Exhibit 99.3
Western Coal Corp.
Consolidated Financial Statements
For the three and nine months ended
December 31, 2010
(Unaudited)
Western Coal Corp.
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
(Unaudited)
| | December 31, 2010 | | March 31, 2010 | |
| | | | | |
ASSETS | | | | | |
Current assets | | | | | |
Cash and cash equivalents | | $ | 79,335 | | $ | 136,059 | |
Restricted cash | | 531 | | 5,337 | |
Amounts receivable (Note 4) | | 142,556 | | 64,597 | |
Income taxes receivable | | — | | 5,034 | |
Inventories (Note 5) | | 74,749 | | 46,212 | |
Future income taxes | | 4,813 | | 7,910 | |
| | | | | |
| | 301,984 | | 265,149 | |
| | | | | |
Deposits | | 33,481 | | 28,708 | |
Mineral property, plant and equipment (Note 6) | | 722,261 | | 514,323 | |
Investments and other assets (Note 7) | | 51,245 | | 48,449 | |
Future income taxes | | 466 | | — | |
| | | | | |
| | $ | 1,109,437 | | $ | 856,629 | |
| | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current liabilities | | | | | |
Accounts payable and accrued liabilities | | $ | 131,499 | | $ | 65,320 | |
Income taxes payable | | 22,683 | | 14,834 | |
Derivative financial liabilities | | 7,442 | | 9,567 | |
Long-term debt (Note 8) | | 4,089 | | 5,786 | |
Capital lease obligations (Note 9) | | 28,580 | | 16,847 | |
Convertible debentures (Note 10) | | — | | 40,573 | |
Royalty and other liabilities | | 2,241 | | 2,125 | |
Asset retirement obligations | | 1,094 | | 1,060 | |
| | | | | |
| | 197,628 | | 156,112 | |
| | | | | |
Long-term debt (Note 8) | | 4,532 | | 7,750 | |
Capital lease obligations (Note 9) | | 56,716 | | 17,491 | |
Royalty and other liabilities | | 11,072 | | 9,546 | |
Asset retirement obligations | | 28,926 | | 28,401 | |
Future income taxes | | 51,769 | | 32,415 | |
| | | | | |
| | 350,643 | | 251,715 | |
| | | | | |
Equity | | | | | |
Attributable to shareholders of the company | | 758,794 | | 577,159 | |
Attributable to non-controlling interests | | — | | 27,755 | |
| | | | | |
| | 758,794 | | 604,914 | |
| | | | | |
| | $ | 1,109,437 | | $ | 856,629 | |
Commitments and contingencies (Note 19), Subsequent events (Note 21)
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the Board of Directors:
“Keith Calder” | “John R. Brodie” |
Keith Calder, Director | John R. Brodie, FCA, Director |
1
Western Coal Corp.
Consolidated Statements of Income
(Expressed in thousands of Canadian dollars, except per share data)
(Unaudited)
| | Three months ended
December 31, | | Nine months ended
December 31, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| | | | | | | | | |
Revenues | | $ | 170,530 | | $ | 118,662 | | $ | 594,417 | | $ | 301,997 | |
| | | | | | | | | |
Cost of goods sold | | | | | | | | | |
Operating expenses | | 112,002 | | 69,813 | | 350,414 | | 205,029 | |
Depletion, amortization and accretion | | 14,745 | | 11,099 | | 43,479 | | 29,198 | |
| | 126,747 | | 80,912 | | 393,893 | | 234,227 | |
| | | | | | | | | |
Income from mining operations | | 43,783 | | 37,750 | | 200,524 | | 67,770 | |
| | | | | | | | | |
Other expenses (income) | | | | | | | | | |
General and administration (Note 13) | | 20,891 | | 9,134 | | 46,677 | | 21,022 | |
Sales and marketing | | 3,308 | | 3,403 | | 12,660 | | 7,653 | |
Coal exploration | | 471 | | 1,369 | | 3,905 | | 3,729 | |
Interest, accretion and financing fees | | 798 | | 2,713 | | 4,268 | | 8,958 | |
Loss (gain) on forward exchange contracts (Note 14) | | (5,093 | ) | (1,551 | ) | 1,302 | | (22,821 | ) |
Other expense (income) (Note 15) | | (2,341 | ) | (8,160 | ) | (3,847 | ) | 6,226 | |
| | 18,034 | | 6,908 | | 64,965 | | 24,767 | |
| | | | | | | | | |
Income before undernoted items | | 25,749 | | 30,842 | | 135,559 | | 43,003 | |
| | | | | | | | | |
Income tax recovery (expense) | | | | | | | | | |
Current income tax expense | | (11,452 | ) | (2,245 | ) | (28,162 | ) | (4,064 | ) |
Future income tax recovery (expense) | | 4,969 | | (5,498 | ) | (18,927 | ) | (10,291 | ) |
| | (6,483 | ) | (7,743 | ) | (47,089 | ) | (14,355 | ) |
| | | | | | | | | |
Equity earnings (losses) | | 1,110 | | 1,042 | | (7,614 | ) | 870 | |
| | | | | | | | | |
Net income | | $ | 20,376 | | $ | 24,141 | | $ | 80,856 | | $ | 29,518 | |
| | | | | | | | | |
Attributable to: | | | | | | | | | |
Non-controlling interests | | $ | — | | $ | 111 | | $ | (531 | ) | $ | (86 | ) |
Shareholders of the company | | $ | 20,376 | | $ | 24,030 | | $ | 81,387 | | $ | 29,604 | |
| | | | | | | | | |
Income per share | | | | | | | | | |
Basic | | $ | 0.07 | | $ | 0.10 | | $ | 0.30 | | $ | 0.13 | |
Diluted | | $ | 0.07 | | $ | 0.09 | | $ | 0.30 | | $ | 0.13 | |
| | | | | | | | | |
Weighted average common shares outstanding | | | | | | | | | |
Basic | | 276,685,135 | | 250,748,997 | | 268,131,414 | | 232,628,178 | |
Diluted | | 284,225,032 | | 253,810,593 | | 273,878,356 | | 234,470,329 | |
The accompanying notes are an integral part of these consolidated financial statements.
2
Western Coal Corp.
Consolidated Statements of Comprehensive Income
(Expressed in thousands of Canadian dollars, except per share data)
(Unaudited)
| | Three months ended
December 31, | | Nine months ended
December 31, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| | | | | | | | | |
Net income | | $ | 20,376 | | $ | 24,141 | | $ | 80,856 | | $ | 29,518 | |
| | | | | | | | | |
Other comprehensive income (loss) in the period | | | | | | | | | |
Change in fair value of available-for-sale securities | | 5,159 | | 374 | | 7,313 | | 1,724 | |
Currency translation adjustment | | (4,284 | ) | (4,066 | ) | (3,006 | ) | (2,275 | ) |
| | 875 | | (3,692 | ) | 4,307 | | (551 | ) |
| | | | | | | | | |
Comprehensive income | | $ | 21,251 | | $ | 20,449 | | $ | 85,163 | | $ | 28,967 | |
| | | | | | | | | |
Other comprehensive income (loss) attributable to: | | | | | | | | | |
Non-controlling interests | | — | | (220 | ) | 1,430 | | (1,728 | ) |
Shareholders of the company | | 875 | | (3,472 | ) | 2,877 | | 1,177 | |
| | | | | | | | | |
| | $ | 875 | | $ | (3,692 | ) | $ | 4,307 | | $ | (551 | ) |
| | | | | | | | | |
Comprehensive income (loss) attributable to: | | | | | | | | | |
Non-controlling interests | | — | | (110 | ) | 899 | | (1,814 | ) |
Shareholders of the company | | 21,251 | | 20,559 | | 84,264 | | 30,781 | |
| | | | | | | | | |
| | $ | 21,251 | | $ | 20,449 | | $ | 85,163 | | $ | 28,967 | |
The accompanying notes are an integral part of these consolidated financial statements.
3
Western Coal Corp.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
(Unaudited)
| | Three months ended
December 31, | | Nine months ended
December 31, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| | | | | | | | | |
Operating Activities | | | | | | | | | |
Net income | | $ | 20,376 | | $ | 24,141 | | $ | 80,856 | | $ | 29,518 | |
| | | | | | | | | |
Items not involving cash: | | | | | | | | | |
Depletion, amortization and accretion | | 14,873 | | 10,504 | | 43,848 | | 29,664 | |
Future income tax expense (recovery) | | (4,969 | ) | 5,498 | | 18,927 | | 10,291 | |
Equity loss (earnings) | | (1,110 | ) | (1,042 | ) | 7,614 | | (870 | ) |
Stock-based compensation | | 1,775 | | 2,458 | | 6,240 | | 4,923 | |
Interest, accretion and financing fees | | 443 | | 999 | | 1,379 | | 3,681 | |
Gain on disposal of subsidiary | | — | | (6,996 | ) | — | | (6,996 | ) |
Gain on redemption of convertible debentures | | — | | — | | — | | (4,155 | ) |
Net foreign exchange loss (gain) on forward exchange contracts | | (3,462 | ) | 6,127 | | 7,771 | | (6,119 | ) |
Other | | (3,531 | ) | (122 | ) | (5,642 | ) | 8 | |
| | 24,395 | | 41,567 | | 160,993 | | 59,945 | |
Settlement of asset retirement obligations | | (118 | ) | — | | (621 | ) | — | |
Net change in non-cash working capital items (Note 16) | | 7,925 | | 27,820 | | (53,419 | ) | 17,287 | |
Cash provided by operating activities | | 32,202 | | 69,387 | | 106,953 | | 77,232 | |
| | | | | | | | | |
Investing Activities | | | | | | | | | |
Acquisition of mineral property, plant and equipment | | (74,090 | ) | (13,794 | ) | (162,258 | ) | (17,211 | ) |
Deposits | | (3,168 | ) | (1,666 | ) | (4,920 | ) | (1,679 | ) |
Transaction costs related to acquisitions | | — | | 82 | | (1,535 | ) | (4,975 | ) |
Proceeds from repayment of notes receivable | | 1,611 | | — | | 1,611 | | — | |
Cash inflow (outflow) from business acquisition | | — | | (526 | ) | — | | 4,427 | |
Other | | 3,286 | | — | | 2,786 | | — | |
Cash used in investing activities | | (72,361 | ) | (15,904 | ) | (164,316 | ) | (19,438 | ) |
| | | | | | | | | |
Financing Activities | | | | | | | | | |
Proceeds from exercise of stock options | | 12,075 | | — | | 19,650 | | 549 | |
Proceeds from exercise of warrants | | 1,996 | | 256 | | 4,448 | | 1,824 | |
Repayments of capital lease obligations | | (7,800 | ) | (5,376 | ) | (16,840 | ) | (13,095 | ) |
Repayments of long-term debt, net of proceeds | | (1,485 | ) | (887 | ) | (4,782 | ) | (2,854 | ) |
Transaction costs related to long-term debt | | (1,421 | ) | — | | (1,421 | ) | — | |
Repayments of convertible debentures | | — | | — | | (202 | ) | (31,380 | ) |
Proceeds from issuance of shares by subsidiary | | — | | 9,607 | | — | | 9,607 | |
Proceeds from issuance of common shares, net of costs | | — | | 24 | | — | | 55,889 | |
Cash provided by financing activities | | 3,365 | | 3,624 | | 853 | | 20,540 | |
| | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | (545 | ) | (1,559 | ) | (214 | ) | (3,041 | ) |
| | | | | | | | | |
Increase (decrease) in cash and cash equivalents during the period | | (37,339 | ) | 55,548 | | (56,724 | ) | 75,293 | |
Cash and cash equivalents, beginning of period | | 116,674 | | 94,598 | | 136,059 | | 74,853 | |
Cash and cash equivalents, end of period | | $ | 79,335 | | $ | 150,146 | | $ | 79,335 | | $ | 150,146 | |
Supplementary cash flow information (Note 16).
The accompanying notes are an integral part of these consolidated financial statements.
4
Western Coal Corp.
Consolidated Statements of Shareholders’ Equity
(Expressed in thousands of Canadian dollars)
(Unaudited)
| | December 31, 2010 | | March 31, 2010 | |
| | | | | |
Share capital (Note 11) | | $ | 561,008 | | $ | 449,367 | |
| | | | | |
Equity portion of convertible debentures | | — | | 3,874 | |
| | | | | |
Contributed surplus | | 16,602 | | 19,031 | |
| | | | | |
Accumulated comprehensive income (loss) attributable to the shareholders of the company | | | | | |
Retained earnings, beginning of period | | 120,195 | | 80,614 | |
Loss on redemption of convertible debentures | | — | | (1,223 | ) |
Acquisition of non-controlling interests in Energybuild (Note 3) | | (10,827 | ) | — | |
Net income | | 81,387 | | 40,804 | |
Retained earnings, end of period | | 190,755 | | 120,195 | |
Accumulated other comprehensive loss (Note 12) | | (9,571 | ) | (15,308 | ) |
| | 181,184 | | 104,887 | |
| | | | | |
| | $ | 758,794 | | $ | 577,159 | |
| | | | | |
Non-controlling interests | | — | | 27,755 | |
| | | | | |
| | $ | 758,794 | | $ | 604,914 | |
The accompanying notes are an integral part of these consolidated financial statements.
5
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
1. Basis of presentation and consolidation
These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles using standards for interim financial statements and do not contain all of the information required for annual financial statements. These statements follow the same accounting policies and methods of application of the most recent annual audited financial statements, except as described in Note 2. Accordingly, they should be read in conjunction with the most recent annual audited consolidated financial statements of Western Coal Corp. (the “Company”).
Certain comparative figures have been reclassified to conform to the presentation adopted for the current period.
2. Adoption of new accounting standards
Business Combinations and Related Sections
In January 2009, the CICA issued Section 1582, “Business Combinations” which replaces former guidance on business combinations. This section is effective for fiscal years beginning on or after January 1, 2011, with early adoption permitted. This standard harmonizes the business combinations standard under Canadian GAAP with International Financial Reporting Standards. The new section revises guidance on the determination of the carrying amount of the assets acquired and liabilities assumed, goodwill and accounting for non-controlling interests at the time of a business combination.
The CICA concurrently issued Section 1601 “Consolidated Financial Statements” and Section 1602 “Non-Controlling Interests”, which replace former guidance on consolidated financial statements. These sections are effective for fiscal years beginning on or after January 1, 2011, with early adoption permitted. The Company has chosen to early adopt Sections 1582, 1601 and 1602 effective April 1, 2010. As a result, non-controlling interests have been presented within shareholders’ equity on the balance sheet. The non-controlling interests in income are no longer deducted in arriving at consolidated net income. Consolidated other comprehensive income and consolidated comprehensive income have been attributed to equity shareholders of the Company and non-controlling interests. There is no effect from adoption on previous business combinations.
6
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
3. Acquisition
Energybuild Group Plc
On August 9, 2010, the Company acquired all the issued ordinary share capital of Energybuild Group Plc (“Energybuild”) not already held by the Company. The Company accounted for this acquisition of Energybuild as an equity transaction. The purchase price was funded as follows:
Issuance of 8,551,578 common shares | | $ | 35,831 | |
Issuance of 1,457,750 stock options and warrants in exchange for Energybuild option and warrant obligations | | 685 | |
Transaction costs | | 1,535 | |
Purchase price | | $ | 38,051 | |
Each common share was valued at $4.19, being the closing market price of the Company’s common shares on the day the acquisition was closed.
The Company issued 1,457,750 stock options and warrants valued at $685,000 in exchange for Energybuild stock options and warrants. The terms and conditions of these stock options and warrants remain the same as the Energybuild stock options and warrants, except for the number of options and warrants issued and the respective exercise price, which were adjusted according to the exchange ratio. As a result of the acquisition, Energybuild notified holders of the stock options that the options will expire on February 5, 2011. The following assumptions were used for the Black-Scholes option pricing model to determine the fair value of the stock options and warrants:
Risk-free interest rate: | | 1.55% | |
Expected volatility: | | 69% | |
Expected life: | | 0.14 years to 0.49 years | |
Dividend rate: | | Nil | |
The movement in equity attributable to non-controlling interests and retained earnings as a result of the acquisition is:
Non-controlling interests, March 31, 2010 | | $ | 27,755 | |
Non-controlling interest share of net loss | | (531 | ) |
| | | |
Non-controlling interests, date of acquisition | | 27,224 | |
| | | |
Purchase price | | (38,051 | ) |
Amount allocated to retained earnings | | $ | (10,827 | ) |
7
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
4. Amounts receivable
| | December 31, 2010 | | March 31, 2010 | |
| | | | | |
Trade accounts receivable | | $ | 92,991 | | $ | 43,147 | |
Prepaid expenses and other deposits | | 26,717 | | 7,610 | |
Harmonized sales tax and other sales taxes receivable | | 19,843 | | 1,694 | |
Other receivables | | 1,797 | | 3,167 | |
Unrealized gain on foreign currency contracts | | 1,208 | | 8,979 | |
| | | | | |
| | $ | 142,556 | | $ | 64,597 | |
5. Inventories
| | December 31, 2010 | | March 31, 2010 | |
| | | | | |
Production inventories | | $ | 53,879 | | $ | 35,547 | |
Parts inventories | | 20,870 | | 10,665 | |
| | | | | |
| | $ | 74,749 | | $ | 46,212 | |
8
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
6. Mineral property, plant and equipment
December 31, 2010 | | Cost | | Accumulated
Amortization | | Net | |
Mineral property and mine development | | $ | 508,811 | | $ | 81,414 | | $ | 427,397 | |
Plant, buildings and mine facilities | | 142,074 | | 32,450 | | 109,624 | |
Equipment | | 255,350 | | 70,110 | | 185,240 | |
| | | | | | | |
| | $ | 906,235 | | $ | 183,974 | | $ | 722,261 | |
March 31, 2010 | | Cost | | Accumulated
Amortization | | Net | |
Mineral property and mine development | | $ | 359,301 | | $ | 62,312 | | $ | 296,989 | |
Plant, buildings and mine facilities | | 139,224 | | 23,510 | | 115,714 | |
Equipment | | 155,879 | | 54,259 | | 101,620 | |
| | | | | | | |
| | $ | 654,404 | | $ | 140,081 | | $ | 514,323 | |
Equipment includes assets under capital leases totaling $135,708,000 (March 31, 2010 - $76,024,000).
Capital expenditures in the amount of $55,694,000 (March 31, 2010 - $1,572,000) are included in accounts payable and accrued liabilities relating to equipment purchases.
9
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
7. Investments and other assets
| | December 31, 2010 | | March 31, 2010 | |
| | | | | |
Held-for-trading investments: | | | | | |
Asset-backed commercial paper | | $ | 3,211 | | $ | 3,051 | |
Marketable securities | | 503 | | 302 | |
| | | | | |
Available-for-sale investments: | | | | | |
Marketable securities (a) | | 30,274 | | 7,713 | |
| | | | | |
Investments accounted for under the equity method (a) | | 2,699 | | 25,682 | |
| | | | | |
Derivative financial assets | | 13,706 | | 10,925 | |
| | | | | |
Note receivable | | — | | 776 | |
Loan to related party | | 438 | | — | |
Deferred transaction costs | | 414 | | — | |
| | | | | |
| | $ | 51,245 | | $ | 48,449 | |
(a) Prior to December 1, 2010, the Company’s investment in Mandalay Resources Corp. (“Mandalay”) was accounted for under CICA Handbook Section 3051 “Investments” using the equity-accounting method, with the investment recorded at cost, and adjusted for the Company’s proportionate share of earnings or losses and capital transactions.
During the nine months ended December 31, 2010, options to acquire the Company’s shares in Mandalay were exercised in addition to the completion of equity financings with third parties by Mandalay. This reduced the Company’s ownership interest in Mandalay from 48% to approximately 18%, on an undiluted basis. The Company no longer has the ability to exert significant influence over Mandalay and as such, the Company has since designated the investment in Mandalay as available-for-sale and no longer accounts for the investment using the equity-accounting method. As a consequence of this change, the difference between the carrying amount of the investment and its fair value resulted in a gain of $1,860,000, which is included in earnings under other expense (income).
As at December 31, 2010, the sole investment accounted for using the equity-accounting method is the Company’s investment in Xtract Energy Plc.
10
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
8. Long-term debt
On August 6, 2010, the Company entered into a syndicated credit facility. This facility consists of a revolving term credit facility in the amount of US$125,000,000 and has a maturity date of August 6, 2012. It is secured by the Company’s assets and bears interest at LIBOR, Canadian Prime Rate, Base Rate Canada or Federal Funds Effective Rate plus a margin. As at December 31, 2010, the full amount under this facility was available.
The long-term debt balances outstanding relate to the Company’s US operations.
11
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
9. Capital lease obligations
The Company has certain equipment under capital leases expiring at various times through 2015 bearing interest at various rates between 0% and 9%. Capital lease obligations for the period are as follows:
| | December 31, 2010 | | March 31, 2010 | |
| | | | | |
Balance, beginning of period | | $ | 34,338 | | $ | 47,796 | |
Assumption of obligations on acquisition | | — | | 3,610 | |
Fair value of capital leases recorded during the period | | 68,244 | | 1,627 | |
Change in fair value of embedded derivatives | | 291 | | 36 | |
Payments made during the period | | (18,848 | ) | (21,053 | ) |
Interest portion of payments | | 2,008 | | 2,834 | |
Foreign currency translation adjustment | | (737 | ) | (512 | ) |
Balance, end of period | | 85,296 | | 34,338 | |
| | | | | |
Less: Current portion | | (28,580 | ) | (16,847 | ) |
| | | | | |
Long-term portion of capital lease obligations | | $ | 56,716 | | $ | 17,491 | |
Future minimum lease payments under capital leases by year and in aggregate are as follows:
For the years ending December 31, | | 2011 | | $ | 31,038 | |
| | 2012 | | 25,960 | |
| | 2013 | | 17,278 | |
| | 2014 | | 15,543 | |
| | 2015 | | 5,578 | |
Total minimum lease payments | | | | 95,397 | |
Amounts representing interest | | | | (10,101 | ) |
Present value of minimum lease payments | | | | 85,296 | |
Less: current portion | | | | (28,580 | ) |
| | | | | |
| | | | $ | 56,716 | |
12
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
10. Convertible debentures
$125 million issuance, maturity March 24, 2011 | | December 31, 2010 | | March 31, 2010 | |
| | | | | |
Balance, beginning of period | | $ | 40,573 | | $ | 66,656 | |
| | | | | |
Accretion of liability component of debentures | | 127 | | 1,978 | |
Interest payable | | — | | 69 | |
Cambrian acquisition | | — | | (28,091 | ) |
Conversion of convertible debentures | | (40,498 | ) | (39 | ) |
Repayment of convertible debentures | | (202 | ) | — | |
Balance, end of period | | $ | — | | $ | 40,573 | |
Less: Current portion | | — | | (40,573 | ) |
Long-term portion of convertible debentures | | $ | — | | $ | — | |
On April 28, 2010, the Company provided holders of its $125,000,000 convertible debentures notice of its intention to redeem effective May 31, 2010, all of its issued and outstanding convertible debentures. During the period from April 1, 2010 to May 31, 2010, $41,696,000 of principal or 41,696 units of the $125,000,000 convertible debentures were converted into 10,424,000 common shares of the Company. On May 31, 2010, the Company redeemed $202,000 of principal plus $4,000 of accrued interest.
11. Share capital
Authorized: Unlimited number of common shares without par value.
Issued:
| | Number of Shares | | Consideration | |
| | | | | |
Balance, March 31, 2010 | | 252,702,907 | | $ | 449,367 | |
Shares issued for acquisition of non-controlling interests in Energybuild (Note 3) | | 8,551,578 | | 35,831 | |
Transferred upon conversion of $125 million convertible debentures | | 10,424,000 | | 44,353 | |
Exercise of stock options | | 5,473,587 | | 17,898 | |
Transferred upon exercise of stock options | | — | | 8,139 | |
Exercise of warrants | | 2,222,600 | | 4,448 | |
Transferred upon exercise of warrants | | — | | 972 | |
Balance, December 31, 2010 | | 279,374,672 | | $ | 561,008 | |
13
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
11. Share Capital (continued)
Stock options
A summary of the Company’s stock options outstanding and the changes during the period are as follows:
| | Number of Shares Issuable pursuant
to Stock Options | | Weighted Average Exercise
price per Share | |
| | | | | |
Balance at March 31, 2010 | | 11,793,053 | | $ | 2.87 | |
| | | | | |
Granted | | 2,481,573 | | 4.32 | |
Assumed (a) | | 624,750 | | 5.89 | |
Expired | | (240,000 | ) | 6.18 | |
Forfeited | | (255,968 | ) | 3.90 | |
Exercised | | (5,473,587 | ) | 3.27 | |
Balance at December 31, 2010 | | 8,929,821 | | $ | 3.13 | |
Vested and exercisable at end of period | | 2,457,173 | | $ | 2.99 | |
(a) For those Energybuild options outstanding at the time of the acquisition of Energybuild, the Energybuild option holders are entitled to receive the Company’s shares upon exercise of such options on the basis of 0.0833 Company shares for every one Energybuild share, which the option holder is entitled to under the terms of the option. At December 31, 2010, all such options had been exercised.
14
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
11. Share Capital (continued)
Warrants
A summary of the Company’s warrants outstanding and the changes for the period are as follows:
| | Number of Shares Issuable pursuant
to Warrants | | Weighted Average Exercise
price per Share | |
| | | | | |
Balance at March 31, 2010 | | 4,012,845 | | $ | 2.42 | |
| | | | | |
Issued | | — | | — | |
Assumed (a) | | 833,000 | | 3.93 | |
Expired | | — | | — | |
Exercised | | (2,222,600 | ) | 2.01 | |
Balance at December 31, 2010 | | 2,623,245 | | $ | 3.25 | |
(a) For those Energybuild warrants outstanding at the time of the acquisition of Energybuild, the Energybuild warrant holders are entitled to receive the Company’s shares upon exercise of such options on the basis of 0.0833 Company shares for every one Energybuild share, which the warrant holder is entitled to under the terms of the warrant. At December 31, 2010, all such warrants had been exercised.
2,623,245 warrants with an exercise price of $3.25 expire on June 28, 2012.
15
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
11. Share Capital (continued)
Deferred Share Units, Performance Share Units and Restricted Share Units
On September 9, 2010, the Company’s shareholders approved and adopted the Company’s Deferred Share Unit (“DSU”), Performance Share Unit (“PSU”) and Restricted Share Unit (“RSU”) plans.
Under the Company’s DSU plan, directors may receive DSUs which entitle the holder to a cash payment equal to the volume weighted average trading price of one common share over the five trading days immediately preceding the date of redemption. DSUs vest quarterly and may only be redeemed within six months from the date a holder ceases to be a director.
Under the Company’s PSU or RSU plans, employees may receive RSUs or PSUs which entitle the holder to a share payment equal to the number of units held on the fifth business day following the vesting date.
At December 31, 2010, there were 57,468 DSUs and nil PSUs and RSUs outstanding.
Non-vested DSU, PSU and RSU activity is as follows:
| | DSUs, RSUs and PSUs | | Weighted Average
Grant Date Fair Value | |
| | | | | |
Non-vested, beginning of period | | — | | $ | — | |
| | | | | |
Granted | | 66,948 | | 4.22 | |
Vested | | (21,477 | ) | 4.22 | |
Forfeited | | (9,480 | ) | 4.22 | |
Non-vested, end of period | | 35,991 | | $ | 4.22 | |
16
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
12. Accumulated other comprehensive loss
| | December 31, 2010 | | March 31, 2010 | |
| | | | | |
Accumulated other comprehensive loss, beginning of period | | $ | (11,121 | ) | $ | — | |
Other comprehensive income (loss) | | 4,307 | | (11,121 | ) |
Acquisition of non-controlling interests in Energybuild | | (2,757 | ) | — | |
Accumulated other comprehensive loss, end of period | | $ | (9,571 | ) | $ | (11,121 | ) |
The components of accumulated other comprehensive loss are:
| | December 31, 2010 | | March 31, 2010 | |
| | | | | |
Unrealized gain on available-for-sale securities | | $ | 11,062 | | $ | 3,748 | |
Currency translation adjustment | | (20,633 | ) | (14,869 | ) |
| | $ | (9,571 | ) | $ | (11,121 | ) |
| | | | | |
Accumulated other comprehensive income (loss) attributable to: | | | | | |
Non-controlling interests | | $ | — | | $ | 4,187 | |
Shareholders of the company | | (9,571 | ) | (15,308 | ) |
| | $ | (9,571 | ) | $ | (11,121 | ) |
17
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
13. General and administration
| | Three months ended
December 31, | | Nine months ended
December 31, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| | | | | | | | | |
Salaries, benefits and other remuneration | | $ | 4,772 | | $ | 3,531 | | $ | 13,031 | | $ | 9,025 | |
Legal and audit | | 4,910 | | 572 | | 9,055 | | 1,391 | |
Consulting | | 5,362 | | 592 | | 6,683 | | 951 | |
Stock-based compensation | | 1,775 | | 2,458 | | 6,240 | | 4,923 | |
Recruiting | | 647 | | 128 | | 3,107 | | 251 | |
Office and miscellaneous | | 1,090 | | 662 | | 2,810 | | 1,418 | |
Travel and related expenses | | 1,089 | | 408 | | 2,549 | | 926 | |
Rent and telecommunications | | 610 | | 236 | | 1,289 | | 589 | |
Exchange listings and other regulatory fees | | 307 | | 88 | | 980 | | 187 | |
Amortization | | 128 | | 190 | | 369 | | 489 | |
Insurance | | 125 | | 124 | | 331 | | 363 | |
Corporate communications | | 76 | | 145 | | 233 | | 509 | |
| | $ | 20,891 | | $ | 9,134 | | $ | 46,677 | | $ | 21,022 | |
14. Loss (gain) on forward exchange contracts
| | Three months ended
December 31, | | Nine months ended
December 31, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| | | | | | | | | |
Unrealized loss (gain) on forward exchange contracts | | $ | (4,994 | ) | $ | 4,872 | | $ | (539 | ) | $ | (10,632 | ) |
Realized loss (gain) on forward exchange contracts | | (99 | ) | (6,423 | ) | 1,841 | | (12,189 | ) |
| | $ | (5,093 | ) | $ | (1,551 | ) | 1,302 | | $ | (22,821 | ) |
| | | | | | | | | | | | | |
The unrealized gain on forward exchange contracts of $539,000 is comprised of a reversal of unrealized mark-to-market gains as at March 31, 2010 in the amount of $669,000 and an unrealized mark-to-market gain on outstanding forward exchange contracts as at December 31, 2010 in the amount of $1,208,000.
18
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
15. Other expense (income)
| | Three months ended
December 31, | | Nine months ended
December 31, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| | | | | | | | | |
Net foreign exchange loss (gain) | | $ | 4,149 | | $ | (2,556 | ) | $ | 3,884 | | $ | 19,530 | |
Loss (gain) on fair value adjustment of held-for-trading investments and derivatives | | (2,917 | ) | 26 | | (4,495 | ) | (48 | ) |
Gain on fair value adjustment of investment in Mandalay | | (1,860 | ) | — | | (1,860 | ) | — | |
Gain on recovery of note receivable | | (691 | ) | — | | (691 | ) | — | |
Interest expense (income) | | (740 | ) | 1,804 | | (822 | ) | (1,709 | ) |
Gain on redemption of convertible debentures | | — | | — | | — | | (4,155 | ) |
Gain on disposal of subsidiary | | — | | (6,996 | ) | — | | (6,996 | ) |
Other expense (income) | | (282 | ) | (438 | ) | 137 | | (396 | ) |
| | $ | (2,341 | ) | $ | (8,160 | ) | $ | (3,847 | ) | $ | 6,226 | |
19
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
16. Supplementary cash flow information
At December 31, 2010, cash and cash equivalents consists of cash balances held at financial institutions.
| | Three months ended
December 31, | | Nine months ended
December 31, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| | | | | | | | | |
Other information: | | | | | | | | | |
Interest paid | | $ | 1,684 | | $ | 885 | | $ | 14,687 | | $ | 4,236 | |
Taxes paid (recovered) | | $ | 3,299 | | $ | (244 | ) | $ | 15,844 | | $ | 20,409 | |
| | | | | | | | | |
Non-cash investing and financing transactions: | | | | | | | | | |
Capital lease obligation recognized for assets under capital lease | | $ | 13,261 | | $ | 1,003 | | $ | 68,244 | | $ | 1,003 | |
Change in working capital for purchase of mineral property, plant and equipment | | $ | 21,927 | | $ | — | | $ | 35,652 | | $ | — | |
Change in working capital for exercise of stock options | | $ | 1,752 | | $ | — | | $ | 1,752 | | $ | — | |
Proceeds from disposal of AGD | | $ | — | | $ | 17,869 | | $ | — | | $ | 17,869 | |
Net common shares issued for acquisition of Cambrian | | $ | — | | $ | — | | $ | — | | $ | 22,114 | |
20
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
16. Supplementary cash flow information (continued)
Changes in non-cash working capital items consisted of the following:
| | Three months ended
December 31, | | Nine months ended
December 31, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| | | | | | | | | |
Restricted cash | | $ | — | | $ | (322 | ) | $ | 4,795 | | $ | (4,443 | ) |
Amounts receivable | | (495 | ) | 33,570 | | (67,415 | ) | 36,490 | |
Income taxes receivable | | — | | — | | 5,034 | | — | |
Inventories | | (947 | ) | (9,521 | ) | (14,142 | ) | 10,078 | |
Accounts payable and accrued liabilities | | 600 | | 1,449 | | 10,463 | | (10,548 | ) |
Income taxes payable | | 8,767 | | 1,858 | | 7,846 | | (15,076 | ) |
Accrued interest on convertible debentures | | — | | 786 | | — | | 786 | |
| | $ | 7,925 | | $ | 27,820 | | $ | (53,419 | ) | $ | 17,287 | |
17. Financial instruments
Financial risk management
Market risk
Foreign currency exchange rates
To minimize the risk exposure of foreign currency fluctuations on sales revenues from its Canadian operations, the Company may enter into forward exchange contracts to fix the rate at which future anticipated flows of US dollars are exchanged into Canadian dollars. As at December 31, 2010, these contracts included forward sales of US dollars at an average rate of 1.0273, in the aggregate amount of US$97,000,000 from January 2011 to the end of March 2011. The Company has entered into forward exchange contracts to offset certain of these contracts totaling US$60,000,000. The unrealized gain recorded on these contracts at December 31, 2010 was $1,208,000.
21
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
18. Related party transactions
(a) During the nine month period ended December 31, 2010, the Company paid fees totaling $72,289 (December 31, 2009 - $161,000) to companies related to the Company through common directors or officers of the Company.
(b) On July 9, 2010, the Company extended a loan to an officer of the Company in the amount of $500,000. This loan is forgivable in certain circumstances.
The transactions described above have been recorded at their exchange amounts, which management believes to be representative of commercial terms.
22
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
19. Commitments and contingencies
(a) Maple Coal Company (“Maple”)
Maple, a subsidiary of the Company with operations in West Virginia, was the subject of a compliance order issued against its water discharge permit on April 5, 2007, by the West Virginia Department of Environmental Protection (“WVDEP”). This order, which is similar to compliance orders issued by the WVDEP to a number of other West Virginia coal companies, provided that Maple would have until April 5, 2010 to comply with certain water quality-based effluent limitations for selenium concentrations in discharges from its mining operations.
Due to the fact that there was no currently available, feasible technology for meeting the selenium limits, Maple sought a permit modification to extend the selenium compliance date beyond April 5, 2010. That permit modification application was denied by the WVDEP based upon procedural objections raised by the federal Environmental Protection Agency (“EPA”). Maple filed an appeal with the State Environmental Quality Board (“EQB”) of the WVDEP denial (“the EQB case”), and as part of that appeal on March 31, 2010, the EQB issued a Stay Order, suspending the effective date of the selenium limits. In addition, on April 2, 2010, the Kanawha County (W.Va.) Circuit Court issued an Injunction Order preventing the selenium effluent limits in the Maple compliance order from taking effect until exhaustion of all appeals in the EQB case.
Following oral argument on January 20, 2011, the EQB orally ruled against Maple’s appeal, declaring that the WVDEP acted within its discretion in denying Maple’s request to extend the selenium compliance schedule beyond April 5, 2010. the Company believes that ruling is in error. Once a written order is received from the EQB, Maple plans to appeal that denial to State Circuit Court and seek a further Stay of the selenium limits, pending appeal.
In a related action, in June, 2010, the WVDEP instituted a civil enforcement action against Maple in Fayette County (W.Va.) Circuit Court, seeking to enforce effluent limits for non-selenium parameters found in the Maple permit, asserting violations of various in-stream water quality standards, and alleging a violation of the April 5, 2007 selenium compliance order. That civil action seeks civil penalties and to force Maple to implement costly treatment technology for selenium, pursuant to a new compliance schedule to be approved by the court. Maple has filed an Answer and is contesting the claims of the WVDEP in that matter, but anticipates entering into a comprehensive Consent Order with the WVDEP as a means of resolving that case and the EQB case mentioned above.
23
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
19. Commitments and contingencies (continued)
In a third related action, on January 4, 2011, three public interest groups filed a Clean Water Act citizens suit against Maple in the federal District Court for the Southern District of West Virginia. The Complaint disregards the EQB Stay Order and the Kanawha County Circuit Court Injunction Order, alleging that selenium effluent limits became effective in Maple’s permit on April 6, 2010. On that basis, the plaintiffs assert that Maple’s discharges exceeded those limits on 36 occasions through the end of September, 2010, representing 380 days of violations and a total potential penalty of $14,250,000. As Maple’s discharges have continued to exceed those limits, the plaintiffs will likely seek additional civil penalties for periods after September, 2010 if this lawsuit is permitted to proceed. Maple plans to vigorously contest this matter, and will seek an early dismissal on the basis of several affirmative defenses (including the State’s diligent prosecution of the same alleged violations).
At present the likelihood of an unfavourable outcome as to the EQB case, the WVDEP civil enforcement action, and/or the federal court citizens suit is neither remote nor probable and no opinion can be offered regarding the likelihood of the WVDEP or the citizens suit plaintiffs succeeding in these actions. As such, the Company has not made a provision for these claims in its consolidated financial statements. Regardless of the manner of their disposition, civil penalties and other costs that may ultimately be incurred as a result of these proceedings could be material.
24
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
19. Commitments and contingencies (continued)
(b) Potential Securities Class Action
In November 2009, the Company was named as a defendant in a statement of claim issued by a plaintiff who seeks leave of the Ontario Courts to proceed with a securities class action. The claim alleges that those persons who acquired or disposed of Company shares between November 14, 2007 and December 10, 2007 should be entitled to recover $200 million for general damages and $20 million in punitive damages. Two current directors and one former director and officer were also named as defendants (the individual defendants). The plaintiff alleges that the Company’s consolidated financial statements for the second quarter of fiscal 2008 and the accompanying news release issued on November 14, 2007 misrepresented the Company’s financial condition and that the Company failed to make full, plain and true disclosure of all material facts and changes. The action also claims that the named individual defendants purchased shares during the proposed class period while in possession of material undisclosed information. No damages are sought in respect of these share purchases.
The Board of Directors established a Special Committee to oversee the Company’s defense of the action and to instruct the Company’s defense counsel on how to proceed. The Special Committee has two members. Neither of the Special Committee members are named as individual defendants and each of them joined the Company after the events that are the subject of the action occurred.
The plaintiff was to have delivered its materials in support of motions for leave to proceed with the securities class action and for certification of the action as a class proceeding on or before May 14, 2010. The plaintiff, however, sought and obtained permission of the Court to deliver an amended claim before May 28, 2010.
On May 28, 2010, the plaintiff delivered a proposed Fresh As Amended Statement of Claim. That claim indicated the plaintiff intended to introduce new allegations that the Company, some of its current and former directors (including the originally named individual defendants) and other parties caused the Company to enter transactions between April 26, 2007 and July 13, 2009 that were oppressive because they had a dilutive effect on the interests of shareholders. The defendants did not oppose the amendments but have reserved all rights to challenge the Amended Statement of Claim.
On July 16, 2010, the plaintiff delivered his materials supporting motions for leave to proceed with a securities class action for misrepresentation under the Ontario Securities Act and also for certification of the securities’ class action and of the oppression claims. After considering the plaintiff’s materials and investigating those allegations, the Company decided it should answer the plaintiff’s motion materials, oppose the motions and vigorously defend the securities and oppression claims.
25
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
19. Commitments and contingencies (continued)
The Company and the other defendants intend to deliver their materials on or before February 28, 2011. Dates have not been set for the plaintiff to deliver reply materials or for any examinations or cross-examinations. The plaintiff’s motions, however, are scheduled to be heard October 3 to 7 and on October 13 and 14, 2011, if necessary.
The Company continues to maintain that there is no merit to any of the claims being made and that the damages are without foundation and excessive and, accordingly, has made no provision for this claim in its consolidated financial statements.
(c) Purchase Commitments
The Company entered into agreements to purchase equipment for its Perry Creek, Brule and Willow Creek mines, with payments in the amount of $18,549,000 remaining, which are expected to all be delivered by the end of March 2011.
20. Segmented information
The Company is engaged in the acquisition, exploration, development and mining of coal resources. The Company has four reportable segments: Canadian operations; US operations; UK operations; and Corporate and other. The Corporate and other segment includes all non-core activities.
| | | | Three months ended December 31, 2010 | |
| | Canadian
Operations | | US
Operations | | UK
Operations | | Corporate
and other | | Total | |
| | | | | | | | | | | |
Revenues | | $ | 132,155 | | $ | 35,792 | | $ | 2,583 | | $ | — | | $ | 170,530 | |
| | | | | | | | | | | |
Income (loss) from mining operations | | 42,717 | | 1,844 | | (778 | ) | — | | 43,783 | |
Coal exploration | | (471 | ) | — | | — | | — | | (471 | ) |
Interest, accretion and financing fees | | (916 | ) | 158 | | (35 | ) | (5 | ) | (798 | ) |
Other (expenses) income | | 13 | | (4,238 | ) | (380 | ) | (12,160 | ) | (16,765 | ) |
Earnings (loss) before taxes and equity earnings | | $ | 41,343 | | $ | (2,236 | ) | $ | (1,193 | ) | $ | (12,165 | ) | $ | 25,749 | |
| | | | | | | | | | | |
Capital expenditures | | $ | 63,142 | | $ | 4,917 | | $ | 5,380 | | $ | 651 | | $ | 74,090 | |
26
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
20. Segmented information (continued)
| | | | Three months ended December 31, 2009 | |
| | Canadian
Operations | | US
Operations | | UK
Operations | | Corporate
and other | | Total | |
| | | | | | | | | | | |
Revenues | | $ | 83,781 | | $ | 29,821 | | $ | 4,076 | | $ | 984 | | $ | 118,662 | |
| | | | | | | | | | | |
Income (loss) from mining operations | | 33,835 | | 3,888 | | 934 | | (907 | ) | 37,750 | |
Coal exploration | | (1,369 | ) | — | | — | | — | | (1,369 | ) |
Interest, accretion and financing fees | | (2,464 | ) | (250 | ) | (5 | ) | 6 | | (2,713 | ) |
Other (expenses) income | | — | | (2,181 | ) | 75 | | (720 | ) | (2,826 | ) |
Earnings (loss) before taxes and equity earnings | | $ | 30,002 | | $ | 1,457 | | $ | 1,004 | | $ | (1,621 | ) | $ | 30,842 | |
| | | | | | | | | | | |
Capital expenditures | | $ | 4,307 | | $ | 1,193 | | $ | 8,456 | | $ | (162 | ) | $ | 13,794 | |
| | | | Nine months ended and as at December 31, 2010 | |
| | Canadian
Operations | | US
Operations | | UK
Operations | | Corporate
and other | | Total | |
| | | | | | | | | | | |
Revenues | | $ | 471,031 | | $ | 111,899 | | $ | 11,487 | | $ | — | | $ | 594,417 | |
| | | | | | | | | | | |
Income(loss) from mining operations | | 191,901 | | 8,875 | | (252 | ) | — | | 200,524 | |
Coal exploration | | (3,905 | ) | — | | — | | — | | (3,905 | ) |
Interest, accretion and financing fees | | (4,323 | ) | (330 | ) | (121 | ) | 506 | | (4,268 | ) |
Other expenses | | (8,514 | ) | (12,380 | ) | (1,260 | ) | (34,638 | ) | (56,792 | ) |
Earnings (loss) before taxes and equity losses | | $ | 175,159 | | $ | (3,835 | ) | $ | (1,633 | ) | $ | (34,132 | ) | $ | 135,559 | |
| | | | | | | | | | | |
Capital expenditures | | $ | 131,967 | | $ | 15,823 | | $ | 12,710 | | $ | 1,758 | | $ | 162,258 | |
| | | | | | | | | | | |
Mineral property, plant and equipment | | $ | 585,459 | | $ | 79,454 | | $ | 54,761 | | $ | 2,587 | | $ | 722,261 | |
| | | | | | | | | | | |
Total assets | | $ | 880,182 | | $ | 108,217 | | $ | 64,179 | | $ | 56,859 | | $ | 1,109,437 | |
27
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
20. Segmented information (continued)
| | | | Nine months ended and as at December 31, 2009 | |
| | Canadian
Operations | | US
Operations | | UK
Operations | | Corporate
and other | | Total | |
| | | | | | | | | | | |
Revenues | | $ | 235,064 | | $ | 57,159 | | $ | 7,120 | | $ | 2,654 | | $ | 301,997 | |
| | | | | | | | | | | |
Income (loss) from mining operations | | 58,727 | | 8,793 | | 1,197 | | (947 | ) | 67,770 | |
Coal exploration | | (3,729 | ) | — | | — | | — | | (3,729 | ) |
Interest, accretion and financing fees | | (7,773 | ) | (496 | ) | (128 | ) | (561 | ) | (8,958 | ) |
Other expenses | | — | | (5,061 | ) | (424 | ) | (6,595 | ) | (12,080 | ) |
Earnings (loss) before taxes and equity earnings | | $ | 47,225 | | $ | 3,236 | | $ | 645 | | $ | (8,103 | ) | $ | 43,003 | |
| | | | | | | | | | | |
Capital expenditures | | $ | 5,612 | | $ | 2,707 | | $ | 8,821 | | $ | 71 | | $ | 17,211 | |
| | | | | | | | | | | |
Mineral property, plant and equipment | | $ | 401,598 | | $ | 75,524 | | $ | 36,796 | | $ | 4,502 | | $ | 518,420 | |
| | | | | | | | | | | |
Total assets | | $ | 629,654 | | $ | 103,433 | | $ | 59,026 | | $ | 43,998 | | $ | 836,111 | |
The Company’s revenues for the three and nine month periods ended December 31, 2010 and 2009 are derived from coal sales to customers located in the following geographic areas:
| | Three months ended
December 31, | | Nine months ended
December 31, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| | | | | | | | | |
Asia | | $ | 117,123 | | $ | 47,175 | | $ | 410,884 | | $ | 187,553 | |
Europe | | 25,657 | | 46,215 | | 91,851 | | 63,602 | |
US | | 27,750 | | 25,239 | | 91,682 | | 50,049 | |
Other | | — | | 33 | | — | | 793 | |
| | $ | 170,530 | | $ | 118,662 | | $ | 594,417 | | $ | 301,997 | |
For each of the three and nine month periods ended December 31, 2010, there were four customers that accounted for more than 10% of total revenues. The percentage of sales to these four customers was 63% and 51% for the three and nine month periods ended December 31, 2010, respectively.
28
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
21. Subsequent Events
(a) Re-opening of the Willow Creek mine was completed on schedule with commercial production having commenced January 1, 2011.
(b) On December 2, 2010, the Company and Walter Energy, Inc. (“Walter Energy”) entered into an arrangement agreement (the “Agreement”) for Walter Energy to acquire all of the outstanding common shares of the Company for C$11.50 per share in cash or 0.114 of a Walter Energy share, or for a combination thereof, all subject to pro-ration. This proposed acquisition remains subject to various closing conditions, including court approval, a favourable vote of at least two-thirds of the votes cast by the Company shareholders (including Walter Energy and funds advised by Audley Capital) and a simple majority of the votes cast by the Company’s minority shareholders (excluding Walter Energy and funds advised by Audley Capital), at a special meeting of the shareholders of the Company scheduled for March 8, 2011, and certain regulatory approvals. Approval by Walter Energy shareholders is not required to complete the transaction.
22. Differences between Canadian and United States generally accepted accounting principles
The consolidated financial statements of Western Coal Corp. have been prepared in accordance with Canadian GAAP. The following adjustments would be required in order to present the consolidated financial statements in all material aspects in accordance with U.S. GAAP.
29
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
Consolidated Balance Sheets
As at December 31
(Expressed in thousands of Canadian dollars)
(Unaudited)
| | 2010 | | U.S. GAAP | | 2010 | |
| | Canadian GAAP | | Adjustments | | U.S. GAAP | |
| | | | | | | |
ASSETS | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents (b) | | $ | 79,335 | | $ | (572 | ) | $ | 78,763 | |
Restricted cash | | 531 | | — | | 531 | |
Amounts receivable (b) | | 142,556 | | (212 | ) | 142,344 | |
Income tax receivable | | — | | — | | — | |
Inventory (b) (c) | | 74,749 | | 3,407 | | 78,032 | |
| | | | (124 | ) | | |
Future income tax asset (c) | | 4,813 | | 2,551 | | 7,364 | |
| | 301,984 | | 5,050 | | 307,034 | |
| | | | | | | |
Deposits | | 33,481 | | — | | 33,481 | |
Mineral property, plant and equipment (a) (b) (c) | | 722,261 | | (10,156 | ) | 766,712 | |
| | | | (1,143 | ) | | |
| | | | 55,750 | | | |
Investments and other assets (a) (b) | | 51,245 | | 1,139 | | 58,104 | |
| | | | 5,720 | | | |
Future income tax asset | | 466 | | | | 466 | |
| | $ | 1,109,437 | | $ | 56,360 | | $ | 1,165,797 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities | | | | | | | |
Accounts payable and accrued liabilities (b) | | $ | 131,499 | | $ | (854 | ) | $ | 130,645 | |
Income tax payable | | 22,683 | | — | | 22,683 | |
Derivative financial liabilities | | 7,442 | | — | | 7,442 | |
Long-term debt | | 4,089 | | — | | 4,089 | |
Capital lease obligations | | 28,580 | | — | | 28,580 | |
Convertible debentures | | — | | — | | — | |
Royalty and other liabilities | | 2,241 | | — | | 2,241 | |
Asset retirement obligations | | 1,094 | | — | | 1,094 | |
| | 197,628 | | (854 | ) | 196,774 | |
| | | | | | | |
Long-term debt (b) | | 4,532 | | (58 | ) | 4,474 | |
Capital lease obligations | | 56,716 | | — | | 56,716 | |
Convertible debentures | | — | | | | — | |
Royalty and other liabilities | | 11,072 | | — | | 11,072 | |
Asset retirement obligations | | 28,926 | | — | | 28,926 | |
Derivative financial liability | | — | | — | | — | |
Future income tax liability | | 51,769 | | — | | 51,769 | |
| | 350,643 | | (912 | ) | 349,731 | |
| | | | | | | |
Non-controlling interests (a) | | — | | — | | — | |
| | | | | | | |
Shareholders’ equity (a) (c) (d) | | 758,794 | | 57,272 | | 816,066 | |
| | $ | 1,109,437 | | $ | 56,360 | | $ | 1,165,797 | |
30
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
Consolidated Balance Sheets (continued)
As at December 31
(Expressed in thousands of Canadian dollars)
(Unaudited)
| | 2009 | | U.S. GAAP | | 2009 | |
| | Canadian GAAP | | Adjustments | | U.S. GAAP | |
| | | | | | | |
ASSETS | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents (b) | | 150,146 | | (292 | ) | 149,854 | |
Restricted cash | | 5,004 | | | | 5,004 | |
Amounts receivable (b) | | 26,257 | | (347 | ) | 25,910 | |
Income tax receivable | | — | | | | — | |
Inventory (b) (c) | | 60,755 | | (483 | ) | 60,272 | |
| | | | | | | |
Future income tax asset (c) | | — | | | | — | |
| | 242,162 | | (1,122 | ) | 241,040 | |
| | | | | | | |
Deposits | | 27,992 | | | | 27,992 | |
Mineral property, plant and equipment (a) (b) (c) | | 518,420 | | (1,037 | ) | 581,524 | |
| | | | 64,141 | | | |
| | | | | | | |
Investments and other assets (a) (b) | | 47,537 | | 1,444 | | 54,844 | |
| | | | 5,863 | | | |
Future income tax asset | | | | | | | |
| | 836,111 | | 69,289 | | 905,400 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities | | | | | | | |
Accounts payable and accrued liabilities (b) | | 48,589 | | (651 | ) | 47,938 | |
Income tax payable | | 17,604 | | | | 17,604 | |
Derivative financial liabilities | | 2,774 | | | | 2,774 | |
Long-term debt | | 6,449 | | | | 6,449 | |
Capital lease obligations | | 18,799 | | | | 18,799 | |
Convertible debentures | | 3,681 | | | | 3,681 | |
Royalty and other liabilities | | 167 | | | | 167 | |
Asset retirement obligations | | 1,009 | | | | 1,009 | |
| | 99,072 | | (651 | ) | 98,421 | |
| | | | | | | |
Long-term debt (b) | | 7,404 | | (64 | ) | 7,340 | |
Capital lease obligations | | 20,198 | | | | 20,198 | |
Convertible debentures | | 37,382 | | | | 37,382 | |
Royalty and other liabilities | | 5,879 | | | | 5,879 | |
Asset retirement obligations | | 29,181 | | | | 29,181 | |
Derivative financial liability | | 5,703 | | | | 5,703 | |
Future income tax liability | | 29,124 | | | | 29,124 | |
| | 233,943 | | (715 | ) | 233,228 | |
| | | | | | | |
Non-controlling interests (a) | | 25,841 | | (25,841 | ) | — | |
| | | | | | | |
Shareholders’ equity (a) (c) (d) | | 576,327 | | 95,845 | | 672,172 | |
| | 836,111 | | $ | 69,289 | | 905,400 | |
| | | | | | | | |
31
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
Consolidated Statements of Income
For the nine months ended December 31
(Expressed in thousands of Canadian dollars, except per share amounts)
(Unaudited)
| | 2010 | | U.S. GAAP | | 2010 | |
| | Canadian GAAP | | Adjustments | | U.S. GAAP | |
Revenues (b) (c) | | $ | 594,417 | | $ | 50,412 | | $ | 644,829 | |
Cost of goods sold | | | | | | | |
Operating expenses (b) (c) | | 350,414 | | 54,319 | | 404,733 | |
Depletion, amortization and accretion (a) (b) (c) | | 43,479 | | 3,434 | | 46,913 | |
| | 393,893 | | 57,753 | | 451,646 | |
| | | | | | | |
Income (loss) from mining operations | | 200,524 | | (7,341 | ) | 193,183 | |
| | | | | | | |
Other expenses (income) | | | | | | | |
General and administration (b) (c) | | 46,677 | | 354 | | 47,031 | |
Sales and marketing | | 12,660 | | — | | 12,660 | |
Coal exploration and other mine costs | | 3,905 | | — | | 3,905 | |
Interest, accretion and financing fees (b) (c) | | 4,268 | | 1,303 | | 5,571 | |
Other income (expense) | | (2,545 | ) | 1,453 | | (1,092 | ) |
| | 64,965 | | 3,110 | | 68,075 | |
| | | | | | | |
Net income before the undernoted items | | 135,559 | | (10,451 | ) | 125,108 | |
| | | | | | | |
Income tax (expense) recovery | | | | | | | |
Current income tax recovery (b) (c) (d) | | (28,162 | ) | 3,115 | | (25,047 | ) |
Future income tax expense | | (18,927 | ) | — | | (18,927 | ) |
| | (47,089 | ) | 3,115 | | (43,974 | ) |
| | | | | | | |
Equity (loss) gain (b) | | (7,614 | ) | 145 | | (7,469 | ) |
Net income attributable to shareholders of the Company | | $ | 80,856 | | $ | (7,190 | ) | $ | 73,666 | |
| | | | | | | |
Attributable to: | | | | | | | |
Non-controlling interests | | (531 | ) | | | (531 | ) |
Shareholders of the Company | | 81,387 | | | | 74,197 | |
| | | | | | | |
Income per share | | | | | | | |
Basic | | $ | 0.30 | | | | $ | 0.28 | |
Diluted | | $ | 0.30 | | | | $ | 0.27 | |
| | | | | | | |
Weighted average common shares outstanding | | | | | | | |
Basic | | 268,131,414 | | | | 268,131,414 | |
Diluted | | 273,878,356 | | | | 273,878,356 | |
32
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
Consolidated Statements of Income (continued)
For the nine months ended December 31
(Expressed in thousands of Canadian dollars, except per share amounts)
(Unaudited)
| | 2009 | | U.S. GAAP | | 2009 | |
| | Canadian GAAP | | Adjustments | | U.S. GAAP | |
Revenues (b) (c) | | $ | 301,997 | | $ | (984 | ) | $ | 301,013 | |
Cost of goods sold | | | | | | | |
Operating expenses (b) (c) | | 205,029 | | 136 | | 205,165 | |
Depletion, amortization and accretion (a) (b) (c) | | 29,198 | | 929 | | 30,127 | |
| | 234,227 | | 1,065 | | 235,292 | |
| | | | | | | |
Income (loss) from mining operations | | 67,770 | | (2,049 | ) | 65,721 | |
| | | | | | | |
Other expenses (income) | | | | | | | |
General and administration (b) (c) | | 21,022 | | 7,865 | | 28,887 | |
Sales and marketing | | 7,653 | | — | | 7,653 | |
Coal exploration and other mine costs | | 3,729 | | — | | 3,729 | |
Interest, accretion and financing fees (b) (c) | | 8,958 | | (47 | ) | 8,911 | |
Other income (expense) | | (16,595 | ) | (70,195 | ) | (86,790 | ) |
| | 24,767 | | (62,377 | ) | (37,610 | ) |
| | | | | | | |
Net income before the undernoted items | | 43,003 | | 60,328 | | 103,331 | |
| | | | | | | |
Income tax (expense) recovery | | | | | | | |
Current income tax recovery (b) (c) (d) | | (4,064 | ) | — | | (4,064 | ) |
Future income tax expense | | (10,291 | ) | — | | (10,291 | ) |
| | (14,355 | ) | — | | (14,355 | ) |
| | | | | | | |
Equity (loss) gain (b) | | 870 | | 446 | | 1,316 | |
Net income attributable to shareholders of the Company | | $ | 29,518 | | $ | 60,774 | | $ | 90,292 | |
| | | | | | | |
Attributable to: | | | | | | | |
Non-controlling interests | | (86 | ) | | | (86 | ) |
Shareholders of the Company | | 29,604 | | | | 90,378 | |
| | | | | | | |
Income per share | | | | | | | |
Basic | | $ | 0.13 | | | | $ | 0.39 | |
Diluted | | $ | 0.13 | | | | $ | 0.39 | |
| | | | | | | |
Weighted average common shares outstanding | | | | | | | |
Basic | | 232,628,178 | | | | 232,628,178 | |
Diluted | | 234,470,329 | | | | 234,470,329 | |
33
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
Consolidated Statements of Income (continued)
For the three months ended December 31
(Expressed in thousands of Canadian dollars, except per share amounts)
(Unaudited)
| | 2010 | | U.S. GAAP | | 2010 | |
| | Canadian GAAP | | Adjustments | | U.S. GAAP | |
Revenues (b) (c) | | $ | 170,530 | | $ | 26,840 | | $ | 197,370 | |
Cost of goods sold | | | | | | | |
Operating expenses (b) (c) | | 112,002 | | 34,787 | | 146,789 | |
Depletion, amortization and accretion (a) (b) (c) | | 14,745 | | 2,064 | | 16,809 | |
| | 126,747 | | 36,852 | | 163,599 | |
| | | | | | | |
Income (loss) from mining operations | | 43,783 | | (10,012 | ) | 33,771 | |
| | | | | | | |
Other expenses (income) | | | | | | | |
General and administration (b) (c) | | 20,891 | | 97 | | 20,988 | |
Sales and marketing | | 3,308 | | — | | 3,308 | |
Coal exploration and other mine costs | | 471 | | — | | 471 | |
Interest, accretion and financing fees (b) (c) | | 798 | | 663 | | 1,461 | |
Other income (expense) | | (7,434 | ) | 1,453 | | (5,981 | ) |
| | 18,034 | | 2,212 | | 20,246 | |
| | | | | | | |
Net income before the undernoted items | | 25,749 | | (12,224 | ) | 13,525 | |
| | | | | | | |
Income tax (expense) recovery | | | | | | | |
Current income tax recovery (b) (c) (d) | | (11,452 | ) | 4,349 | | (7,103 | ) |
Future income tax expense | | 4,969 | | — | | 4,969 | |
| | (6,483 | ) | 4,349 | | (2,134 | ) |
| | | | | | | |
Equity (loss) gain (b) | | 1,110 | | 35 | | 1,145 | |
Net income attributable to shareholders of the Company | | $ | 20,376 | | $ | (7,839 | ) | $ | 12,537 | |
| | | | | | | |
Attributable to: | | | | | | | |
Non-controlling interests | | — | | | | — | |
Shareholders of the Company | | 20,376 | | | | 12,537 | |
| | | | | | | |
Income per share | | | | | | | |
Basic | | $ | 0.07 | | | | $ | 0.05 | |
Diluted | | $ | 0.07 | | | | $ | 0.04 | |
| | | | | | | |
Weighted average common shares outstanding | | | | | | | |
Basic | | 276,685,135 | | | | 276,685,135 | |
Diluted | | 284,225,032 | | | | 284,225,032 | |
34
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
Consolidated Statements of Income (continued)
For the three months ended December 31
(Expressed in thousands of Canadian dollars, except per share amounts)
(Unaudited)
| | 2009 | | U.S. GAAP | | 2009 | |
| | Canadian GAAP | | Adjustments | | U.S. GAAP | |
Revenues (b) (c) | | $ | 118,662 | | $ | (716 | ) | $ | 117,946 | |
Cost of goods sold | | | | | | | |
Operating expenses (b) (c) | | 69,813 | | (182 | ) | 69,631 | |
Depletion, amortization and accretion (a) (b) (c) | | 11,099 | | 1,117 | | 12,216 | |
| | 80,912 | | 935 | | 81,847 | |
| | | | | | | |
Income (loss) from mining operations | | 37,750 | | (1,651 | ) | 36,099 | |
| | | | | | | |
Other expenses (income) | | | | | | | |
General and administration (b) (c) | | 9,134 | | (140 | ) | 8,994 | |
Sales and marketing | | 3,403 | | — | | 3,403 | |
Coal exploration and other mine costs | | 1,369 | | — | | 1,369 | |
Interest, accretion and financing fees (b) (c) | | 2,713 | | (47 | ) | 2,666 | |
Other income (expense) | | (9,711 | ) | — | | (9,711 | ) |
| | 6,908 | | (186 | ) | 6,722 | |
| | | | | | | |
Net income before the undernoted items | | 30,842 | | (1,465 | ) | 29,377 | |
| | | | | | | |
Income tax (expense) recovery | | | | | | | |
Current income tax recovery (b) (c) (d) | | (2,245 | ) | — | | (2,245 | ) |
Future income tax expense | | (5,498 | ) | — | | (5,498 | ) |
| | (7,743 | ) | — | | (7,743 | ) |
| | | | | | | |
Equity (loss) gain (b) | | 1,042 | | 215 | | 1,257 | |
Net income attributable to shareholders of the Company | | $ | 24,141 | | $ | (1,250 | ) | $ | 22,891 | |
| | | | | | | |
Attributable to: | | | | | | | |
Non-controlling interests | | 111 | | | | 111 | |
Shareholders of the Company | | 24,030 | | | | 22,780 | |
| | | | | | | |
Income per share | | | | | | | |
Basic | | $ | 0.10 | | | | $ | 0.09 | |
Diluted | | $ | 0.09 | | | | $ | 0.09 | |
| | | | | | | |
Weighted average common shares outstanding | | | | | | | |
Basic | | 250,748,997 | | | | 250,748,997 | |
Diluted | | 253,810,593 | | | | 253,810,593 | |
35
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
Consolidated Statements of Comprehensive Income
For the nine months ended December 31
(Expressed in thousands of Canadian dollars, except per share amounts)
(Unaudited)
| | 2010 | | U.S. GAAP | | 2010 | |
| | Canadian GAAP | | Adjustments | | U.S. GAAP | |
Net income | | $ | 80,856 | | $ | (7,190 | ) | $ | 73,666 | |
Other comprehensive income (loss) in the year | | | | | | | |
Change in fair value of available-for-sale securities (d) | | 7,313 | | 904 | | 8,217 | |
Currency translation adjustment (a) | | (3,006 | ) | (781 | ) | (3,787 | ) |
| | 4,307 | | 123 | | 4,430 | |
| | | | | | | |
Comprehensive income | | $ | 85,163 | | $ | (7,067 | ) | $ | 78,096 | |
For the nine months ended December 31
(Expressed in thousands of Canadian dollars, except per share amounts)
(Unaudited)
| | 2009 | | U.S. GAAP | | 2009 | |
| | Canadian GAAP | | Adjustments | | U.S. GAAP | |
Net income | | $ | 29,518 | | $ | 60,774 | | $ | 90,292 | |
Other comprehensive income (loss) in the year | | | | | | | |
Change in fair value of available-for-sale securities (d) | | 1,724 | | — | | 1,724 | |
Currency translation adjustment (a) | | (2,275 | ) | (6,334 | ) | (8,609 | ) |
| | (551 | ) | (6,334 | ) | (6,885 | ) |
| | | | | | | |
Comprehensive income | | $ | 28,967 | | $ | 54,440 | | $ | 83,407 | |
For the three months ended December 31
(Expressed in thousands of Canadian dollars, except per share amounts)
(Unaudited)
| | 2010 | | | | 2010 | |
| | Canadian GAAP | | | | U.S. GAAP | |
Net income | | $ | 20,376 | | $ | (7,839 | ) | $ | 12,537 | |
Other comprehensive income (loss) in the year | | | | | | | |
Change in fair value of available-for-sale securities (d) | | 5,159 | | 904 | | 6,063 | |
Currency translation adjustment (a) | | (4,284 | ) | (2,199 | ) | (6,483 | ) |
| | 875 | | (1,295 | ) | (420 | ) |
| | | | | | | |
Comprehensive income | | $ | 21,251 | | $ | (9,134 | ) | $ | 12,117 | |
36
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
Consolidated Statements of Comprehensive Income (continued)
For the three months ended December 31
(Expressed in thousands of Canadian dollars, except per share amounts)
(Unaudited)
| | 2009 | | | | 2009 | |
| | Canadian GAAP | | | | U.S. GAAP | |
Net income | | $ | 24,141 | | $ | (1,250 | ) | $ | 22,891 | |
Other comprehensive income (loss) in the year | | | | | | | |
Change in fair value of available-for-sale securities (d) | | 374 | | — | | 374 | |
Currency translation adjustment (a) | | (4,066 | ) | (1,119 | ) | (5,185 | ) |
| | (3,692 | ) | (1,119 | ) | (4,811 | ) |
| | | | | | | |
Comprehensive income | | $ | 20,449 | | $ | (2,369 | ) | $ | 18,080 | |
There were no significant adjustments within other comprehensive income between the shareholders of the company and the non-controlling interests under U.S. GAAP.
37
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
Consolidated Statements of Cash Flows
For the nine months ended December 31
(Expressed in thousands of Canadian dollars)
(Unaudited)
| | 2010 | | 2009 | |
| | | | | |
Cash flows provided by operating activities under Canadian GAAP | | $ | 106,953 | | $ | 77,232 | |
Adjustment for transaction costs (a) | | (1,535 | ) | (4,975 | ) |
Cash flows provided by operating activities under U.S. GAAP | | 105,418 | | 72,257 | |
| | | | | |
Cash flows provided by financing activities under Canadian and U.S. GAAP | | 853 | | 20,540 | |
| | | | | |
Cash flows used in investing activities under Canadian GAAP | | (164,316 | ) | (19,438 | ) |
Adjustment for transaction costs (a) | | 1,535 | | 4,975 | |
Adjustment for joint venture accounting (b) | | (366 | ) | (292 | ) |
Cash flows used in investing activities under U.S. GAAP | | (163,147 | ) | (14,755 | ) |
| | | | | |
Effect of exchange rate change on cash and cash equivalents in U.S. dollars under U.S. GAAP | | (214 | ) | (3,041 | ) |
Increase in cash and cash equivalents during the year under U.S. GAAP | | (57,090 | ) | 75,001 | |
Cash and cash equivalents, beginning of year under U.S. GAAP | | 135,853 | | 74,853 | |
Cash and cash equivalents, end of year under U.S. GAAP | | $ | 78,763 | | $ | 149,854 | |
For the three months ended December 31
(Expressed in thousands of Canadian dollars)
(Unaudited)
| | 2010 | | 2009 | |
| | | | | |
Cash flows provided by operating activities under Canadian GAAP | | $ | 32,202 | | $ | 69,387 | |
Adjustment for transaction costs (a) | | — | | 82 | |
Cash flows provided by operating activities under U.S. GAAP | | 32,202 | | 69,469 | |
| | | | | |
Cash flows provided by financing activities under Canadian and U.S. GAAP | | 3,365 | | 3,624 | |
| | | | | |
Cash flows used in investing activities under Canadian GAAP | | (72,361 | ) | (15,904 | ) |
Adjustment for transaction costs (a) | | — | | (82 | ) |
Adjustment for joint venture accounting (b) | | (171 | ) | (257 | ) |
Cash flows used in investing activities under U.S. GAAP | | (72,532 | ) | (16,243 | ) |
| | | | | |
Effect of exchange rate change on cash and cash equivalents in U.S. dollars under U.S. GAAP | | (545 | ) | (1,559 | ) |
Increase in cash and cash equivalents during the year under U.S. GAAP | | (37,510 | ) | 55,291 | |
Cash and cash equivalents, beginning of year under U.S. GAAP | | 116,274 | | 94,563 | |
Cash and cash equivalents, end of year under U.S. GAAP | | $ | 78,763 | | $ | 149,854 | |
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Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
(a) Business combination
Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, acquisition related costs are excluded from the consideration transferred in a business combination (formerly referred to as purchase price) and are expensed as incurred. Before that date, such costs were included in the purchase price. Prior to April 1, 2010, Western Coal’s accounting policy under Canadian GAAP was to include acquisition related costs in the consideration transferred in business combinations.
Until April 1, 2010, under Western Coal’s accounting policy under Canadian GAAP, the measurement date for equity interests issued by the acquirer in a business combination was two days before and after the terms of an acquisition are agreed to and announced while the measurement date is the closing date under U.S. GAAP. Western Coal announced the acquisition of Cambrian Mining Plc on May 20, 2009 and closed the acquisition on July 13, 2009.
Prior to April 1, 2010, under Western Coal’s accounting policy under Canadian GAAP, any excess of the fair value of identifiable assets acquired and liabilities assumed over the fair value of purchase consideration was allocated to certain acquired non-current assets until their carrying amounts were reduced to zero, and any remaining amount, which was considered negative goodwill, was recognized as an extraordinary gain in the statement of income. Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, any such excess is recorded as a gain from bargain purchase in the statement of income. Before that date, the U.S. GAAP treatment of such excess was similar to Canadian GAAP.
In addition, under Canadian GAAP, the noncontrolling interests’ percentage of net assets acquired are recorded at the carrying values of the acquiree. Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, the acquirer must measure noncontrolling interests in the acquiree at fair value as of the closing date. Until April 1, 2010, the Company’s accounting policy under Canadian GAAP was to present non-controlling interest as a separate line item on the balance sheet between liabilities and shareholders’ equity. Under U.S. GAAP non-controlling interests are presented as a component of shareholders’ equity.
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Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
(b) Joint venture
Under Canadian GAAP, Western Coal has accounted for its 50% interest in Energy Recovery Investments Ltd. (the “Joint Venture”) using the proportionate consolidation method whereby Western Coal’s proportionate share of each line item of assets, liabilities, revenues and expenses is included in the corresponding financial statement line item. Under U.S. GAAP, Western Coal would account for its Joint Venture interest using the equity method whereby Western Coal’s share of earnings and losses would be included in its statement of income as share of income (loss) of the entities accounted for using the equity method, and the carrying value of Western Coal’s share in the equity of the Joint Venture would be recorded on the balance sheet in other long-term assets.
(c) Pre-operating results
Under Canadian GAAP, the concept of commercial production is not concisely defined but recognizes that the transition from development to production is subject to management’s judgment. As such, certain minerals extracted and sold during the management-defined development period are treated as a reduction to the cost of the capital asset exclusive of depreciation. Under U.S. GAAP, the development of a surface mine is deemed to conclude when more than de minimus saleable minerals are extracted from an ore body regardless of the level of production. As such, all revenues and expenses relating to extracted minerals are recorded in the statement of income.
(d) Available for sale security
As of December 31, 2010, Western Coal no longer exercised significant influence over its available for sale investment, Mandalay Resources Corporation (“Mandalay”) due to the additional issuance of common shares of Mandalay and the exercise of the existing call options. As a result, Western Coal changed from equity method accounting to fair value accounting. Under Canadian GAAP, the initial basis of the investment is the fair value of the security and the difference between the carrying amount and the fair value is recognized in the statement of income. Under U.S. GAAP, Western Coal would account for its investment in Mandalay as an available for sale security. The initial basis of the investment would be the carrying amount of the investment and the difference between the carrying amount and the fair value would be recorded in other comprehensive income.
40
Western Coal Corp.
Notes to Consolidated Financial Statements
For the three and nine months ended December 31, 2010
(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)
(Unaudited)
(e) Impact of adoption of new U.S. GAAP accounting pronouncements
In December 2007, the FASB issued ASC 810 Non-controlling Interests in Consolidated Financial Statements, that amended ARB-51, Consolidated Financial Statements, to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The adoption of this statement, which became effective April 1, 2009, did not have a material effect on Company’s consolidated financial statements.
Also in December 2007, the FASB issued ASC 805, Business Combinations, a replacement of SFAS No. 141, Business Combinations. The objective of this statement is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This statement establishes principles and requirements for how the acquirer recognizes and measures the identifiable assets acquired and liabilities assumed, measures the goodwill acquired or gain from a bargain purchase, and determines what information to disclose. The adoption of this statement, which became effective April 1, 2009, had a material effect on the Company’s financial statements.
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