Cash and cash equivalents, beginning of year | 956 | 5,664 | — | 33,321 | — | 39,941 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 755 | $ | 138 | $ | — | $ | 9,626 | $ | — | $ | 10,519 | ||||||||||||
214
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, 2010
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Statements of Cash Flows | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net loss | $ | (3,170 | ) | $ | 6,759 | $ | 969 | $ | 14,242 | $ | (21,970 | ) | $ | (3,170 | ) | |||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||
Equity in income of subsidiaries | (26,268 | ) | — | — | — | 26,268 | — | |||||||||||||||||
Gain on derivative instruments | 3,486 | (30 | ) | — | — | — | 3,456 | |||||||||||||||||
Depreciation, depletion, and amortization | 391 | 10,131 | 7,897 | 26,271 | — | 44,690 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable | — | 51 | 3,007 | 8,482 | — | 11,540 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net | — | 621 | — | (31 | ) | — | 590 | |||||||||||||||||
Share-based compensation | 4,049 | — | — | — | — | 4,049 | ||||||||||||||||||
Loss (gain) on sale of assets | — | 122 | (5 | ) | 109 | — | 226 | |||||||||||||||||
Amortization of deferred financing costs | 1,489 | (308 | ) | 450 | 673 | — | 2,304 | |||||||||||||||||
Non-cash interest expense | 1,236 | — | — | — | — | 1,236 | ||||||||||||||||||
Gain on investments securities | (97 | ) | — | — | (507 | ) | — | (604 | ) | |||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||||
Receivables, net | 358 | (609 | ) | (2,266 | ) | (3,367 | ) | 1,156 | (4,728 | ) | ||||||||||||||
Inventories | — | 635 | (208 | ) | 1,873 | — | 2,300 | |||||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets | 1,460 | — | — | — | — | 1,460 | ||||||||||||||||||
Accounts payable and accrued expenses | 2,333 | 884 | (863 | ) | 8,189 | (1,502 | ) | 9,041 | ||||||||||||||||
Deferred revenue | — | (6,010 | ) | (375 | ) | (1,014 | ) | — | (7,399 | ) | ||||||||||||||
Accrual for workers’ compensation | (841 | ) | — | — | — | — | (841 | ) | ||||||||||||||||
Asset retirement obligations | — | — | (1,769 | ) | (6,014 | ) | — | (7,783 | ) | |||||||||||||||
Accrual for postretirement medical benefits | (2,813 | ) | — | — | (19 | ) | — | (2,832 | ) | |||||||||||||||
Pension and SERP obligations | (6,828 | ) | — | 93 | 2,833 | — | (3,902 | ) | ||||||||||||||||
Other assets and liabilities | (923 | ) | (211 | ) | 898 | (3,986 | ) | (58 | ) | (4,280 | ) | |||||||||||||
Net cash provided by (used in) operating activities | (26,138 | ) | 12,035 | 7,828 | 47,734 | 3,894 | 45,353 | |||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Distributions received from subsidiaries | 31,300 | — | — | — | (31,300 | ) | — | |||||||||||||||||
Additions to property, plant and equipment | (550 | ) | (2,207 | ) | (4,275 | ) | (15,782 | ) | — | (22,814 | ) | |||||||||||||
Change in restricted investments and bond collateral and reclamation deposits | (1,714 | ) | 142 | (1,716 | ) | (5,257 | ) | — | (8,545 | ) | ||||||||||||||
Net proceeds from sales of assets | — | 1 | 66 | 645 | — | 712 | ||||||||||||||||||
Proceeds from the sale of investments | 156 | — | — | 2,151 | — | 2,307 | ||||||||||||||||||
Receivable from customer for property and equipment purchases | — | — | — | (840 | ) | — | (840 | ) | ||||||||||||||||
Net cash provided by (used in) investing activities | 29,192 | (2,064 | ) | (5,925 | ) | (19,083 | ) | (31,300 | ) | (29,180 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Change in book overdrafts | (111 | ) | — | 57 | (541 | ) | — | (595 | ) | |||||||||||||||
Repayments of long-term debt | — | (9,355 | ) | (4,440 | ) | (6,610 | ) | — | (20,405 | ) | ||||||||||||||
Borrowings on revolving lines of credit | — | 7,300 | 91,500 | 72,100 | — | 170,900 | ||||||||||||||||||
Repayments on revolving lines of credit | — | (7,300 | ) | (91,000 | ) | (70,600 | ) | — | (168,900 | ) | ||||||||||||||
Debt issuance costs | (1,718 | ) | — | (207 | ) | — | — | (1,925 | ) | |||||||||||||||
Exercise of stock options | 8 | — | — | — | — | 8 | ||||||||||||||||||
Dividends/distributions | — | — | — | (31,300 | ) | 31,300 | — | |||||||||||||||||
Transactions with Parent/affiliates | (1,717 | ) | 126 | 2,187 | 3,298 | (3,894 | ) | — | ||||||||||||||||
Net cash provided by (used in) financing activities | (3,538 | ) | (9,229 | ) | (1,903 | ) | (33,653 | ) | 27,406 | (20,917 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | (484 | ) | 742 | — | (5,002 | ) | — | (4,744 | ) | |||||||||||||||
Cash and cash equivalents, beginning of year | 755 | 138 | — | 9,626 | — | 10,519 | ||||||||||||||||||
Cash and cash equivalents, end of year | $ | 271 | $ | 880 | $ | — | $ | 4,624 | $ | — | $ | 5,775 | ||||||||||||
215
Westmoreland Resources, Inc.
June 3, 2011
216
Westmoreland Resources, Inc:
April 24, 2009
217
Consolidated Balance Sheets
December 31, 2010 and 2009
(In thousands)
2010 | 2009 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 583 | $ | 923 | ||||
Accounts receivable | ||||||||
Trade | 3,712 | 3,427 | ||||||
Other | 2,435 | 1,713 | ||||||
6,147 | 5,140 | |||||||
Inventories | 4,320 | 3,786 | ||||||
Other current assets | 603 | 719 | ||||||
Total current assets | 11,653 | 10,568 | ||||||
Property, plant and equipment, at cost: | ||||||||
Land and mineral rights | 17,806 | 17,764 | ||||||
Plant and equipment | 117,321 | 113,347 | ||||||
Asset retirement costs | 20,463 | 22,016 | ||||||
155,590 | 153,127 | |||||||
Less accumulated depreciation, depletion and amortization | (82,233 | ) | (74,534 | ) | ||||
Net property, plant and equipment | 73,357 | 78,593 | ||||||
Restricted investments and bond collateral | 10,956 | 9,226 | ||||||
Contractual third-party reclamation receivables | 390 | 120 | ||||||
Advanced coal royalties | 998 | — | ||||||
Intangible assets, net of accumulated amortization of $1.5 million at December 31, 2010 and $1.0 million at 2009 | — | 550 | ||||||
Other assets | 1,683 | 1,927 | ||||||
Total assets | $ | 99,037 | $ | 100,984 | ||||
Liabilities and Shareholder’s Equity | ||||||||
Current liabilities: | ||||||||
Current installments of long-term debt | $ | 2,255 | $ | 14,117 | ||||
Revolving line of credit | — | 16,400 | ||||||
Accounts payable | 4,682 | 3,949 | ||||||
Book overdrafts | 695 | 618 | ||||||
Payable to related parties | 465 | 953 | ||||||
Accrued expenses | 7,461 | 7,482 | ||||||
Asset retirement obligations | 3,371 | 4,512 | ||||||
Other current liabilities | 2,214 | 3,001 | ||||||
Total current liabilities | 21,143 | 51,032 | ||||||
Long-term debt, less current installments | 15,166 | 7,744 | ||||||
Revolving line of credit, less current installments | 16,900 | — | ||||||
Asset retirement obligations, less current portion | 28,967 | 27,916 | ||||||
Other liabilities | 3,149 | 1,156 | ||||||
Total liabilities | 85,325 | 87,848 | ||||||
Shareholder’s equity: | ||||||||
Common stock of $1 par value. Authorized 40,000 shares; issued and outstanding 10,000 shares at December 31, 2010 and December 31, 2009 | 10 | 10 | ||||||
Additional paid-in capital | 15,526 | 15,412 | ||||||
Advances to Parent | (13,387 | ) | (16,171 | ) | ||||
Accumulated other comprehensive income | 120 | 106 | ||||||
Retained earnings | 15,905 | 15,596 | ||||||
Total Westmoreland Resources Inc. shareholder’s equity | 18,174 | 14,953 | ||||||
Noncontrolling interest | (4,462 | ) | (1,817 | ) | ||||
Total shareholder’s equity | 13,712 | 13,136 | ||||||
Total liabilities and shareholder’s equity | $ | 99,037 | $ | 100,984 | ||||
218
Consolidated Statements of Operations
Years Ended December 31, 2010, 2009 and 2008
(In thousands, except per share data)
2010 | 2009 | 2008 | ||||||||||
Revenues | $ | 74,997 | $ | 78,360 | $ | 80,148 | ||||||
Costs and expenses: | ||||||||||||
Cost of coal and operating expenses | 71,614 | 74,931 | 67,859 | |||||||||
Depreciation, depletion, and amortization | 7,886 | 8,252 | 6,885 | |||||||||
Selling and administrative | 3,437 | 3,797 | 4,074 | |||||||||
Restructuring charge | — | — | 120 | |||||||||
Loss (gain) on sale of assets | 19 | 78 | (6 | ) | ||||||||
Other operating income | (8,109 | ) | (11,059 | ) | — | |||||||
74,847 | 75,999 | 78,932 | ||||||||||
Operating income | 150 | 2,361 | 1,216 | |||||||||
Other income (expense): | ||||||||||||
Interest expense | (2,534 | ) | (2,195 | ) | (1,543 | ) | ||||||
Interest income | 21 | 443 | 266 | |||||||||
Other | 48 | 28 | — | |||||||||
(2,465 | ) | (1,724 | ) | (1,277 | ) | |||||||
Income (loss) before income taxes | (2,315 | ) | 637 | (61 | ) | |||||||
Income tax expense | 21 | 106 | 138 | |||||||||
Net income (loss) | (2,336 | ) | 531 | (199 | ) | |||||||
Less: net loss attributable to noncontrolling interests | (2,645 | ) | (1,817 | ) | — | |||||||
Net income (loss) attributable to Parent company | $ | 309 | $ | 2,348 | $ | (199 | ) | |||||
Net income (loss) per share applicable to Parent company | $ | 30.90 | $ | 234.80 | $ | (19.90 | ) | |||||
Weighted average number of common shares outstanding | 10 | 10 | 10 | |||||||||
219
Consolidated Statements of Shareholder’s Equity and Comprehensive Income (Loss)
Years Ended December 31, 2010, 2009 and 2008
Accumulated Other | ||||||||||||||||||||||||||||
Additional | Advances from (to) | Comprehensive | Noncontrolling | Total Shareholder’s | ||||||||||||||||||||||||
Common stock | paid-in capital | Parent | Income (Loss) | Retained Earnings | Interest | Equity | ||||||||||||||||||||||
Balance, December 31, 2007 | $ | 10 | $ | 15,167 | $ | (3,164 | ) | $ | — | $ | 13,447 | $ | — | $ | 25,460 | |||||||||||||
Adjustment for utilization of tax losses of Westmoreland Coal Company | — | 138 | — | — | — | — | 138 | |||||||||||||||||||||
Advances to Parent | — | — | (1,691 | ) | — | — | — | (1,691 | ) | |||||||||||||||||||
Unrealized gain on available-for-sale securities | — | — | — | 61 | — | — | 61 | |||||||||||||||||||||
Net loss | — | — | — | — | (199 | ) | — | (199 | ) | |||||||||||||||||||
Comprehensive loss | (138 | ) | ||||||||||||||||||||||||||
Balance, December 31, 2008 | $ | 10 | $ | 15,305 | $ | (4,855 | ) | $ | 61 | $ | 13,248 | $ | — | $ | 23,769 | |||||||||||||
Adjustment for utilization of tax losses of Westmoreland Coal Company | — | 107 | — | — | — | — | 107 | |||||||||||||||||||||
Advances to Parent | — | — | (11,316 | ) | — | — | — | (11,316 | ) | |||||||||||||||||||
Unrealized gain on available-for-sale securities | — | — | — | 45 | — | — | 45 | |||||||||||||||||||||
Net income | — | — | — | — | 2,348 | (1,817 | ) | 531 | ||||||||||||||||||||
Comprehensive income | 576 | |||||||||||||||||||||||||||
Balance, December 31, 2009 | $ | 10 | $ | 15,412 | $ | (16,171 | ) | $ | 106 | $ | 15,596 | $ | (1,817 | ) | $ | 13,136 | ||||||||||||
Contribution of Westmoreland Coal Company common stock to pension plan on the Company’s behalf | — | 93 | — | — | — | — | 93 | |||||||||||||||||||||
Adjustment for utilization of tax losses of Westmoreland Coal Company | — | 21 | — | — | — | — | 21 | |||||||||||||||||||||
Advances from Parent | — | — | 2,784 | — | — | — | 2,784 | |||||||||||||||||||||
Unrealized gain on available-for-sale securities | — | — | — | 14 | — | — | 14 | |||||||||||||||||||||
Net loss | — | — | — | — | 309 | (2,645 | ) | (2,336 | ) | |||||||||||||||||||
Comprehensive loss | (2,322 | ) | ||||||||||||||||||||||||||
Balance, December 31, 2010 | $ | 10 | $ | 15,526 | $ | (13,387 | ) | $ | 120 | $ | 15,905 | $ | (4,462 | ) | $ | 13,712 | ||||||||||||
220
Consolidated Statements of Cash Flows
Years Ended December 31, 2010, 2009 and 2008
(In thousands)
2010 | 2009 | 2008 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | $ | (2,336 | ) | $ | 531 | $ | (199 | ) | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||||||
Depreciation, depletion and amortization | 7,886 | 8,252 | 6,885 | |||||||||
Restructuring charge | — | — | 120 | |||||||||
Accretion of asset retirement obligation and receivable | 3,007 | 1,346 | 980 | |||||||||
Postretirement medical benefit costs allocated by Parent, net of payments | 1 | 81 | 75 | |||||||||
Pension contributions, net of pension costs allocated by Parent | (175 | ) | (30 | ) | 28 | |||||||
Loss (gain) on sale of assets | 19 | 78 | (6 | ) | ||||||||
Amortization of deferred financing costs | 450 | 575 | 133 | |||||||||
Amortization of intangible assets and liabilities, net | (67 | ) | (385 | ) | (79 | ) | ||||||
Utilization of tax losses of Westmoreland Coal Company | 21 | 107 | 138 | |||||||||
Change in: | ||||||||||||
Accounts receivable | (1,007 | ) | 1,105 | 1,002 | ||||||||
Inventories | (534 | ) | (507 | ) | (854 | ) | ||||||
Accounts payable | 687 | (1,946 | ) | (1,398 | ) | |||||||
Payable to related parties | (1,219 | ) | 802 | (361 | ) | |||||||
Deferred revenues | — | (285 | ) | (445 | ) | |||||||
Asset retirement obligation | (1,814 | ) | (199 | ) | (14 | ) | ||||||
Other assets and liabilities | 1,941 | (2,521 | ) | 3,445 | ||||||||
Net cash provided by operating activities | 6,860 | 7,004 | 9,450 | |||||||||
Cash flows from investing activities: | ||||||||||||
Additions to property, plant and equipment | (4,240 | ) | (3,920 | ) | (2,377 | ) | ||||||
Increase in restricted investments and bond collateral | (1,716 | ) | (1,399 | ) | (2,252 | ) | ||||||
Proceeds from sales of assets | 41 | 103 | 672 | |||||||||
Net cash used in investing activities | (5,915 | ) | (5,216 | ) | (3,957 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Increase in book overdrafts | 77 | 227 | 391 | |||||||||
Borrowings from long-term debt | — | 7,764 | — | |||||||||
Repayments of long-term debt | (4,440 | ) | (3,725 | ) | (2,679 | ) | ||||||
Borrowings on revolving line of credit | 91,500 | 79,116 | 70,100 | |||||||||
Repayments on revolving line of credit | (91,000 | ) | (73,016 | ) | (71,500 | ) | ||||||
Deferred financing costs | (206 | ) | (256 | ) | (225 | ) | ||||||
Advances from (to) Parent | 2,784 | (11,316 | ) | (1,794 | ) | |||||||
Net cash used in financing activities | (1,285 | ) | (1,206 | ) | (5,707 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | (340 | ) | 582 | (214 | ) | |||||||
Cash and cash equivalents, beginning of year | 923 | 341 | 555 | |||||||||
Cash and cash equivalents, end of year | $ | 583 | $ | 923 | $ | 341 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Cash paid for interest | $ | 2,238 | $ | 1,801 | $ | 1,330 | ||||||
Noncash transactions: | ||||||||||||
Accrued purchases of property and equipment | $ | 51 | $ | 26 | $ | 866 | ||||||
Capital leases | — | 5,604 | 914 |
221
Notes to Consolidated Financial Statements
(1) | Summary of Significant Accounting Policies |
(a) | Nature of Operations | ||
Westmoreland Resources, Inc., or WRI, or the Company, a wholly owned subsidiary of Westmoreland Coal Company, or WCC, or the Parent, owns a surface coal mining operation located in eastern Montana. Coal produced from the Absaloka Mine is sold to electric utilities based in the north central region of the United States. Westmoreland Coal Company owns and operates the Company. All coal reserves are owned by the Crow Tribe of Indians and the mineral rights to the coal reserves are leased by the Company on a long-term basis. | |||
In various transactions in October 2008, the Company formed a limited liability company, Absaloka Coal LLC, which it owns jointly with a newly formed subsidiary, WRI Partners, Inc., to mine and sell coal from the Absaloka Mine. Absaloka Coal LLC subleases the mineral rights from the Company entitling Absaloka Coal LLC to mine up to 40.0 million tons of coal at the Absaloka Mine through 2012. WRI also assigned to Absaloka Coal LLC all of its contracts to sell coal to third parties. The Company sold a 99% interest in Absaloka Coal LLC to a third-party but continues to consolidate Absaloka Coal LLC as the Company has effective control over its operations. | |||
The Company’s financial statements reflect substantially all of its costs of doing business. Common expenses incurred by the Parent on behalf of the Company are charged to the Company based on proportional cost allocations. The Company believes the allocations used are reasonable. However, these financial statements may not necessarily be representative of a stand-alone company. | |||
(b) | WCC Liquidity | ||
On February 4, 2011 through a private placement offering, WCC issued $150.0 million of Senior Secured Notes due in 2018 together with Westmoreland Partners as co-issuer (hereafter, the Parent Notes). Substantially all of the assets of the Company constitute collateral for the Parent Notes as to which the holders of these notes have a first priority lien. WCC received approximately $135.2 million in proceeds from the Parent Notes offering. WCC used the proceeds to pay the outstanding balance on the Company’s term debt. Also, the Company’s credit facility was terminated in February 2011, as result of the Parent Notes offering. | |||
Following the February 4, 2011 Parent Notes offering, WCC has cash on hand in excess of $45 million. WCC also expects increases in coal operating profits and its heritage health benefit expenditures to continue at their reduced 2010 rates. As a result, WCC anticipates that its cash flows from operations, cash on hand and available borrowing capacity will be sufficient to meet its investing, financing, and working capital requirements for the next several years. | |||
As a result of the Parent Notes offering, the Company recorded the current portion of its term debt as non-current liabilities in its consolidated balance sheet at December 31, 2010. | |||
WCC’s liquidity continues to be affected by its heritage health, pension, capital expenditures and bond collateral obligations. Following the February 4, 2011 Parent Notes offering, WCC expects that distributions from the Company and other subsidiaries will comprise a significant source of liquidity. In addition, the cash at WCC’s subsidiary Westmoreland Mining, LLC, or WML, is available to it through quarterly distributions, although it is subject to certain restrictions. | |||
(c) | Consolidation Policy | ||
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, which the Company’s ownership is less than 100 percent. All intercompany accounts and transactions have been eliminated. |
222
Notes to Consolidated Financial Statements (Cont.)
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 that at December 31, 2010, 2009 and 2008 it was the primary beneficiary in Absaloka Coal LLC, a VIE, in which it holds less than a 50% ownership. As a result, the Company has consolidated this entity within its operations. | |||
(d) | 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. | |||
(e) | 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. | |||
(f) | Accounts Receivable |
Accounts receivable 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 accounts receivable as of December 31, 2010 and 2009. | |||
(g) | 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. | |||
(h) | Mine Development |
At the existing mine, 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, expand the workforce, build or improve existing haul roads and create the initial pre-production box cut to remove overburden for new pits at the existing operation. 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. | |||
(i) | Property, Plant, and Equipment |
Property, plant and equipment are recorded at cost. 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 in the case of acquired businesses. |
223
Notes to Consolidated Financial Statements (Cont.)
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 30 |
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 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. | |||
(j) | Restricted Investments and Bond Collateral |
The Company has requirements to maintain restricted cash and investments for bonding requirements. Amounts held are recorded asRestricted investments and bond collateral. Funds in the restricted investment and bond collateral accounts are not available to meet the Company’s operating cash needs. | |||
(k) | Contractual Third-Party Reclamation Receivables |
Certain of the Company’s customers have agreed to reimburse the Company for reclamation expenditures as they are incurred. Amounts that are reimbursable by customers are recorded asContractual third-party reclamation receivableswhen the related reclamation obligation is recorded. | |||
(l) | Fair Value Measurements |
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 balance sheet approximates the fair value of these instruments due to the short duration to maturities. The fair value of the Company’s Level 1 available-for-sale equity securities is generally based on independent third-party market prices. | |||
(m) | 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, which contain features that qualify them as embedded derivatives. Except for derivatives that qualify for the normal purchase normal sale exception, all 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 orAccumulated 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 ofAccumulated other comprehensive lossin stockholder’s deficit. |
224
Notes to Consolidated Financial Statements (Cont.)
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 ofOther income (expense). | |||
(n) | 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. The intangible liabilities are recorded asOther liabilitiesin the accompanying consolidated balance sheet. |
Amortization of intangible assets and liabilities recognized as an increase inRevenueswas $0.1 million, $0.4 million and $0.1 million in 2010, 2009 and 2008, respectively. | |||
(o) | Postretirement Medical Benefits and Pension Plans |
The Company, through a plan sponsored by WCC, provides certain medical benefits for retired employees and their dependents. Effective September 1, 2009, WCC eliminated these benefits for non-represented employees and retirees. These benefits are provided through an unfunded self-insured program. |
WCC requires the costs of postretirement medical benefits other than pensions to be accrued over the employees’ period of active service. These costs are determined on an actuarial basis and are allocated by the Parent to the Company based on its share of the plan participants. These costs are recorded inCost of saleswith a corresponding decrease inAdvances to Parent. The Parent’s consolidated balance sheet reflects the unfunded status of these postretirement medical benefit obligations. |
The Company also participates in the Parent’s noncontributory defined benefit pension plan, which was frozen effective July 1, 2009. The costs to provide the benefits are accrued over the employees’ period of active service and are determined on an actuarial basis. The Company records an allocation of net periodic retirement benefit costs from the Parent inCost of saleswith a corresponding decrease inAdvances to Parent. The Parent’s consolidated balance sheet reflects the unfunded status of these defined benefit pension plan obligations. | |||
(p) | Income Taxes |
The Company files consolidated federal and state tax returns with its Parent. As the Company itself is not a taxable entity, the Parent’s tax expense for its income tax return group included on the Parent’s consolidated income tax return is allocated among the members of that group. This allocation is calculated as if each member were a separate taxpayer. This allocation is reflected by the Company inIncome tax expensewith the offset inAdditional paid-in capital. There is no formal tax sharing agreement with the Parent. |
The Company accounts for deferred income taxes using the asset and liability method. Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the Company’s financial statements based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities, as well as net operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company establishes a valuation allowance against its net deferred tax assets to the extent the |
225
Notes to Consolidated Financial Statements (Cont.)
Company believes that it is more likely than not that it will not realize the net deferred tax assets. |
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. This standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. | |||
(q) | 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 inOther assetsin the accompanying Consolidated Balance Sheet. | |||
(r) | Asset Retirement Obligations |
The Company’s asset retirement obligation, or ARO, liabilities primarily consist of estimated costs related to reclaiming surface land and support facilities at its mines 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 estimated future costs for a third party to perform the required work. Cost estimates are escalated for inflation, and then discounted at the credit-adjusted risk-free rate. The Company records an ARO asset associated with the initial recorded liability. The ARO asset is 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 the timing of the performance of reclamation activities. | |||
(s) | 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 coal contracts in place at the time that title passes and any retroactive pricing adjustments to those contracts are recognized as revised agreements are reached with the customers and any performance obligations included in the agreements are satisfied. |
(t) | Other Operating Income (Loss) |
Other operating income in the accompanying Consolidated Results of Operations reflects income from sources other than coal revenues. Income from the Company’s Indian Coal Tax Credit monetization transaction is recorded asOther operating income. | |||
(u) | Exploration and Drilling Costs |
Exploration expenditures are charged toCost of salesas incurred, including costs related to drilling and study costs incurred to convert or upgrade mineral resources to reserves. | |||
(v) | 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. |
226
Notes to Consolidated Financial Statements (Cont.)
In January 2010, the FASB issued authoritative guidance, which requires additional disclosures and clarifies certain existing disclosure requirements regarding fair value measurements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009. The Company adopted this guidance effective January 1, 2010. However, none of the specific additional disclosures were applicable at December 31, 2010. |
On January 1, 2009, the Company adopted accounting guidance that establishes accounting and reporting standards for (1) noncontrolling interests in partially owned consolidated subsidiaries and (2) the loss of control of subsidiaries. This guidance requires noncontrolling interests (minority interests) to be reported as a separate component of equity. The amount of net income or loss attributable to the noncontrolling interests will be included in consolidated net income or loss on the face of the income statement. In addition, this guidance requires that a parent recognize a gain or loss in net income or loss when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. This guidance also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The Company recorded $2.6 million and $1.8 million, respectively, of net loss attributable to noncontrolling interest for the years ended December 31, 2010 and December 31, 2009, which is reflected in the Company’s consolidated financial statements. |
(2) | Indian Coal Production Tax Credits (ICTC’s) | |
In August 2005, the Energy Policy Act of 2005 was enacted. Among other provisions, it contains a tax credit for the production of coal owned by Indian tribes. The tax credit is equal to $2.20 per ton in 2010 and increases annually based on an inflation—adjustment factor. The credit may be used against regular corporate income tax for all years and against alternative minimum taxes for the initial four-year period after the placed in service date of the facility. The Absaloka Mine produces coal that qualifies for this credit. | ||
In July 2008, the Company finalized an agreement with the Crow Tribe covering the treatment of the tax credit in determining royalties payable to the Tribe under its lease agreement with the Tribe. | ||
On October 16, 2008, the Company entered into a series of transactions with a financial institution, or Investor, designed to enable the Company to take advantage of ICTC’s generated by its mining operations. | ||
In these transactions, the Company formed a limited liability company, Absaloka Coal LLC, which it owned jointly with a newly formed subsidiary, WRI Partners, Inc., to mine and sell coal from the Absaloka Mine. Absaloka Coal LLC then entered into a sublease from the Company for the coal leases with the Crow Tribe, entitling Absaloka Coal LLC to mine up to 40.0 million tons of coal at the Absaloka Mine through 2012. WRI also assigned to Absaloka Coal LLC all of its contracts to sell coal to third parties. | ||
On October 16, 2008, the Company sold its interest in Absaloka Coal LLC to the Investor for consideration consisting of an initial payment of $4.0 million, $34.0 million of fixed principal and interest payments, and contingent payments based on 90% of the credits allocated to the Investor in excess of the fixed payments. Based on current forecasts of the Absaloka Mine’s coal sales, the total consideration to be paid by the Investor to the Company is projected to be approximately $55.8 million through December 31, 2012. The Company expects to share approximately $17.1 million of this consideration with the Crow Tribe as royalties. | ||
The Investor will be entitled to 99% of Absaloka Coal LLC’s earnings and related distributions until it has received a 10% return on its initial $4.0 million cash investment, after which it will be entitled to 5% of earnings and distributions. | ||
On October 3, 2008, the Company requested a private letter ruling, or PLR, request with the IRS concerning various issues relating to the validity of the ICTC’s. In March 2009, the Company received a PLR confirming the availability of the ICTC’s under the specific scenario described whereby WRI subleased the right to mine a fixed amount of coal from the Company’s Absaloka Mine to the LLC. The Company recognizes the fixed and contingent payments from the Investor as they are received as income in its consolidated financial statements. |
227
Notes to Consolidated Financial Statements (Cont.)
As part of the purchase agreement, the Company has an option to purchase the Investor’s entire membership interest after October 16, 2013, and Investor is entitled to withdraw at any time from Absaloka Coal LLC. In these events, or on dissolution of the LLC, the Company would be required to pay the Investor the appraised value of its capital account balance. | ||
The Company is the sole manager of Absaloka Coal LLC has entered into a contract mining agreement with Absaloka Coal LLC under which it receives an amount equal to all of its mining costs plus a fee per ton of coal mined. Westmoreland Coal Sales Company acts as the exclusive sales agent on behalf of Absaloka Coal LLC under a sales agency agreement and receives a fee for its services based on the tons of coal sold. | ||
(3) | Inventories | |
Inventory consisted of the following at December 31, 2010 and 2009 (in thousands): |
2010 | 2009 | |||||||
Coal | $ | 210 | $ | 194 | ||||
Materials and supplies | 4,155 | 3,712 | ||||||
Reserve for obsolete inventory | (45 | ) | (120 | ) | ||||
Total | $ | 4,320 | $ | 3,786 | ||||
(4) | Restricted Investments and Bond Collateral | |
The Company’s restricted investments and bond collateral consisted of the following (in thousands): |
December 31, | ||||||||
2010 | 2009 | |||||||
Reclamation bond collateral | $ | 10,956 | $ | 9,226 |
The Company’s carrying value and estimated fair value of its restricted investments and bond collateral at December 31, 2010, are as follows (in thousands): |
Carrying Value | Fair Value | |||||||
Cash and cash equivalents | $ | 8,402 | $ | 8,402 | ||||
Held-to-maturity securities | 1,259 | 1,423 | ||||||
Available-for-sale securities | 1,295 | 1,295 | ||||||
$ | 10,956 | $ | 11,120 | |||||
Funds in the restricted investment and bond collateral accounts are not available to meet the Company’s operating cash needs. For all of its restricted investments and bond collateral accounts, the Company can select from several investment options for the funds and receives the investment returns on these investments. | ||
As of December 31, 2010, the Company had reclamation bond collateral in place for its active Absaloka Mine. 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. |
228
Notes to Consolidated Financial Statements (Cont.)
a) | 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 at December 31, 2010 and 2009, are as follows (in thousands): |
2010 | 2009 | |||||||
Amortized cost | $ | 1,259 | $ | 2,139 | ||||
Gross unrealized holding gains (losses) | 164 | (2 | ) | |||||
Fair value | $ | 1,423 | $ | 2,137 | ||||
Maturities of held-to-maturity securities are as follows at December 31, 2010 (in thousands): |
Amortized Cost | Fair Value | |||||||
Due in more than ten years | $ | 1,259 | $ | 1,423 |
The cost basis, gross unrealized holding gains and fair value of available-for-sale securities at December 31, 2010 and 2009, are as follows (in thousands): |
2010 | 2009 | |||||||
Cost basis | $ | 1,175 | $ | 1,175 | ||||
Gross unrealized holding gains | 120 | 106 | ||||||
Fair value | $ | 1,295 | $ | 1,281 | ||||
(5) | Line of Credit, Long-Term Debt and Capital Leases | |
The amount outstanding at December 31, 2010 and 2009, under the Company’s line of credit, long-term debt and capital leases consisted of the following (in thousands): |
Total Debt Outstanding | ||||||||
2010 | 2009 | |||||||
Revolving line of credit | $ | 16,900 | $ | 16,400 | ||||
Term debt | 9,600 | 12,000 | ||||||
Capital lease obligations | 7,821 | 9,861 | ||||||
Total debt outstanding | 34,321 | 38,261 | ||||||
Less current portion | (2,255 | ) | (30,517 | ) | ||||
Total debt outstanding, less current portion | $ | 32,066 | $ | 7,744 | ||||
The following table presents aggregate contractual debt maturities of all long-term debt and the revolving credit facilities at December 31, 2010 (in thousands): |
Subsequent to Parent Note | ||||||||
As of December 31, 2010 | Offering | |||||||
2011 | $ | 21,555 | $ | 2,255 | ||||
2012 | 4,781 | 2,381 | ||||||
2013 | 3,993 | 1,593 | ||||||
2014 | 3,330 | 930 | ||||||
2015 | 662 | 662 | ||||||
Thereafter | — | — | ||||||
$ | 34,321 | $ | 7,821 | |||||
In December 2010, WRI’s Business Loan Agreement was amended and the $20.0 million revolving line of credit was extended through December 18, 2011. The interest rate for the term debt and the revolver were payable at the prime rate. The term debt and the revolver were both subject to a per annum 8.0% and 7.0% floor, respectively. As described in Note 1, the outstanding balance of the term debt and the revolving line of credit were repaid and the revolving line of credit was terminated in February 2011. |
229
Notes to Consolidated Financial Statements (Cont.)
At December 31, 2010, the Company had $3.1 million of unused borrowings under the revolver. The revolver did not have commitment fees for the unused portion of the available revolving loan. | |||
The two debt instruments were collateralized by a first lien in WRI’s inventory, chattel paper, accounts and notes receivable, and equipment. WCC was the guarantor of the debt under the Agreement and its guaranty was secured by a pledge of WCC’s interest in WRI. | |||
WRI’s Business Loan Agreement required it to comply with numerous covenants and minimum financial ratio requirements primarily related to debt coverage, tangible net worth, capital expenditures, and its operations. Primarily as a result of unfavorable market conditions driving decreases in tonnages sold, WRI was not in compliance with a net worth requirement contained in its Business Loan Agreement at April 30, 2010. As a result of this non-compliance, the interest rates on WRI’s term debt and revolving line of credit were increased 1% (to 8% and 7%, respectively at December 31, 2010). As of December 31, 2010, WRI was in compliance with all covenants, with the exception of the net worth requirement. | |||
WRI leases equipment utilized in its operations at the Absaloka Mine. The weighted average interest rate for these capital leases outstanding at December 31, 2010 and 2009 was 6.65% and 7.60%, respectively. | |||
(6) | Postretirement Medical Benefits | ||
The Company participates in a postretirement medical benefit plan sponsored by the Parent. The plan provided medical benefits for retired employees and their dependents. Effective September 1, 2009, WCC eliminated these benefits for non-represented employees and retirees. | |||
The Company records an allocation of the net periodic postretirement medical benefit cost from the Parent as a component ofCost of saleswith a corresponding decrease inAdvances to Parent. In 2010 and 2009, the Company did not make medical benefit payments for its retirees who participate in the Parent’s postretirement medical benefit plan. The Company recorded postretirement medical benefit costs of less than $0.1 million in both 2010 and 2009. The benefit obligation attributable to the plan participants that are employees or retirees of the Company was less than $0.1 million at December 31, 2010 and 2009. | |||
(7) | Pension Plan | ||
The Company participates in a noncontributory defined benefit pension plan sponsored by the Parent, which was frozen effective July 1, 2009. This plan covered nearly all of the Company’s full-time employees. Benefits are generally based on years of service, the employee’s average annual compensation for the highest five continuous years of employment as specified in the plan agreement and social security integration levels. | |||
The Company records an allocation of the net periodic pension benefit cost from the Parent asCost of saleswith a corresponding decrease inAdvances to Parent. The Company recorded $0.1 million in 2009 and less than $0.1 million was allocated in net periodic pension benefit cost in 2010 and 2008. In 2010 and 2009, the Company contributed $0.2 million and $0.1 million, respectively, for its allocated share of contributions to the pension plan sponsored by the Parent. The accumulated pension benefit obligation attributable to the plan participants that are employees or retirees of the Company was $1.8 million and $1.4 million at December 31, 2010 and December 31, 2009, respectively. This obligation is funded with $1.4 million and $0.9 million of plan assets held by the Parent at December 31, 2010 and 2009, respectively, resulting in a $0.4 million and $0.5 million unfunded liability recorded on the Parent’s consolidated balance sheet at December 31, 2010 and 2009, respectively. | |||
The Company expects to contribute $0.2 million to WCC’s pension plan during 2011. |
230
Notes to Consolidated Financial Statements (Cont.)
2010 | 2009 | |||||||
Asset retirement obligations — beginning of year | $ | 32,428 | $ | 15,487 | ||||
Accretion | 3,035 | 1,346 | ||||||
Liabilities settled | (1,842 | ) | (318 | ) | ||||
Changes due to amount and timing of reclamation | (1,283 | ) | 15,913 | |||||
Asset retirement obligations — end of year | 32,338 | 32,428 | ||||||
Less current portion | (3,371 | ) | (4,512 | ) | ||||
Asset retirement obligations — less current portion | $ | 28,967 | $ | 27,916 | ||||
As permittee, the Company is responsible for the total amount. The financial responsibility for a portion of final reclamation of the mine when it is closed has been transferred by contract to one of the Company’s customers. |
The Company has recognized an asset of $0.5 million at December 31, 2010, as a contractual third-party reclamation receivable, representing the present value of the obligation of one of its customers to reimburse the Company for a portion of the asset retirement costs. |
(9) | 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 Sheet approximate the fair value of these instruments due to the short duration to their maturities. See Note 4 for additional disclosures related to fair value measurements. | ||
Fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. |
• | 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. The Company had no Level 2 inputs at December 31, 2010 and 2009. |
• | 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 had no Level 3 inputs at December 31, 2010 and 2009. |
231
Notes to Consolidated Financial Statements (Cont.)
The table below sets forth, by level, the Company’s financial assets that are accounted for at fair value (in thousands): |
Fair Value at December 31, 2010 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets: | ||||||||||||
Available-for-sale investments included in Reclamation investments and bond collateral | $ | 1,295 | $ | — | $ | — |
Fair Value at December 31, 2009 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets: | ||||||||||||
Available-for-sale investments included in Reclamation investments and bond collateral | $ | 1,281 | $ | — | $ | — |
(10) | Income Taxes | |
Income tax expense attributable to net income before income taxes consists of (in thousands): |
2010 | 2009 | 2008 | ||||||||||
Current: | ||||||||||||
Federal | $ | — | $ | — | $ | — | ||||||
State | 21 | 106 | 138 | |||||||||
Income tax expense | $ | 21 | $ | 106 | $ | 138 | ||||||
Income tax expense attributable to net income 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 (in thousands): |
2010 | 2009 | 2008 | ||||||||||
Computed tax expense (benefit) at statutory rate | $ | (787 | ) | $ | 216 | $ | (21 | ) | ||||
Increase in income tax expense resulting from: | ||||||||||||
Noncontrolling interest | 899 | 618 | — | |||||||||
State income taxes, net of federal tax benefit | 10 | 70 | 25 | |||||||||
State income taxes, return to provision adjustment | 5 | — | — | |||||||||
Minority interest | — | — | 288 | |||||||||
Prior year permanent items tax adjustments | 41 | — | — | |||||||||
Change in valuation allowance for net deferred tax assets | (167 | ) | (803 | ) | 8,000 | |||||||
Domestic production activities deduction | — | — | (57 | ) | ||||||||
Indian Coal Tax credit | — | — | (8,104 | ) | ||||||||
Other, net | 20 | 5 | 7 | |||||||||
Actual income tax expense | $ | 21 | $ | 106 | $ | 138 | ||||||
232
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 (in thousands): |
2010 | 2009 | |||||||
Deferred tax assets: | ||||||||
Indian coal tax credit carryforward | $ | 15,848 | $ | 15,727 | ||||
Accruals for following: | ||||||||
Asset retirement obligations | 5,548 | 5,114 | ||||||
NOL carryforward | 2,414 | 1,981 | ||||||
Other accruals | 264 | 245 | ||||||
Pension and postretirement medical obligation | 89 | — | ||||||
Gain on sale of partnership interest | 5,819 | 7,331 | ||||||
Total gross deferred tax assets | 29,982 | 30,398 | ||||||
Less valuation allowance | (17,923 | ) | (17,365 | ) | ||||
Net deferred tax asset | 12,059 | 13,033 | ||||||
Deferred tax liabilities: | ||||||||
Pension and postretirement medical benefit obligations | — | (174 | ) | |||||
Property, plant and equipment, due to differences in basis and depreciation, depletion and amortization | (12,046 | ) | (12,840 | ) | ||||
Change in accounting method | (13 | ) | (19 | ) | ||||
Total gross deferred tax liabilities | (12,059 | ) | (13,033 | ) | ||||
Net deferred taxes | $ | — | $ | — | ||||
As of December 31, 2010, the Company has available Federal net operating loss carryforwards to reduce future regular taxable income, which expires as follows: |
Expiration Date | Regular Tax | |||
(In thousands) | ||||
2029 | $ | 3,196 | ||
2030 | 3,394 | |||
Total | $ | 6,590 | ||
As of December 31, 2010, the Company also has an estimated $6.5 million in State net operating loss carryforwards to reduce future taxable income. |
(11) | Commitments |
The gross value of property, plant, equipment and mine development assets under capital leases was $4.6 million and $13.1 million as of December 31, 2010 and December 31, 2009, respectively, related primarily to the leasing of mining equipment. The accumulated amortization for these items was $1.1 million and $2.2 million at December 31, 2010 and December 31, 2009, respectively. |
233
Notes to Consolidated Financial Statements (Cont.)
Future minimum capital and operating lease payments as of December 31, 2010, are as follows (in thousands): |
Year Ended December 31, 2010 | ||||||||
Capital Leases | Operating Leases | |||||||
2011 | $ | 2,705 | $ | 588 | ||||
2012 | 2,678 | 245 | ||||||
2013 | 1,751 | 123 | ||||||
2014 | 1,008 | — | ||||||
2015 | 681 | — | ||||||
Thereafter | — | — | ||||||
Total minimum lease payments | $ | 8,824 | $ | 956 | ||||
Less imputed interest | (1,003 | ) | ||||||
Present value of minimum capital lease payments | $ | 7,821 | ||||||
Rental expense under operating leases during the year ending December 31, 2010, 2009 and 2008 totaled $1.0 million, $1.3 million and less than $0.1 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 $9.2 million, $9.6 million and $8.2 million in 2010, 2009 and 2008, respectively. |
Coal sales to major customers during the year ended December 31, 2010, 2009 and 2008 was as follows (in thousands): |
2010 | 2009 | 2008 | ||||||||||
Customer A | $ | 45,211 | $ | 49,670 | $ | 49,482 | ||||||
Customer B | 15,171 | 15,889 | 18,753 | |||||||||
Customer C | 7,491 | 6,156 | 5,895 | |||||||||
$ | 67,873 | $ | 71,715 | $ | 74,130 | |||||||
The Company engages in certain transactions with its Parent and other subsidiaries of the Parent. | ||
During 2010, 2009 and 2008, Western Energy Company, or WECO, a wholly owned subsidiary of WML, sold 0.2 million, 0.3 million and less than 0.1 million tons of coal, respectively, to the Company for approximately $2.1 million, $3.8 million and $0.4 million, respectively. | ||
The Company was allocated audit and tax fees and information technology costs incurred by its Parent. In 2010, 2009 and 2008, these fees were $0.4 million, $0.5 million and $0.4 million, respectively, and are included inSelling and administrative expenses. | ||
Advances to Parentprimarily represent the Company’s obligations for long-term loans from the Parent and accruals for postretirement medical benefit costs and pension costs allocated by the Parent, net of payments. |
234
Notes to Consolidated Financial Statements (Cont.)
(14) | 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) | ||||||||||||||||
2010: | ||||||||||||||||
Revenues | $ | 18,801 | $ | 20,958 | $ | 18,936 | $ | 16,302 | ||||||||
Operating income (loss) | (936 | ) | 1,655 | 770 | (1,339 | ) | ||||||||||
Net income (loss) applicable to Parent company | (574 | ) | 1,635 | (165 | ) | (587 | ) | |||||||||
Basic income (loss) per common share | $ | (57.40 | ) | $ | 163.50 | $ | (16.50 | ) | $ | (58.70 | ) | |||||
2009: | ||||||||||||||||
Revenues | $ | 19,657 | $ | 20,210 | $ | 20,287 | $ | 18,206 | ||||||||
Operating income (loss) | (591 | ) | 5,334 | (595 | ) | (1,787 | ) | |||||||||
Net income (loss) applicable to Parent company | (925 | ) | 5,551 | 257 | (2,535 | ) | ||||||||||
Basic income (loss) per common share | $ | (92.50 | ) | $ | 555.10 | $ | 25.70 | $ | (253.50 | ) |
235
Westmoreland Energy LLC
June 3, 2011
236
Westmoreland Energy LLC:
June 3, 2011
237
2010 | 2009 | |||||||
(In thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 880 | $ | 138 | ||||
Accounts receivable | 14,346 | 13,737 | ||||||
Inventories | 1,936 | 2,571 | ||||||
Other current assets | 224 | 176 | ||||||
Total current assets | 17,386 | 16,622 | ||||||
Property, plant, and equipment: | ||||||||
Land | 1,156 | 1,156 | ||||||
Capitalized asset retirement costs | 239 | 239 | ||||||
Plant, equipment, and other | 215,851 | 214,531 | ||||||
217,246 | 215,926 | |||||||
Less accumulated depreciation and amortization | (42,156 | ) | (32,953 | ) | ||||
175,090 | 182,973 | |||||||
Restricted investments | 8,563 | 8,705 | ||||||
Intangible assets, net of accumulated amortization $7.4 million at December 31, 2010 and $5.7 million at December 31, 2009 | 6,203 | 7,842 | ||||||
Other assets | 400 | 543 | ||||||
Total assets | $ | 207,642 | $ | 216,685 | ||||
Liabilities and Member’s Equity | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | — | 9,806 | ||||||
Accounts payable | 8,549 | 7,469 | ||||||
Accrued expenses | 783 | 944 | ||||||
Deferred revenue | 8,805 | 6,840 | ||||||
Total current liabilities | 18,137 | 25,059 | ||||||
Long-term debt, less current installments | 46,648 | 46,648 | ||||||
Deferred revenue, less current portion | 67,308 | 75,283 | ||||||
Pension | 154 | 178 | ||||||
Asset retirement obligation | 715 | 664 | ||||||
Intangible liabilities, net of accumulated amortization of $4.6 million at December 31, 2010 and $3.6 million at December 31, 2009 | 8,664 | 9,682 | ||||||
Other liabilities | — | 30 | ||||||
Total liabilities | 141,626 | 157,544 | ||||||
Member’s equity: | ||||||||
Contributed capital | 35 | 6 | ||||||
Accumulated other comprehensive income | (203 | ) | (164 | ) | ||||
Retained earnings | 66,184 | 59,299 | ||||||
Total member’s equity | 66,016 | 59,141 | ||||||
Total liabilities and member’s equity | $ | 207,642 | $ | 216,685 | ||||
238
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Revenues | $ | 87,999 | $ | 82,162 | $ | 90,006 | ||||||
Costs and expenses: | ||||||||||||
Cost of sales | 61,739 | 60,504 | 59,761 | |||||||||
Depreciation | 10,131 | 9,764 | 9,780 | |||||||||
Selling and administrative | 4,287 | 4,231 | 3,867 | |||||||||
Loss (gain) on sale of assets | 122 | 12 | (876 | ) | ||||||||
76,279 | 74,511 | 72,532 | ||||||||||
Operating income | 11,720 | 7,651 | 17,474 | |||||||||
Other income (expense): | ||||||||||||
Interest expense | (4,659 | ) | (5,946 | ) | (9,497 | ) | ||||||
Loss on extinguishment of debt | — | — | (1,345 | ) | ||||||||
Interest income | 36 | 120 | 511 | |||||||||
Other income | 30 | 448 | — | |||||||||
(4,593 | ) | (5,378 | ) | (10,331 | ) | |||||||
Income before income taxes | 7,127 | 2,273 | 7,143 | |||||||||
Income tax expense | 368 | 3,812 | 11,883 | |||||||||
Net income (loss) | $ | 6,759 | $ | (1,539 | ) | $ | (4,740 | ) | ||||
239
Accumulated Other | Total Member’s | |||||||||||||||
Contributed Capital | Comprehensive Loss | Retained Earnings | Equity | |||||||||||||
(In thousands) | ||||||||||||||||
Balance at December 31, 2007 | $ | 1,351 | $ | (295 | ) | $ | 57,371 | $ | 58,427 | |||||||
Distributions | — | — | (21,000 | ) | (21,000 | ) | ||||||||||
Warrant repriced in lieu of registration requirement | 355 | — | — | 355 | ||||||||||||
Sale of Ft. Lupton interest | (1 | ) | — | — | (1 | ) | ||||||||||
Transactions with Parent/affiliates | — | — | 30,151 | 30,151 | ||||||||||||
Amortization and adjustment of accumulated actuarial loss of pension plans | — | 189 | — | 189 | ||||||||||||
Net loss | — | — | (4,740 | ) | (4,740 | ) | ||||||||||
Comprehensive loss | (4,551 | ) | ||||||||||||||
Balance at December 31, 2008 | $ | 1,705 | $ | (106 | ) | $ | 61,782 | $ | 63,381 | |||||||
Distributions | — | — | (7,706 | ) | (7,706 | ) | ||||||||||
Cumulative effect of adoption of ASC 815-40 | (1,699 | ) | — | 1,222 | (477 | ) | ||||||||||
Transactions with Parent/affiliates | — | — | 5,540 | 5,540 | ||||||||||||
Amortization and adjustment of accumulated actuarial loss of pension plans | — | (58 | ) | — | (58 | ) | ||||||||||
Net loss | — | — | (1,539 | ) | (1,539 | ) | ||||||||||
Comprehensive loss | (1,597 | ) | ||||||||||||||
Balance at December 31, 2009 | $ | 6 | $ | (164 | ) | $ | 59,299 | $ | 59,141 | |||||||
Transactions with Parent/affiliates | — | — | 126 | 126 | ||||||||||||
Contributions of Westmoreland Coal Company common stock to pension plan on the Company’s behalf | 29 | — | — | 29 | ||||||||||||
Amortization and adjustment of accumulated actuarial loss of pension plans | — | (39 | ) | — | (39 | ) | ||||||||||
Net income | — | — | 6,759 | 6,759 | ||||||||||||
Comprehensive income | 6,720 | |||||||||||||||
Balance at December 31, 2010 | $ | 35 | $ | (203 | ) | $ | 66,184 | $ | 66,016 | |||||||
240
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | $ | 6,759 | $ | (1,539 | ) | $ | (4,740 | ) | ||||
Adjustments to reconcile net income (loss) to net cash from operating activities: | ||||||||||||
Depreciation | 10,131 | 9,764 | 9,780 | |||||||||
Accretion of asset retirement obligation | 51 | 34 | 32 | |||||||||
Loss (gain) on the sale of assets | 122 | 12 | (876 | ) | ||||||||
Amortization of deferred financing costs | (308 | ) | (313 | ) | (105 | ) | ||||||
Amortization of intangible assets and liabilities, net | 621 | 621 | 620 | |||||||||
Loss on extinguishment of debt | — | — | 1,102 | |||||||||
Gain on derivative | (30 | ) | (448 | ) | — | |||||||
Income tax allocation | — | — | 11,883 | |||||||||
Change in: | ||||||||||||
Accounts receivable | (609 | ) | 8,341 | (3,546 | ) | |||||||
Inventories | 635 | (730 | ) | 959 | ||||||||
Accounts payable and accrued expenses | 884 | (61 | ) | (406 | ) | |||||||
Deferred revenues | (6,010 | ) | 11,216 | 28,774 | ||||||||
Other assets and liabilities | (211 | ) | (2,427 | ) | (2,302 | ) | ||||||
Net cash provided by operating activities | 12,035 | 24,470 | 41,175 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of property, plant and equipment | (2,207 | ) | (4,251 | ) | (1,711 | ) | ||||||
Change in restricted investments | 142 | 2,266 | 19,868 | |||||||||
Proceeds from sale of assets | 1 | — | 876 | |||||||||
Net cash provided by (used in) investing activities | (2,064 | ) | (1,985 | ) | 19,033 | |||||||
Cash flows from financing activities: | ||||||||||||
Borrowings of long-term debt | — | — | 64,880 | |||||||||
Repayments of long-term debt | (9,355 | ) | (25,845 | ) | (132,070 | ) | ||||||
Borrowings on revolving lines of credit | 7,300 | — | — | |||||||||
Repayments on revolving lines of credit | (7,300 | ) | — | — | ||||||||
Deferred financing costs | — | — | (296 | ) | ||||||||
Transactions with Parent/affiliates | 126 | 5,540 | 18,268 | |||||||||
Distributions | — | (7,706 | ) | (21,000 | ) | |||||||
Net cash used in financing activities | (9,229 | ) | (28,011 | ) | (70,218 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 742 | (5,526 | ) | (10,010 | ) | |||||||
Cash and cash equivalents, beginning of year | 138 | 5,664 | 15,674 | |||||||||
Cash and cash equivalents, end of year | $ | 880 | $ | 138 | $ | 5,664 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid during the year for: | ||||||||||||
Interest | $ | 5,159 | $ | 6,531 | $ | 9,364 | ||||||
Income taxes | $ | 10 | $ | 1,910 | $ | 2,714 | ||||||
Noncash transactions: | ||||||||||||
Accrued purchases of property and equipment | $ | 86 | $ | 51 | $ | 408 |
241
1. | Summary of Significant Accounting Policies |
(a) | Nature of Operations | ||
Westmoreland Energy LLC, or WELLC, or the Company, a wholly owned subsidiary of Westmoreland Coal Company, or WCC, or the Parent, is a special purpose Delaware Limited Liability Company formed on December 4, 2000. Through its subsidiaries, the Company owns and operates two cogeneration facilities also known as Roanoke Valley Power Plant, or ROVA, located in Weldon, North Carolina. The first facility, ROVA I, is a 180 MW facility and the second facility, ROVA II, is a 50 MW facility adjacent to ROVA I. ROVA I and ROVA II operate as exempt wholesale generators as determined by the Federal Energy Regulatory Commission, or FERC. ROVA I commenced commercial operation on May 29, 1994. ROVA II commenced commercial operation on June 1, 1995. The Parent provides management and administrative support to WELLC and its subsidiaries, including legal, environmental, sales, and accounting services. | |||
The Company’s financial statements reflect substantially all of its costs of doing business. Common expenses incurred by the Parent on behalf of the Company are charged to the Company based on proportional cost allocations. The Company believes the allocations used are reasonable. However, these financial statements may not necessarily be representative of a stand-alone company. | |||
(b) | WCC’s Liquidity | ||
On February 4, 2011 through a private placement offering, WCC issued $150.0 million of Senior Secured Notes due in 2018 together with Westmoreland Partners, an indirect wholly owned subsidiary of WELLC, as co-issuer (hereafter, the Parent Notes). WCC received approximately $135.2 million in proceeds from the Parent Notes offering. WCC used the proceeds to pay the outstanding balance on the Company’s term debt, which the Company recorded as contributed capital. | |||
Following the February 4, 2011 Parent Notes offering, WCC has cash on hand in excess of $45 million. WCC also expects increases in coal operating profits and heritage health benefit expenditures to continue at their reduced 2010 rates. As a result, WCC anticipates that its cash flows from operations, cash on hand and available borrowing capacity will be sufficient to meet its investing, financing, and working capital requirements for the next several years. | |||
Also, the Company’s credit facility was terminated in February 2011 as a result of the Parent Notes offering. As a result of the Parent Notes offering, the Company recorded the current portion of its term debt as non-current liabilities in its consolidated balance sheet at December 31, 2010. |
242
Notes to Consolidated Financial Statements (Cont.)
(c) | Consolidation Policy | ||
The consolidated financial statements of WELLC includes the accounts of the Company and its wholly owned subsidiaries, after elimination of intercompany balances and transactions. | |||
(d) | 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. | |||
(e) | 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. | |||
(f) | Accounts Receivable | ||
Accounts receivable 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 accounts receivable as of December 31, 2010 and 2009. | |||
(g) | Inventories | ||
Inventories, which consist primarily of coal, are stated at the lower of cost or market. Cost is determined using the average cost method. | |||
(h) | Restricted Investments | ||
The Company has requirements to maintain restricted cash and investments for letter of credit requirements. Funds in the restricted investment accounts are not available to meet the Company’s operating cash needs. For all of its restricted investments, the Company can select from several investment options for the funds and receives the investment returns on these investments. | |||
(i) | Property, Plant, and Equipment | ||
Property, plant and equipment are carried at cost and include expenditures for new facilities, those expenditures that substantially increase the productive lives of existing plant and equipment and long-term spare parts inventory. Maintenance and repair costs that do not extend the useful life or increase the productivity of the asset are expensed as incurred. 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 |
Ash monofills are amortized on a cost per ton basis multiplied by tons sent to each monofill. The ash monofills were built as disposal sites for the ash generated during operations. Long-term spare parts inventory begins depreciation when placed in service. |
243
Notes to Consolidated Financial Statements (Cont.)
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 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. | |||
(j) | Intangible Assets & 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 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. These intangible assets and liabilities are amortized on a straight-line basis over the respective period of the sales and purchase agreements. | |||
Amortization of intangible assets recognized inCost of saleswas $1.6 million in 2010, 2009 and 2008. Amortization of intangible assets and liabilities recognized inRevenueswas $1.0 million in 2010, 2009 and 2008. | |||
The estimated aggregate amortization amounts from intangibles assets and liabilities for each of the next five years as of December 31, 2010 are as follows: |
Amortization Expense (Revenue) | ||||
(In thousands) | ||||
2011 | $ | 621 | ||
2012 | 621 | |||
2013 | 621 | |||
2014 | (26 | ) | ||
2015 | (834 | ) |
(k) | Fair Value Measurements | ||
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 balance sheet approximates the fair value of these instruments due to the short duration to maturities. The fair value of long-term debt is based on the interest rates available to the Company for debt with similar terms and maturities. | |||
(l) | 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, which contain features that qualify them as embedded derivatives. Except for derivatives that qualify for the normal purchase normal sale exception, all 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 orAccumulated other comprehensive income (loss) if they qualify for cash flow hedge accounting. |
244
Notes to Consolidated Financial Statements (Cont.)
(m) | Pension Plan | ||
The Company participates in the Parent’s noncontributory defined benefit pension plan, which was frozen effective July 1, 2009. The costs to provide the benefits are accrued over the employees’ period of active service and are determined on an actuarial basis. The liability recorded for this obligation was $0.2 million at year ended December 31, 2010 and 2009. | |||
(n) | 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. Accumulated amortization as of December 31, 2010 and 2009 was $1.7 million and $1.6 million, respectively. | |||
(o) | Deferred Revenue | ||
Deferred revenues represent funding received upon the negotiation of long-term contracts. The deferred power revenues are recognized as power is delivered on a pro rata basis, based on the payments estimated to be received and recognized over the remaining term of the power sales agreements. | |||
(p) | Asset Retirement Obligation | ||
The Company’s asset retirement obligation, or ARO, liabilities primarily consist of estimated costs related to reclaiming land at its facilities in accordance with federal and state reclamation laws. | |||
The Company estimates its ARO liabilities based upon detailed engineering calculations of the amount and timing of the future costs for a third party to perform the required work. Cost estimates are escalated for inflation, and then discounted at the credit-adjusted risk-free rate. The Company records an ARO asset associated with the initial recorded liability. The ARO asset is amortized on a straight-line basis and the ARO liability is accreted to the projected settlement date. Changes in estimates could occur due to revisions of plant operating plans, changes in estimated costs, and changes in timing of the performance of reclamation activities. | |||
As of December 31, 2010 and 2009, the Company’s obligation recorded inAsset retirement obligationwas $0.7 million. Changes in the Company’s asset retirement obligations for the years ended December 31, 2010 and 2009 were as follows: |
2010 | 2009 | |||||||
(In thousands) | ||||||||
Asset retirement obligation — beginning of period | $ | 664 | $ | 490 | ||||
Accretion | 51 | 34 | ||||||
Changes due to amount and timing of reclamation | — | 140 | ||||||
Asset retirement obligation — end of period | $ | 715 | $ | 664 | ||||
(q) | Income Taxes | ||
The Company is an LLC which is treated as a disregarded entity for U.S. Federal and State income tax purposes and as a result is included in the determination of taxable income or loss of WCC. In preparing these separate financial statements, income taxes have been provided like any other tax-paying enterprise based upon the requirement that single-member LLCs are subsidiaries of the member for financial reporting purposes, and income taxes generally are allocated under ASC paragraphs 740-10-30-27 and 30-28. | |||
The Company files consolidated federal and state tax returns with its Parent. As the Company itself is not a taxable entity, the Parent’s tax expense for its income tax return group included on the Parent’s consolidated income tax return is allocated among the members of that group. This allocation is calculated |
245
Notes to Consolidated Financial Statements (Cont.)
as if each member were a separate taxpayer. This allocation is reflected by the Company in Income tax expense with a corresponding amount in Member’s Equity. There is no formal tax sharing agreement with the Parent. | |||
The Company accounts for deferred income taxes using the asset and liability method. Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the Company’s consolidated financial statements based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities, as well as net operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company establishes a valuation allowance against its net deferred tax assets to the extent the Company believes that it is more likely than not that it will not realize the net deferred tax assets. | |||
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. This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. | |||
(r) | 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, $6.0 million of prior deferred revenue was recognized during 2010 while $11.2 million and $28.8 million of amounts invoiced during 2009 and 2008, respectively, were deferred from recognition. The Company began to recognize prior deferred revenue during 2010 at ROVA II and during 2009 at ROVA I. | |||
(s) | Accounting Pronouncements Adopted | ||
In January 2010, the FASB issued authoritative guidance, which requires additional disclosures and clarifies certain existing disclosure requirements regarding fair value measurements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009. The Company adopted this guidance effective January 1, 2010. However, none of the specific additional disclosures were applicable at December 31, 2010. | |||
On January 1, 2009, the Company adopted accounting guidance that clarifies how to determine whether certain instruments or features are indexed to an entity’s own stock. This guidance was effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. The Company recorded a cumulative effect of change in accounting principles upon adoption of this guidance. See Note 4 for additional information. |
246
Notes to Consolidated Financial Statements (Cont.)
The Company’s restricted investments consist of the following at December 31, 2010 and 2009: |
2010 | 2009 | |||||||
(In thousands) | ||||||||
Letter of credit | $ | 5,989 | $ | 6,038 | ||||
Repairs and maintenance account | 1,067 | — | ||||||
Debt protection account | 905 | 2,067 | ||||||
Ash reserve account | 602 | 600 | ||||||
Total restricted investments | $ | 8,563 | $ | 8,705 | ||||
All restricted investments at December 31, 2010, consisted of cash and cash equivalents. | |||
All underlying financial instruments included in the restricted investment accounts have Level I inputs available regarding fair value measurements. Level I inputs are quoted prices in active markets for identical financial instruments that the Company has the ability to access at the fair value measurement date. | |||
Pursuant to the terms of its loan agreement, ROVA was required to maintain either three or six months debt service reserves in its debt protection accounts, which was based on the calculation of its current debt service coverage ratio. | |||
The loan agreement required ROVA to fund an ash reserve account to $0.6 million. The ash reserve account was fully funded at December 31, 2010. | |||
The loan agreement also required ROVA to fund a repairs and maintenance account up to a maximum amount of $2.6 million. The funds for the repairs and maintenance account were required to be deposited every three months based on a formula contained in the agreement. | |||
Following the Parent Notes offering in February 2011, the debt protection, ash reserve, and repairs and maintenance accounts are no longer required and will be available for current operating needs. |
3. | Lines of Credit and Long-Term Debt |
2010 | 2009 | |||||||
(In thousands) | ||||||||
Term debt | $ | 46,220 | $ | 55,575 | ||||
Debt premiums | 428 | 879 | ||||||
Total debt outstanding | 46,648 | 56,454 | ||||||
Less current portion | — | (9,806 | ) | |||||
Total long-term debt | $ | 46,648 | $ | 46,648 | ||||
247
Notes to Consolidated Financial Statements (Cont.)
Future principal payments on long-term debt at December 31, 2010 are as follows: |
As of | ||||
December 31, 2010 | ||||
(In thousands) | ||||
2011 | $ | 8,025 | ||
2012 | 8,820 | |||
2013 | 9,645 | |||
2014 | 9,470 | |||
2015 | 10,260 | |||
Thereafter | — | |||
Total | 46,220 | |||
Plus: debt premium | 428 | |||
Total debt | $ | 46,648 | ||
Carrying Value | Fair Value | |||||||
(In thousands) | ||||||||
December 31, 2010 | $ | 46,648 | $ | 50,583 | ||||
December 31, 2009 | $ | 56,455 | $ | 60,330 |
4. | Derivative Instruments |
Adoption of ASC 815-40 | |||
On January 1, 2009, the Company adopted ASC 815-40,Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock. As part of the adoption of ASC 815-40, the value of the Company’s warrant was recorded as a liability. |
248
Notes to Consolidated Financial Statements (Cont.)
Derivative | Other | |||||||||||
Liability | Paid-In-Capital | Accumulated Deficit | ||||||||||
(In thousands) | ||||||||||||
Record January 1, 2009, derivative instrument liability related to warrant | 477 | — | 477 | |||||||||
Record the reversal of prior accounting related to the warrant | — | (1,699 | ) | (1,699 | ) | |||||||
$ | 477 | $ | (1,699 | ) | $ | (1,222 | ) | |||||
Number of | ||||||||||||||||
Shares Included in | Expected Life | |||||||||||||||
Warrant | Dividend Yield | Volatility | Risk Free Rate | (in years) | ||||||||||||
173,228 | None | 65 | % | 0.20 | % | 1.0 |
December 31, | ||||||||||||
Derivative Instruments | Balance Sheet Location | 2010 | 2009 | |||||||||
Warrant | Other liabilities | — | 30 |
Income Recognized in | ||||||||||||
Earnings on Derivatives | ||||||||||||
Year Ended December 31, | ||||||||||||
Derivative | Statement of | |||||||||||
Instruments | Operations Location | 2010 | 2009 | |||||||||
Warrant | Other income | 30 | 448 |
5. | Income Taxes | |
Income tax expense consists of: |
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Current: | ||||||||||||
Federal | $ | 296 | $ | 3,128 | $ | 9,891 | ||||||
State | 72 | 684 | 1,992 | |||||||||
Income tax expense | $ | 368 | $ | 3,812 | $ | 11,883 | ||||||
249
Notes to Consolidated Financial Statements (Cont.)
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Computed tax expense at statutory rate | $ | 2,495 | $ | 829 | $ | 2,500 | ||||||
Increase (decrease) in income tax expense resulting from: | ||||||||||||
State tax, net of federal benefit | 47 | 445 | 1,295 | |||||||||
Prior year permanent items tax return true-up | (34 | ) | — | — | ||||||||
Adjustments to deferred tax assets attributable to prior years | 38 | — | 27 | |||||||||
Change in valuation allowance for net deferred tax assets | (2,170 | ) | 2,693 | 8,690 | ||||||||
Domestic production and activities deduction | — | — | (631 | ) | ||||||||
Other, net | (8 | ) | (155 | ) | 2 | |||||||
Income tax expense | $ | 368 | $ | 3,812 | $ | 11,883 | ||||||
December 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Deferred tax assets: | ||||||||
Accruals for the following: | ||||||||
Pension and postretirement medical benefit obligation | $ | 61 | $ | 71 | ||||
Deferred revenue | 30,157 | 32,538 | ||||||
Reclamation | 228 | 208 | ||||||
MBO bonus | 284 | 191 | ||||||
Other accruals | 59 | 9 | ||||||
Total gross deferred tax assets: | 30,789 | 33,017 | ||||||
Less valuation allowance | (11,816 | ) | (14,176 | ) | ||||
Net deferred tax assets | 18,973 | 18,841 | ||||||
Deferred tax liabilities: | ||||||||
Debt issuance costs | (200 | ) | (252 | ) | ||||
Other | (868 | ) | (774 | ) | ||||
Property, plant, and equipment, principally due to differences in depreciation, depletion, and amortization | (17,905 | ) | (17,815 | ) | ||||
Total gross deferred tax liabilities: | (18,973 | ) | (18,841 | ) | ||||
Net deferred tax asset | $ | — | $ | — | ||||
6. | Commitments |
7. | Power Sales and Major Customers |
250
Notes to Consolidated Financial Statements (Cont.)
8. | Related-Party Transactions |
9. | Quarterly Financial Data (unaudited) |
Three Months Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
(In thousands) | ||||||||||||||||
2010: | ||||||||||||||||
Revenues | $ | 22,889 | $ | 21,174 | $ | 23,598 | $ | 20,338 | ||||||||
Operating income | 4,170 | 1,307 | 5,058 | 1,185 | ||||||||||||
Net income | 2,943 | 117 | 3,890 | 266 | ||||||||||||
2009: | ||||||||||||||||
Revenues | $ | 21,845 | $ | 23,551 | $ | 20,696 | $ | 16,070 | ||||||||
Operating income (loss) | 2,961 | 5,189 | 680 | (1,179 | ) | |||||||||||
Net income (loss) | 1,557 | 3,434 | (448 | ) | (2,332 | ) |
251
WESTMORELAND PARTNERS
Offer to Exchange
for $150,000,000 10.75% Senior Secured Notes due 2018
that have been registered under the Securities Act of 1933
252