Attached files
file | filename |
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EX-32 - EXHIBIT 32 - WESTMORELAND COAL Co | c16702exv32.htm |
EX-10.1 - EXHIBIT 10.1 - WESTMORELAND COAL Co | c16702exv10w1.htm |
EX-31.1 - EXHIBIT 31.1 - WESTMORELAND COAL Co | c16702exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - WESTMORELAND COAL Co | c16702exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from to
Commission File No. 001-11155
WESTMORELAND COAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware | 23-1128670 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
2 North Cascade Avenue, 2nd Floor | ||
Colorado Springs, CO | 80903 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (719) 442-2600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company.) |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock as of May
1, 2011: 13,173,513 shares of common stock, $2.50 par value.
TABLE OF CONTENTS
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39 | ||||||||
41 | ||||||||
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43 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Consolidated Balance Sheets
(Unaudited)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(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 | ||||
See accompanying Notes to Consolidated Financial Statements.
3
Table of Contents
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Continued)
(Unaudited)
Consolidated Balance Sheets (Continued)
(Unaudited)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(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 | ||||
See accompanying Notes to Consolidated Financial Statements.
4
Table of Contents
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
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 | ) | ||
See accompanying Notes to Consolidated Financial Statements.
5
Table of Contents
Westmoreland Coal Company and Subsidiaries
Consolidated Statement of Shareholders Deficit
Three Months Ended March 31, 2011
(Unaudited)
Consolidated Statement of Shareholders Deficit
Three Months Ended March 31, 2011
(Unaudited)
Class A | ||||||||||||||||||||||||||||
Convertible | Accumulated | Total | ||||||||||||||||||||||||||
Exchangeable | Other | Non- | Shareholders | |||||||||||||||||||||||||
Preferred | Common | Other Paid- | Compre- | Accumulated | controlling | Equity | ||||||||||||||||||||||
Stock | Stock | In Capital | hensive Loss | Deficit | Interest | (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 | ) | ||||||||||
See accompanying Notes to Consolidated Financial Statements.
6
Table of Contents
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
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 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 |
See accompanying Notes to Consolidated Financial Statements.
7
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. | BASIS OF PRESENTATION |
The accompanying unaudited consolidated financial statements include accounts of Westmoreland
Coal Company, or the Company, or Parent, and its subsidiaries and controlled entities. The
Companys current principal activities, all conducted within the United States, are the production
and sale of coal from its mines in Montana, North Dakota and Texas, and the ownership of the
Roanoke Valley power plants, or ROVA, in North Carolina. The Companys activities are primarily
conducted through wholly owned subsidiaries. All intercompany transactions and accounts have been
eliminated in consolidation.
The Companys Absaloka Mine is owned by its subsidiary Westmoreland Resources, Inc., or WRI.
The right to mine coal at the Absaloka Mine has been subleased to an affiliated entity whose
operations the Company controls. The Beulah, Jewett, Rosebud, and Savage Mines are owned through
the Companys subsidiary Westmoreland Mining LLC, or WML.
The Company is subject to two major debt arrangements: (1) $125.0 million senior secured notes
at WML that are collaterized by all assets of WML, Westmoreland Savage Corporation, or WSC, Western
Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC, and (2) $150.0 million senior
secured notes (issued February 4, 2011) at the Parent level that are largely collaterized by the
assets of the Parent, WRI and ROVA, referred to herein as the Parent Notes.
These quarterly consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2010, or the 2010 Form 10-K. The accounting principles followed by
the Company are set forth in the Notes to the Companys consolidated financial statements in its
2010 Form 10-K. Most of the descriptions of the accounting principles and other footnote
disclosures previously made have been omitted in this report so long as the interim information
presented is not misleading.
The consolidated financial statements of the Company have been prepared in accordance with
United States generally accepted accounting principles and require use of managements estimates.
The financial information contained in this Form 10-Q is unaudited, but reflects all adjustments,
which are, in the opinion of management, necessary for a fair presentation of the financial
information for the periods shown. Such adjustments are of a normal recurring nature. The results
of operations for the three months ended March 31, 2011 are not necessarily indicative of results
to be expected for the year ending December 31, 2011.
2. | ACCOUNTING POLICIES |
Newly Adopted Accounting Pronouncements
In January 2010, accounting guidance was issued regarding fair value measurements and
disclosures and improvement in the disclosure about fair value measurements. This guidance
requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of
fair value measurements, including a description of the reasons for the transfers. This guidance
also requires additional disclosures for the activity in Level 3 fair value measurements, requiring
presentation of information about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements. This guidance is effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years. See Note 10 for
applicable disclosures.
8
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
3. | INVENTORIES |
Inventories consisted of the following:
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 | ||||
4. | RESTRICTED INVESTMENTS AND BOND COLLATERAL |
The Companys restricted investments and bond collateral consists of the following:
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 | ||||
For all of its restricted investments and bond collateral accounts, the Company can
select from limited fixed-income investment options for the funds and receive the investment
returns on these investments. Funds in the restricted investment and bond collateral accounts are
not available to meet the Companys cash needs.
These accounts include held-to-maturity and available-for-sale 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. Available-for-sale securities are reported at fair value with unrealized gains and losses
excluded from earnings and reported in Accumulated other comprehensive loss.
9
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
The Companys carrying value and estimated fair value of its restricted investments and bond
collateral at March 31, 2011 are as follows:
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 | |||||
Following the Parent Notes offering in February 2011, discussed in Note 5, ROVA is no
longer required to maintain its debt protection accounts, ash reserve account or the repairs and
maintenance account.
Held-to-Maturity and Available-for-Sale Restricted Investments and Bond Collateral
The amortized cost, gross unrealized holding gains and fair value of held-to-maturity
securities at March 31, 2011, is as follows (in thousands):
Amortized cost |
$ | 2,544 | ||
Gross unrealized holding gains |
309 | |||
Fair value |
$ | 2,853 | ||
Maturities of held-to-maturity securities are as follows at March 31, 2011:
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 | |||||
The cost basis, gross unrealized holding gains and fair value of available-for-sale
securities at March 31, 2011, is as follows (in thousands):
Cost basis |
$ | 2,566 | ||
Gross unrealized holding gains |
306 | |||
Fair value |
$ | 2,872 | ||
10
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
5. | LINES OF CREDIT AND LONG-TERM DEBT |
The amounts outstanding under the Companys lines of credit and long-term debt consist of the
following:
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 | ||||
The following table presents aggregate contractual debt maturities of all long-term debt
and the lines of credit at March 31, 2011 (in thousands):
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 | ||
Corporate
On February 4, 2011 through a private placement offering, the Company issued $150.0 million of
Parent Notes, which are senior secured notes. The Companys subsidiary, Westmoreland Partners, was
a co-issuer of the notes. The Parent Notes were issued at a 5% discount, mature February 18, 2018,
and bear a fixed interest rate of 10.750%, payable semi-annually, in arrears, on February 1 and
August 1 of each year beginning August 1, 2011. Substantially all of the assets of the Parent,
ROVA and WRI constitute collateral for the Parent Notes as to which the holders of these notes have
a first priority lien. Under the indenture governing the Parent Notes, the Company is required to
offer a portion of its Excess Cash Flow (as defined by the indenture) for each fiscal year to
purchase some of these notes at 100% of the principal amount.
As a result of this offering, the Company recorded a $17.0 million loss on extinguishment of
debt in the three months ended March 31, 2011. The loss included a $9.1 million make-whole payment
for ROVAs
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.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
The indenture governing the Parent Notes contains, among other provisions, events of default
and various affirmative and negative covenants. As of March 31, 2011, the Company was in
compliance with all covenants.
Westmoreland Mining LLC
WML has outstanding $125.0 million in term debt as of March 31, 2011 and is party to a
revolving credit facility with a maximum availability of $25.0 million. In the three months ended
March 31, 2011, WML repaid $1.4 million of its capital lease obligations and other term debt. The
weighted average interest rate for WMLs capital leases and other term debt was 7.99% and 6.19%,
respectively, at March 31, 2011.
The available balance on the $25.0 million revolving line of credit at March 31, 2011 was
$23.1 million. The revolving line of credit supports a $1.9 million letter of credit, which
reduces the available balance. The interest rate on the revolving line of credit was 3.75% at
March 31, 2011.
WMLs lending arrangements contain, among other provisions, events of default and various
affirmative and negative covenants. As of March 31, 2011, WML was in compliance with all covenants.
Westmoreland Resources, Inc.
In February 2011, proceeds from the Parent Note offering were used to pay off the outstanding
balance of WRIs term debt and revolving line of credit. In addition, WRIs revolving line of
credit was terminated in February 2011.
In the three months ended March 31, 2011, WRI repaid $0.6 million of its capital lease
obligations. WRI did not enter into any capital lease or other debt agreements during the three
months ended March 31, 2011. The weighted average interest rate for WRIs capital leases was 6.68%
at March 31, 2011.
ROVA
In February 2011, proceeds from the Parent Note offering were used to repay all of ROVAs
outstanding fixed rate term debt. In addition, ROVAs revolving line of credit was terminated in
February 2011.
Convertible Debt
In February 2011, the outstanding balance of the Companys convertible notes was eliminated,
with $2.5 million paid to retire a portion of the convertible notes and the remainder of the notes
being converted into 1,877,946 shares of Company common stock at a conversion price of $8.50 per
share.
6. | PENSION AND POSTRETIREMENT MEDICAL BENEFITS |
Pension
The Company provides pension benefits to qualified full-time employees pursuant to collective
bargaining agreements. The Company froze its pension plan for non-union employees in 2009.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
The Company incurred net periodic benefit costs of providing these pension benefits as
follows:
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 | ||||
The Company is required by a WML loan covenant to ensure that by 8.5 months after the end
of the plan year, the value of its pension assets are at least 90% of the plans year end
actuarially determined pension liability.
The Company contributed $0.9 million in cash to its retirement plans in the three months ended
March 31, 2011. The Company expects to make approximately $9.3 million of pension plan
contributions during the remainder of 2011.
Postretirement Medical Benefits
The Company provides postretirement medical benefits to retired employees and their dependents
as mandated by the Coal Industry Retiree Health Benefit Act of 1992 and pursuant to collective
bargaining agreements. The Company also provides these benefits to qualified full-time employees
pursuant to collective bargaining agreements.
The Company incurred net periodic benefit costs of providing postretirement medical benefits
as follows:
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 | ||||
The following table shows the net periodic medical benefit costs that relate to current
operations and former mining operations:
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 | ||||
The costs for the former mining operations are included in Heritage health benefit
expenses and the costs for current operations are included as operating expenses.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
The Company expects to pay approximately $10.3 million for postretirement medical benefits
during the remainder of 2011, net of Medicare Part D reimbursements. A total of $3.3 million was
paid in the three months ended March 31, 2011, net of Medicare Part D reimbursements.
7. | HERITAGE HEALTH BENEFIT EXPENSES |
The caption Heritage health benefit expenses used in the Consolidated Statements of Operations
refers to costs of benefits the Company provides to its former mining operation employees. The
components of these expenses are as follows:
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 | ||||
8. | ASSET RETIREMENT OBLIGATIONS, CONTRACTUAL THIRD-PARTY RECLAMATION RECEIVABLES, AND RECLAMATION DEPOSITS |
The asset retirement obligations, contractual third-party reclamation receivables, and
reclamation deposits for each of the Companys mines and ROVA at March 31, 2011 are summarized
below:
Contractual Third- | ||||||||||||
Asset Retirement | Party 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 | ||||||
Asset Retirement Obligations
Changes in the Companys asset retirement obligations were as follows:
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 | ||||
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
Contractual Third-Party Reclamation Receivables |
The Company has recognized an asset of $96.2 million as contractual third-party reclamation
receivables, representing the present value of customer obligations to reimburse the Company for
reclamation expenditures at the Companys Rosebud, Jewett and Absaloka Mines.
Reclamation Deposits |
The Companys reclamation deposits will be used to fund final reclamation activities. The
Companys carrying value and estimated fair value of its reclamation deposits at March 31, 2011 are
as follows:
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 | |||||
Held-to-maturity and Available-for-sale Reclamation Deposits
The amortized cost, gross unrealized holding gains and losses and fair value of
held-to-maturity securities at March 31, 2011 are as follows (in thousands):
Amortized cost |
$ | 18,767 | ||
Gross unrealized holding gains |
1,341 | |||
Gross unrealized holding losses |
(72 | ) | ||
Fair value |
$ | 20,036 | ||
Maturities of held-to-maturity securities at March 31, 2011 are as follows:
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 | |||||
The cost basis, gross unrealized holding gains and fair value of available-for-sale
securities at March 31, 2011 are as follows (in thousands):
Cost basis |
$ | 2,000 | ||
Gross unrealized holding gains |
191 | |||
Fair value |
$ | 2,191 | ||
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
9. | DERIVATIVE INSTRUMENTS |
Derivative Liabilities
The Company evaluates all of its financial instruments to determine if such instruments are
derivatives, derivatives that qualify for the normal purchase normal sale exception, or contain
features that qualify as embedded derivatives. All derivative financial instruments, except for
derivatives that qualify for the normal purchase normal sale exception, are recognized on the
balance sheet at fair value. Changes in fair value are recognized in earnings if they are not
eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge
accounting.
The Companys convertible notes were retired on February 4, 2011. The fair value of the
conversion feature in the Companys convertible debt instrument was determined using the following
assumptions at February 4, 2011:
Stock Price | Bond Yield | |||
$13.57 |
4.55 | % |
The fair value of outstanding derivative instruments not designated as hedging
instruments on the accompanying Consolidated Balance Sheet was as follows:
Balance Sheet | March 31, | December 31, | ||||||||
Derivative Instruments | Location | 2011 | 2010 | |||||||
(In thousands) | ||||||||||
Convertible debt conversion feature |
Other liabilities | $ | | $ | 3,588 |
The effect of derivative instruments not designated as hedging instruments on the
accompanying Consolidated Statements of Operations was as follows:
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 |
10. | 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. See Notes
4, 8 and 9 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 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. |
16
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
The table below sets forth, by level, the Companys financial assets that are accounted for at
fair value:
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 | ||
The following table summarizes the change in the fair values of the derivative instrument
liabilities categorized as Level 3:
Three Months Ended | ||||
March 31, 2011 | ||||
(In thousands) | ||||
Beginning balance |
$ | 3,588 | ||
Change in fair value |
3,079 | |||
Settlements |
(6,667 | ) | ||
Ending balance |
$ | | ||
The Company calculates the fair value of its debt by using discount rate estimates based
on interest rates as of March 31, 2011. The estimated fair values of the Companys debt with fixed
interest rates, excluding conversion feature values, are as follows:
Carrying Value | Fair Value | |||||||
(In thousands) | ||||||||
December 31, 2010 |
$ | 185,320 | $ | 196,483 | ||||
March 31, 2011 |
$ | 267,617 | $ | 278,465 |
11. | SHAREHOLDERS EQUITY |
Preferred Stock
The Company has outstanding Series A Convertible Exchangeable Preferred Stock on which
cumulative dividends of $2.125 per share are payable quarterly. In February 2011, the Company paid
$19.9 million of dividends that had accumulated as of January 1, 2011.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
12. | RESTRICTED STOCK UNITS, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (SARs) |
The Company recognized compensation expense from share-based arrangements shown in the
following table:
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 Companys 401(k) plan |
1,084 | 1,138 | ||||||
Total share-based compensation expense |
$ | 1,653 | $ | 1,363 | ||||
Restricted Stock Units |
A summary of restricted stock unit activity for the three months ended March 31, 2011 is as
follows:
Unamortized | ||||||||||||
Weighted Average | Compensation | |||||||||||
Grant-Date Fair | 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. |
In April 2011, 172,081 restricted stock units were granted, of which 86,052 units will
vest ratably over a three-year period. The remaining 86,029 units are performance-based, which will
vest and pay out at the end of a three-year period if performance goals are met.
Stock Options |
Information with respect to stock option activity for the three months ended March 31, 2011 is
as follows:
Weighted | ||||||||||||||||||||
Average | ||||||||||||||||||||
Remaining | Aggregate | Unamortized | ||||||||||||||||||
Weighted | Contractual | Intrinsic | Compensation | |||||||||||||||||
Stock | Average | Life | Value | Expense | ||||||||||||||||
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. |
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
Stock Appreciation Rights
Information with respect to stock appreciation rights, or SARs, activity for the three months
ended March 31, 2011 is as follows:
Weighted | ||||||||||||||||||||
Average | ||||||||||||||||||||
Remaining | Aggregate | Unamortized | ||||||||||||||||||
Weighted | Contractual | Intrinsic | Compensation | |||||||||||||||||
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 | $ | | $ | | ||||||||||||
13. | EARNINGS PER SHARE |
Basic earnings (loss) per share has been computed by dividing the net income (loss) applicable
to common shareholders by the weighted average number of shares of common stock outstanding during
each period. Net income (loss) applicable to common shareholders includes the adjustment for net
income or loss attributable to noncontrolling interest. Diluted earnings (loss) per share is
computed by including the dilutive effect of common stock that would be issued assuming conversion
or exercise of outstanding convertible notes and securities, stock options, stock appreciation
rights, restricted stock units and warrants. No such items were included in the computation of
diluted loss per share in the three months ended March 31, 2011 and March 31, 2010 because the
Company incurred a loss from operations in each of these periods and the effect of inclusion would
have been anti-dilutive.
The table below shows the number of shares that were excluded from the calculation of diluted
income (loss) per share because their inclusion would be anti-dilutive to the calculation:
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 | ||||||
14. | BUSINESS SEGMENT INFORMATION |
Segment information is based on a management approach, which requires segmentation based upon
the Companys internal organization and reporting of revenue and operating income.
The Companys operations are classified into four segments: coal, power, heritage and
corporate.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
Summarized financial information by segment is as follows:
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 |
A reconciliation of segment operating income to loss before income taxes follows:
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 | ) | ||
15. | CONTINGENCIES |
The Company is a party to claims and lawsuits with respect to various matters. The Company
provides for costs related to contingencies when a loss is probable and the amount is reasonably
estimable. After conferring with counsel, it is the opinion of management that the ultimate
resolution of pending claims will not have a material adverse effect on the consolidated financial
condition, results of operations or liquidity of the Company.
16. | SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION |
Pursuant to the indenture governing the Parent Notes, certain wholly owned subsidiaries of the
Company have fully and unconditionally guaranteed the notes on a joint and several basis. The
following tables present unaudited consolidating financial information for (i) the issuer of the
notes (Westmoreland Coal Company), (ii) the co-issuer of the notes (Westmoreland Partners), (iii)
the guarantors under the notes, and (iv) the entities which are not guarantors under the notes:
20
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
CONSOLIDATING BALANCE SHEETS
March 31, 2011
(In thousands)
March 31, 2011
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | 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 | |||||||||||
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
CONSOLIDATING BALANCE SHEETS
March 31, 2011
(In thousands)
March 31, 2011
(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 |
$ | (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 | |||||||||||
22
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
CONSOLIDATING BALANCE SHEETS
December 31, 2010
(In thousands)
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 |
| | 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 | |||||||||||
23
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
CONSOLIDATING BALANCE SHEETS
December 31, 2010
(In thousands)
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 |
(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 | |||||||||||
24
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2011
(In thousands)
Three Months Ended March 31, 2011
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | 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 | ) | |||||||||
25
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2010
(In thousands)
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 | ) | ||||||||
26
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2011
(In thousands)
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 | |||||||||||||
27
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2010
(In thousands)
Three Months Ended March 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 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 | |||||||||||||
28
Table of Contents
ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking
statements can be identified by words such as anticipates, intends, plans, seeks,
believes, estimates, expects and similar references to future periods. Examples of
forward-looking statements include, but not limited to, statements we make about our expectation
that coal tons delivered over the remainder of 2011 may decrease as a result of favorable
hydropower conditions, the expectation that our cash flows from operations, cash on hand and
available borrowing capacity will be sufficient to meet our investing, financing, and working
capital requirements for the next several years, our intended use of the net proceeds remaining
from the Parent Notes offering for general corporate purposes including the possible acquisition of
new reserves, and our expectation that distributions from ROVA and WRI will comprise a significant
source of liquidity for us.
Forward-looking statements are based on our current expectations and assumptions regarding our
business, the economy and other future conditions. Because forward-looking statements relate to the
future, they are subject to inherent uncertainties, risks and changes in circumstances that are
difficult to predict. Our actual results may differ materially from those contemplated by the
forward-looking statements. We caution you therefore against relying on any of these
forward-looking statements. They are neither statements of historical fact nor guarantees or
assurances of future performance. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include political, economic, business,
competitive, market, weather and regulatory conditions and the following:
| changes in our postretirement medical benefit and pension obligations and the impact of recently enacted healthcare legislation; |
| changes in our black lung obligations, changes in our experience related to black lung claims, and the impact of 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 ROVAs contracts with its lenders, coal suppliers and power purchaser, which could dramatically affect the overall profitability of ROVA; |
| the effect of EPA 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 unplanned outages at our customers due to the impact of weather-related variances; |
| 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 |
| the other factors that are described in Risk Factors herein and under Part II, Item 1A and under Part I, Item 1A of the 2010 Form 10-K. |
Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as
of the date on which it was made. Factors or events that could cause our actual results to differ
may emerge from time-to-time, and it is not possible for us to predict all of them. We undertake no
obligation to publicly update any forward-looking statements, whether as a result of new
information, future developments or otherwise, except as may be required by law.
29
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)
AND RESULTS OF OPERATIONS (CONT.)
Overview
Westmoreland Coal Company is an energy company whose operations include five surface coal
mines in Montana, North Dakota and Texas and two coal-fired power-generating units with a total
capacity of 230 megawatts in North Carolina. We sold 25.2 million tons of coal in 2010. Our two
principal operating segments are our coal segment and our power segment, in addition to two
non-operating segments.
We are a holding company and conduct our operations through subsidiaries. We have significant
cash requirements to fund our ongoing heritage health benefit costs and corporate overhead
expenses. The principal sources of cash flow to us are distributions from our principal operating
subsidiaries. Following the Parent Notes offering, discussed below, we now have $45.0 million cash
on hand at March 31, 2011. The indenture governing the Parent Notes also permits us to enter into
a revolving credit facility at the Parent.
Recent Developments
In February 2011, we completed a private placement of $150.0 million of senior secured notes
due in 2018, referred to herein as the Parent Notes. The net proceeds from the offering of the
Parent Notes were used to pay all dividend arrearages on our Series A preferred stock, to repay all
outstanding term and revolving line of credit debt at our Roanoke Valley power plants, or ROVA, and
Westmoreland Resources, Inc., or WRI, to retire approximately $2.5 million of the outstanding
principal owed on our senior secured convertible notes (the remaining principal balance of the
senior secured convertible notes was converted to common stock) and for general corporate purposes.
We are required to file a registration statement with the SEC to register the Parent Notes under
the Securities Act of 1933 within 120 days after the completion of the offering, which was February
4, 2011.
Results of Operations
Items that Affect Comparability of Our Results
For the three months ended March 31, 2011 and 2010, our results have included items that do
not relate directly to ongoing operations. The expense components of these items were as follows:
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 | ) | ||
Items recorded in the three months ended March 31, 2011 |
- | 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 ROVAs 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. |
30
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)
AND RESULTS OF OPERATIONS (CONT.)
Items recorded in the three months ended March 31, 2010 |
- | 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 Compared to Three Months Ended March 31, 2010
Summary
Our first quarter 2011 revenues increased to $127.8 million compared with $126.4 million in
the first quarter of 2010. This increase was partly driven by an increase in our coal segment
revenues due to stronger tonnage sales at our Absaloka Mine which offset the expiration of an
unprofitable coal contract at our Rosebud Mine. In addition, our power segment revenues increased
primarily from contractual price increases.
Our first quarter 2011 net loss applicable to common shareholders increased to $18.0 million
compared with a $3.2 million loss in the first quarter of 2010. Excluding $20.2 million of first
quarter 2011 expenses and $4.8 million of first quarter 2010 expenses discussed in Items that
Affect Comparability of Our Results, our net loss decreased by $0.6 million. The primary factors,
in aggregate, driving this decrease in net loss were:
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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Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)
AND RESULTS OF OPERATIONS (CONT.)
Coal Segment Operating Results
The following table shows comparative coal revenues, operating income (loss) and sales volume
and percentage changes between periods:
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. |
Our first quarter 2011 coal segment revenues increased to $104.1 million compared with
$103.6 million in the first quarter of 2010. This $0.6 million increase was primarily due to
stronger tonnage sales at our Absaloka Mine which offset the expiration of an unprofitable coal
contract at our Rosebud Mine.
Our coal segment operating income was $8.8 million in the first quarter of 2011 compared to
$7.4 million in the first quarter of 2010. This $1.5 million increase was primarily driven by the
expiration of an unprofitable coal contract at our Rosebud Mine discussed above.
We expect that coal tons delivered over the remainder of 2011 may decrease as a result of
favorable hydropower condition, which may displace our customers coal-generated power.
Power Segment Operating Results
The following table shows comparative power revenues, operating income, production and
percentage changes between periods:
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. |
Our first quarter 2011 power segment revenues increased to $23.6 million compared to
$22.9 million in first quarter 2010. This $0.7 million increase is primarily from contractual
price increases.
Our power segment operating income increased to $4.6 million in the first quarter of 2011
compared to $4.2 million in the first quarter of 2010. This $0.4 million increase was primarily
from the contractual price increases discussed above.
32
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)
AND RESULTS OF OPERATIONS (CONT.)
Heritage Segment Operating Results
The following table shows comparative detail of the heritage segments operating expenses and
percentage changes between periods:
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 | )% | |||||||
Our first quarter 2011 heritage operating expenses of $4.2 million was comparable to $4.3
million in the first quarter of 2010.
Corporate Segment Operating Results
Our corporate segment operating expenses for the first quarter of 2011 of $1.8 million was
comparable to $1.9 million in the first quarter of 2010.
Nonoperating Results (including interest expense, other income (expense) and income tax
benefit)
Our interest expense for the first quarter of 2011 increased to $7.0 million compared with
$5.7 million for the first quarter of 2010. This increase was primarily due to the higher overall
debt levels resulting from the Parent Notes offering.
Our other expense for the first quarter of 2011 decreased to $3.0 million compared with $3.8
million of expense for the first quarter of 2010. Excluding the $1.4 million impact of the fair
value adjustment on derivatives discussed in Items that Affect Comparability of Our Results, our
other expense increased $0.6 million primarily due to gains on sales of securities during the first
quarter of 2010.
Our income tax benefit for the first quarter of 2011 increased to $0.5 million compared with
$0.1 million for the first quarter of 2010. This increase was due to lower taxable income.
Reconciliation of Adjusted EBITDA to Net Loss
The discussion in Results of Operations in 2011 and 2010 includes references to our Adjusted
EBITDA results. EBITDA and Adjusted EBITDA are supplemental measures of financial performance that
are not required by, or presented in accordance with, GAAP. EBITDA and Adjusted EBITDA are key
metrics used by us to assess our operating performance and we believe that EBITDA and Adjusted
EBITDA are useful to an investor in evaluating our operating performance because these measures:
| are used widely by investors to measure a companys 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 |
33
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)
AND RESULTS OF OPERATIONS (CONT.)
| 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. |
Neither EBITDA nor Adjusted EBITDA is a measure calculated in accordance with GAAP. The items
excluded from EBITDA and Adjusted EBITDA are significant in assessing our operating results. EBITDA
and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation
from, or as a substitute for, analysis of our results as reported under GAAP. For example, EBITDA
and Adjusted EBITDA:
| 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. |
In addition, although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted
EBITDA do not reflect any cash requirements for such replacements. Other companies in our industry
and in other industries may calculate EBITDA and Adjusted EBITDA differently from the way that we
do, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and
Adjusted EBITDA should not be considered as measures of discretionary cash available to us to
invest in the growth of our business. We compensate for these limitations by relying primarily on
our GAAP results and using EBITDA and Adjusted EBITDA only as supplemental data.
The tables below show how we calculate EBITDA and Adjusted EBITDA, including a breakdown by
segment for Adjusted EBITDA.
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 | ||||
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)
AND RESULTS OF OPERATIONS (CONT.)
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 | ||||
Liquidity and Capital Resources
At March 31, 2011, we had $45.0 million of cash and cash equivalents and $23.1 million of
available borrowing capacity under our Westmoreland Mining LLC, or WML, revolving line of credit.
We anticipate that our cash flows from operations, cash on hand and available borrowing capacity
will be sufficient to meet our investing, financing, and working capital requirements for the next
several years.
Parent Notes Offering and Use of Proceeds
On February 4, 2011, we issued the Parent Notes, which are $150.0 million of 10.750% senior
secured notes. Our subsidiary, Westmoreland Partners, was a co-issuer of the notes. Interest is
due at an annual fixed rate of 10.750% and will be paid in cash semi-annually, in arrears, on
February 1 and August 1 of each year beginning August 1, 2011. The Parent Notes mature February
1, 2018. They are fully and unconditionally guaranteed by Westmoreland Energy LLC and WRI and
their respective subsidiaries (other than Absaloka Coal, LLC) and by certain other subsidiaries.
We received net proceeds from the sale of the Parent Notes in the offering of approximately
$135.0 million after deducting the Initial Purchasers discount of $7.5 million and offering costs
of $7.5 million. We repaid existing outstanding debt with those proceeds as follows: $52.7 million
to repay all outstanding term and revolving line of credit at ROVA, including a make-whole payment
of $9.1 million; $20.1 million to repay all outstanding term and revolving line of credit at WRI;
and $2.5 million to retire certain of our convertible notes. The holder of our convertible notes
agreed to convert the convertible notes not retired into shares of our common stock. In addition,
we used $19.9 million of the net proceeds to pay all dividend arrearages on our preferred stock.
We will use the remaining net proceeds from the offering for general corporate purposes including
the possible acquisition of new reserves. The indenture governing the Parent Notes requires us to
offer to redeem the notes on an annual basis with certain Excess Cash Flow (as defined in the
indenture), and amounts used for such redemptions will not be available for other purposes.
In connection with the Parent Notes offering, we terminated the WRI and ROVA revolving credit
agreements. The WML Credit Agreements remained in place following the offering. Following the
Parent Notes offering, we are able to enter into a parent-level revolving credit facility without
the consent of the holders of the notes, subject to certain conditions.
Liquidity Limitations and Requirements
The cash at WML is available to us through quarterly distributions. The WML credit agreement
requires a debt service account and imposes timing and other restrictions on the ability of WML to
distribute funds to us. Cash available from WML is affected beginning in June of this year by
payments due in respect of principal on the WML Notes. Following the February 4, 2011 Parent Notes
offering, we expect that distributions from ROVA and WRI will comprise a significant source of
liquidity for us. The cash at WRM is also available to us through dividends, subject to
maintaining a statutory minimum level of capital, which was $0.1 million at March 31, 2011.
35
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)
AND RESULTS OF OPERATIONS (CONT.)
Our liquidity continues to be affected by our heritage health and pension obligations as
follows:
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 |
In addition to the Parent Notes mentioned above, WML has $125.0 million of fixed rate
term debt outstanding at March 31, 2011. Principal on the notes is scheduled to be paid as
follows: $7.5 million in 2011, $14.0 million in 2012, $18.0 million in 2013, $18.0 million in 2014,
$20.0 million in 2015, $20.0 million in 2016, $22.0 million in 2017 and the remaining $5.5 million
in 2018. The revolving credit facility has a borrowing limit of $25.0 million and matures in June
2013. At March 31, 2011, WML had no outstanding balance under the revolving credit facility and a
letter of credit of $1.9 million supported by the revolving credit facility, leaving it with $23.1
million of unused borrowings. WMLs revolving line of credit is only available to fund the
operations of its subsidiaries.
Historical Sources and Uses of Cash
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 | ) |
Cash Flow from Operations
Cash provided by operating activities increased $2.9 million in the three months ended March
31, 2011 compared to the three months ended March 31, 2010 primarily due to an increase in
operating income.
Cash used in investing activities increased $1.9 million in the three months ended March 31,
2011 compared to the three months ended March 31, 2010. We received $1.5 million less of proceeds
from the sale of assets and investments in the three months ended March 31, 2011 compared to the
same period in 2010.
Cash provided by financing activities increased by $31.0 million for the three months ended
March 31, 2011 compared to the three months ended March 31, 2010, primarily as a result of the
Parent Notes offering.
Our working capital deficit at March 31, 2011 decreased by $34.8 million to $1.0 million
compared to a $35.8 million deficit at December 31, 2010 primarily as a result of a $39.2 million
increase in cash and cash equivalents mostly due to the Parent Notes offering.
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)
AND RESULTS OF OPERATIONS (CONT.)
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to certain off-balance sheet arrangements.
These arrangements include financial instruments with off-balance sheet risk, such as bank letters
of credit and performance or surety bonds. Surety bonds and letters of credit are issued by
financial institutions to third parties to assure the performance of our obligations relating to
reclamation, workers compensation obligations, postretirement medical benefit obligations, and
other obligations. Liabilities related to these arrangements are not reflected in our consolidated
balance sheets, and we do not expect any material adverse effects on our financial condition,
results of operations or cash flows to result from these off-balance sheet arrangements.
There were no material changes to our off-balance sheet arrangements during the three months
ended March 31, 2011. Our off-balance sheet arrangements are discussed in Managements Discussion
and Analysis of Financial Condition and Results of Operations in our 2010 Form 10-K.
Newly Adopted Accounting Pronouncements
See Note 2 of Notes to Consolidated Financial Statements included in Part I Item 1
Financial Statements for a description of recently issued and adopted accounting pronouncements,
including the expected dates of adoption and estimated effects on our consolidated financial
statements.
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ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Other than the changes noted below, there have been no material changes in our market risk
during the three months ended March 31, 2011. For additional information, refer to the
Quantitative and Qualitative Disclosures about Market Risk in Item 7A of our 2010 Form 10-K for
the fiscal year ended December 31, 2010.
Interest Rate Risk
Our exposure to changes in interest rates results from our debt obligations shown in the table
below that are indexed to either the prime rate or LIBOR. Based on balances outstanding as of
March 31, 2011, a change of one percentage point in the prime interest rate or LIBOR would increase
or decrease interest expense on an annual basis by the amount shown below:
Effect of 1% | ||||
increase | ||||
or 1% decrease | ||||
(In thousands) | ||||
WML revolving line of credit |
$ | |
ITEM 4
CONTROLS AND PROCEDURES
CONTROLS AND PROCEDURES
As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
management has evaluated, with the participation of our chief executive officer and chief financial
officer, the effectiveness of our disclosure controls and procedures as of March 31, 2011.
Disclosure controls and procedures are designed to provide reasonable assurance that material
information required to be disclosed in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the rules and
forms of the Securities and Exchange Commission. Disclosure controls and procedures also include,
without limitation, controls and procedures designed to ensure that information required to be
disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and
communicated to management, including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding our required disclosure. Based on that evaluation,
our management, including our chief executive officer and chief financial officer, concluded that
the disclosure controls and procedures were effective as of such date.
Additionally, there have been no changes in internal control over financial reporting that
occurred during our fiscal quarter ended March 31, 2011, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
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PART
II
OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
Please refer to the information contained in Note 15 to the Consolidated Financial Statements
in this Quarterly Report on Form 10-Q and in Part I, Item 3 Legal Proceedings of our 2010 Form
10-K, which is responsive to this Item 1 and is incorporated herein by reference. There have been
no material developments with respect to our legal proceedings previously disclosed in our 2010
Form 10-K.
Form 10-K.
ITEM 1A
RISK FACTORS
RISK FACTORS
We have disclosed under the heading Risk Factors in our 2010 Form 10-K, the risk factors
that we believe materially affect our business, financial condition or results of operations.
There have been no material changes from the risk factors previously disclosed. You should
carefully consider the risk factors set forth in the 2010 Form 10-K and the other information set
forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors
and other information may not describe every risk facing our Company. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and or operating results.
ITEM 5
OTHER INFORMATION
Section 1503. Reporting Requirements Regarding Coal or Other Mine Safety.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Act,
was enacted. Section 1503 of the Act contains new reporting requirements regarding coal or other
mine safety. Westmoreland Coal Company is committed to providing a safe workplace for all of our
employees. Recently, two of our mines received the Montana Governors Award for Health and Safety,
one in the Large Mining category and one in the Small Mining category. In addition, our Beulah
Mine received the Lignite Energy Councils Safety Excellence Award for the lowest accident incident
rate in the lignite industry for 2010. Our other mines had excellent safety records in 2010, which
continued through the first quarter of 2011. We continue to engage proactively with federal and
state agencies in support of measures that can improve the safety and well-being of our employees.
The operation of our mines is subject to regulation by the federal Mine Safety and Health
Administration, or MSHA, under the Federal Mine Safety and Health Act of 1977, or the Mine Act.
MSHA inspects our mines on a regular basis and issues various citations and orders when it believes
a violation has occurred under the Mine Act. Below, we have included information regarding certain
mining safety and health citations and orders that MSHA has issued with respect to our coal mining
operations. In evaluating this information, consideration should be given to factors such as: (i)
the number of citations and orders will vary depending on the size of the coal mine, (ii) the
number of citations and orders issued will vary from inspector-to-inspector and mine-to-mine, and
(iii) citations and orders can be contested and appealed, and in that process, may be reduced in
severity and amount, and are sometimes dismissed.
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Table of Contents
PART II
OTHER INFORMATION (CONT.)
The table below includes references to specific sections of the Mine Act. We are providing the
information in the table by mine as that is how we manage and operate our business.
(A) | (B) | (C) | (D) | (E) | (F) | (G) | (H) | |||||||||||||||||||||||||
Proposed | Pending | |||||||||||||||||||||||||||||||
Section | Section | Section | Section | Section | Assessments | Legal | ||||||||||||||||||||||||||
Mine Name/ID | 104 S&S | 104(b) | 104(d) | 110(b)(2) | 107(a) | ($) | Fatalities | Action | ||||||||||||||||||||||||
Rosebud Mine & Crusher
Conveyor / 24-01747 |
1 | | | | | | J | | | |||||||||||||||||||||||
Absaloka Mine / 24-00910 |
2 | | 1 | I | | | 10,967 | | | |||||||||||||||||||||||
Savage Mine / 24-00106 |
1 | | | | | | J | | | |||||||||||||||||||||||
Jewett Mine / 41-03164 |
1 | | | | | | J | | | |||||||||||||||||||||||
Beulah Mine / 32-00043 |
| | | | | | | |
(A) | The total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under section 104 of the Mine Safety and Health Act of 1977 (30 U.S.C. 814) for which the operator received a citation from the Mine Safety and Health Administration. | |
(B) | The total number of orders issued under section 104(b) of such Act (30 U.S.C. 814(b)). | |
(C) | The total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under section 104(d) of such Act (30 U.S.C. 814(d)). | |
(D) | The total number of flagrant violations under section 110(b)(2) of such Act (30 U.S.C. 820(b)(2)). | |
(E) | The total number of imminent danger orders issued under section 107(a) of such Act (30 U.S.C. 817(a)). | |
(F) | The total dollar value of proposed assessments from the Mine Safety and Health Administration under such Act (30 U.S.C. 801 et seq.). | |
(G) | The total number of mining-related fatalities. | |
(H) | Any pending legal action before the Federal Mine Safety and Health Review Commission involving such coal or other mine. | |
(I) | Absaloka Mine received an unwarrantable failure citation for failure to comply with a mandatory standard as a dangerous amount of coal dust was allowed to accumulate under the return side of Belt #1, where the belt leaves the primary crusher. Corrective measures for this condition were not noted in the Plant Examination Book for a period of 24 hours. | |
(J) | Not assessed as of April 30, 2011. |
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Table of Contents
PART II
OTHER INFORMATION (CONT.)
ITEM 6
EXHIBITS
EXHIBITS
10.1 | Form of Restricted Stock Unit Agreement with performance-based vesting |
|||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) |
|||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) |
|||
32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 |
41
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WESTMORELAND COAL COMPANY |
||||
Date: May 9, 2011 | /s/ Kevin A. Paprzycki | |||
Kevin A. Paprzycki | ||||
Chief Financial Officer and Treasurer
(A Duly Authorized Officer) |
||||
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Table of Contents
EXHIBIT INDEX
Incorporated by Reference | |||||||||||||
Exhibit Number |
Exhibit Description | Form | File Number |
Exhibit | Filing Date | Filed Herewith |
|||||||
10.1
|
Form of Restricted Stock Unit Agreement with Performance-based Vesting | X | |||||||||||
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) | X | |||||||||||
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) | X | |||||||||||
32
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | X |
43