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EXCEL - IDEA: XBRL DOCUMENT - WESTMORELAND COAL Co | Financial_Report.xls |
EX-32 - EXHIBIT 32 - WESTMORELAND COAL Co | c23934exv32.htm |
EX-31.2 - EXHIBIT 31.2 - WESTMORELAND COAL Co | c23934exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - WESTMORELAND COAL Co | c23934exv31w1.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 September 30, 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 incorporation or organization) |
(I.R.S. Employer 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 þ 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 o | Non-accelerated filer þ | 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
November 1, 2011: 13,781,417 shares of common stock, $2.50 par value.
TABLE OF CONTENTS
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Consolidated Balance Sheets
(Unaudited)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 43,229 | $ | 5,775 | ||||
Receivables: |
||||||||
Trade |
46,698 | 50,578 | ||||||
Contractual third-party reclamation receivables |
7,427 | 7,743 | ||||||
Other |
4,002 | 4,545 | ||||||
58,127 | 62,866 | |||||||
Inventories |
25,841 | 23,571 | ||||||
Other current assets |
6,713 | 5,335 | ||||||
Total current assets |
133,910 | 97,547 | ||||||
Property, plant and equipment: |
||||||||
Land and mineral rights |
84,033 | 83,824 | ||||||
Capitalized asset retirement cost |
114,856 | 114,856 | ||||||
Plant and equipment |
519,233 | 506,661 | ||||||
718,122 | 705,341 | |||||||
Less accumulated depreciation, depletion and amortization |
(319,841 | ) | (288,386 | ) | ||||
Net property, plant and equipment |
398,281 | 416,955 | ||||||
Advanced coal royalties |
3,138 | 3,695 | ||||||
Reclamation deposits |
70,801 | 72,274 | ||||||
Restricted investments and bond collateral |
56,933 | 55,384 | ||||||
Contractual third-party reclamation receivables, less current portion |
89,656 | 87,739 | ||||||
Deferred income taxes |
| 2,458 | ||||||
Intangible assets, net of accumulated amortization of $10.3 million
and $9.1 million at September 30, 2011 and December 31, 2010,
respectively |
5,297 | 6,555 | ||||||
Other assets |
10,951 | 7,699 | ||||||
Total Assets |
$ | 768,967 | $ | 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)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Liabilities and Shareholders Deficit |
||||||||
Current liabilities: |
||||||||
Current installments of long-term debt |
$ | 19,796 | $ | 14,973 | ||||
Accounts payable and accrued expenses: |
||||||||
Trade |
43,920 | 46,247 | ||||||
Production taxes |
27,896 | 26,317 | ||||||
Workers compensation |
946 | 954 | ||||||
Postretirement medical benefits |
13,581 | 13,581 | ||||||
SERP |
304 | 304 | ||||||
Deferred revenue |
12,014 | 10,209 | ||||||
Asset retirement obligations |
16,677 | 14,514 | ||||||
Other current liabilities |
4,682 | 6,241 | ||||||
Total current liabilities |
139,816 | 133,340 | ||||||
Long-term debt, less current installments |
266,664 | 208,731 | ||||||
Revolving lines of credit |
| 18,400 | ||||||
Workers compensation, less current portion |
9,279 | 9,424 | ||||||
Excess of pneumoconiosis benefit obligation over trust assets |
3,611 | 2,246 | ||||||
Postretirement medical benefits, less current portion |
196,230 | 197,279 | ||||||
Pension and SERP obligations, less current portion |
13,026 | 20,462 | ||||||
Deferred revenue, less current portion |
68,320 | 75,395 | ||||||
Asset retirement obligations, less current portion |
230,010 | 227,129 | ||||||
Intangible liabilities, net of accumulated amortization $10.2 million at
September 30, 2011 and $9.4 million at December 31, 2010, respectively |
7,899 | 8,663 | ||||||
Other liabilities |
8,480 | 11,592 | ||||||
Total liabilities |
943,335 | 912,661 | ||||||
Shareholders deficit: |
||||||||
Preferred stock of $1.00 par value |
||||||||
Authorized 5,000,000 shares; Issued and outstanding 159,960 shares at September 30, 2011, and 160,129 shares at December 31, 2010, respectively |
160 | 160 | ||||||
Common stock of $2.50 par value |
||||||||
Authorized 30,000,000 shares; Issued and outstanding 13,762,177 shares at September 30, 2011, and 11,160,798 shares at December 31, 2010, respectively |
34,404 | 27,901 | ||||||
Other paid-in capital |
125,498 | 98,466 | ||||||
Accumulated other comprehensive loss |
(57,195 | ) | (57,680 | ) | ||||
Accumulated deficit |
(269,990 | ) | (226,740 | ) | ||||
Total Westmoreland Coal Company shareholders deficit |
(167,123 | ) | (157,893 | ) | ||||
Noncontrolling interest |
(7,245 | ) | (4,462 | ) | ||||
Total deficit |
(174,368 | ) | (162,355 | ) | ||||
Total Liabilities and Shareholders Deficit |
$ | 768,967 | $ | 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Revenues |
$ | 132,449 | $ | 124,080 | $ | 372,353 | $ | 378,152 | ||||||||
Costs, expenses and other: |
||||||||||||||||
Cost of sales |
100,164 | 94,208 | 288,964 | 296,366 | ||||||||||||
Depreciation, depletion and amortization |
11,612 | 10,964 | 33,861 | 33,435 | ||||||||||||
Selling and administrative |
9,884 | 8,930 | 28,224 | 28,578 | ||||||||||||
Heritage health benefit expenses |
3,896 | 4,241 | 11,115 | 11,550 | ||||||||||||
Loss on sales of assets |
91 | 165 | 415 | 256 | ||||||||||||
Other operating income |
(1,769 | ) | (2,267 | ) | (5,236 | ) | (6,519 | ) | ||||||||
123,878 | 116,241 | 357,343 | 363,666 | |||||||||||||
Operating income |
8,571 | 7,839 | 15,010 | 14,486 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(7,650 | ) | (5,756 | ) | (22,262 | ) | (17,245 | ) | ||||||||
Loss on extinguishment of debt |
| | (17,030 | ) | | |||||||||||
Interest income |
423 | 603 | 1,134 | 1,380 | ||||||||||||
Other income (loss) |
147 | 17 | (2,630 | ) | 907 | |||||||||||
(7,080 | ) | (5,136 | ) | (40,788 | ) | (14,958 | ) | |||||||||
Income (loss) before income taxes |
1,491 | 2,703 | (25,778 | ) | (472 | ) | ||||||||||
Income tax expense (benefit)from operations |
(84 | ) | 285 | (706 | ) | 149 | ||||||||||
Net income (loss) |
1,575 | 2,418 | (25,072 | ) | (621 | ) | ||||||||||
Less net loss attributable to noncontrolling interest |
(1,154 | ) | (435 | ) | (2,783 | ) | (1,878 | ) | ||||||||
Net income (loss) attributable to the Parent company |
2,729 | 2,853 | (22,289 | ) | 1,257 | |||||||||||
Less preferred stock dividend requirements |
340 | 340 | 1,020 | 1,020 | ||||||||||||
Net income (loss) applicable to common shareholders |
$ | 2,389 | $ | 2,513 | $ | (23,309 | ) | $ | 237 | |||||||
Net income (loss) per share applicable to common shareholders: |
||||||||||||||||
Basic |
$ | 0.18 | $ | 0.23 | $ | (1.79 | ) | $ | 0.02 | |||||||
Diluted |
0.18 | 0.23 | (1.79 | ) | 0.02 | |||||||||||
Weighted average number of common shares outstanding: |
||||||||||||||||
Basic |
13,384 | 10,849 | 12,990 | 10,676 | ||||||||||||
Diluted |
13,442 | 10,911 | 12,990 | 10,758 | ||||||||||||
Net income (loss) (from above) |
$ | 1,575 | $ | 2,418 | $ | (25,072 | ) | $ | (621 | ) | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Amortization of accumulated actuarial gains or losses, pension |
442 | 332 | 1,212 | 996 | ||||||||||||
Amortization of accumulated actuarial gains or losses, transition
obligations and prior service costs, postretirement medical benefits |
(72 | ) | (68 | ) | (216 | ) | (206 | ) | ||||||||
Tax effect of other comprehensive income gains |
(141 | ) | | (308 | ) | | ||||||||||
Unrealized and realized gains and losses on available-for-sale securities |
(12 | ) | 262 | (203 | ) | (345 | ) | |||||||||
Comprehensive income (loss) |
$ | 1,792 | $ | 2,944 | $ | (24,587 | ) | $ | (176 | ) | ||||||
See accompanying Notes to Consolidated Financial Statements.
5
Table of Contents
Westmoreland Coal Company and Subsidiaries
Consolidated Statement of Shareholders Deficit
Nine Months Ended September 30, 2011
(Unaudited)
Consolidated Statement of Shareholders Deficit
Nine Months Ended September 30, 2011
(Unaudited)
Accumulated | Total | |||||||||||||||||||||||||||||||||||
Other | Non- | Shareholders | ||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Other Paid- | Compre- | Accumulated | controlling | Equity | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | In Capital | hensive Loss | Deficit | Interest | (Deficit) | ||||||||||||||||||||||||||||
(In thousands; except shares data) | ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2010 |
160,129 | $ | 160 | 11,160,798 | $ | 27,901 | $ | 98,466 | $ | (57,680 | ) | $ | (226,740 | ) | $ | (4,462 | ) | $ | (162,355 | ) | ||||||||||||||||
Preferred dividends declared |
| | | | | | (20,961 | ) | | (20,961 | ) | |||||||||||||||||||||||||
Common stock issued as compensation |
| | 190,916 | 477 | 3,331 | | | | 3,808 | |||||||||||||||||||||||||||
Common stock options exercised |
| | 31,200 | 78 | 344 | | | | 422 | |||||||||||||||||||||||||||
Conversion of convertible notes
and securities |
(169 | ) | | 1,879,098 | 4,698 | 20,787 | | | | 25,485 | ||||||||||||||||||||||||||
Common stock issued to pension
plan assets |
| | 450,000 | 1,125 | 3,132 | | | | 4,257 | |||||||||||||||||||||||||||
Issuance of restricted stock |
| | 50,165 | 125 | (562 | ) | | | | (437 | ) | |||||||||||||||||||||||||
Net loss |
| | | | | | (22,289 | ) | (2,783 | ) | (25,072 | ) | ||||||||||||||||||||||||
Tax effect of other comprehensive
income gains |
| | | | | (308 | ) | | | (308 | ) | |||||||||||||||||||||||||
Amortization of accumulated
actuarial gains or losses, pension |
| | | | | 1,212 | | | 1,212 | |||||||||||||||||||||||||||
Amortization of accumulated
actuarial gains or losses,
transition obligations and prior
service costs, postretirement
medical benefits |
| | | | | (216 | ) | | | (216 | ) | |||||||||||||||||||||||||
Unrealized and realized gains and
losses on available-for-sale
securities |
| | | | | (203 | ) | | | (203 | ) | |||||||||||||||||||||||||
Balance at September 30, 2011 |
159,960 | $ | 160 | 13,762,177 | $ | 34,404 | $ | 125,498 | $ | (57,195 | ) | $ | (269,990 | ) | $ | (7,245 | ) | $ | (174,368 | ) | ||||||||||||||||
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)
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (25,072 | ) | $ | (621 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation, depletion and amortization |
33,861 | 33,435 | ||||||
Accretion of asset retirement obligation and receivable |
8,100 | 8,687 | ||||||
Amortization of intangible assets and liabilities, net |
494 | 348 | ||||||
Non-cash tax benefits |
(308 | ) | | |||||
Share-based compensation |
3,808 | 3,206 | ||||||
Loss on sales of assets |
415 | 256 | ||||||
Non-cash interest expense |
| 1,236 | ||||||
Amortization of deferred financing costs |
1,886 | 1,691 | ||||||
Loss on extinguishment of debt |
17,030 | | ||||||
Gain on sales of investment securities |
(150 | ) | (604 | ) | ||||
Loss (gain) on derivative instruments |
3,079 | (132 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Receivables, net |
4,773 | (3,916 | ) | |||||
Inventories |
(2,270 | ) | 995 | |||||
Excess of pneumoconiosis benefit obligation over trust assets |
1,365 | 1,190 | ||||||
Accounts payable and accrued expenses |
1,361 | 10,715 | ||||||
Deferred revenue |
(5,270 | ) | (1,141 | ) | ||||
Accrual for workers compensation |
(153 | ) | (143 | ) | ||||
Asset retirement obligation |
(4,657 | ) | (4,543 | ) | ||||
Accrual for postretirement medical benefits |
(1,265 | ) | (2,258 | ) | ||||
Pension and SERP obligations |
(1,967 | ) | (3,789 | ) | ||||
Other assets and liabilities |
(1,032 | ) | (7,028 | ) | ||||
Net cash provided by in operating activities |
34,028 | 37,584 | ||||||
Cash flows from investing activities: |
||||||||
Additions to property, plant and equipment |
(15,103 | ) | (15,645 | ) | ||||
Change in restricted investments and bond collateral and reclamation deposits |
(3,479 | ) | (4,118 | ) | ||||
Net proceeds from sales of assets |
87 | 389 | ||||||
Proceeds from sale of restricted investments |
3,350 | 2,307 | ||||||
Receivable from customer for property and equipment purchases |
(350 | ) | 117 | |||||
Net cash used in investing activities |
(15,495 | ) | (16,950 | ) | ||||
Cash flows from financing activities: |
||||||||
Change in book overdrafts |
(635 | ) | (1,389 | ) | ||||
Borrowings from long-term debt, net of debt discount |
142,500 | | ||||||
Repayments of long-term debt |
(69,186 | ) | (17,702 | ) | ||||
Borrowings on revolving lines of credit |
87,200 | 122,100 | ||||||
Repayments of revolving lines of credit |
(105,600 | ) | (118,100 | ) | ||||
Debt issuance and other refinancing costs |
(14,819 | ) | | |||||
Preferred dividends paid |
(20,961 | ) | | |||||
Exercise of stock options |
422 | 8 | ||||||
Net cash provided by (used in) financing activities |
18,921 | (15,083 | ) | |||||
Net increase in cash and cash equivalents |
37,454 | 5,551 | ||||||
Cash and cash equivalents, beginning of period |
5,775 | 10,519 | ||||||
Cash and cash equivalents, end of period |
$ | 43,229 | $ | 16,070 | ||||
Non-cash transactions: |
||||||||
Capital leases |
$ | 531 | $ | 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 collateralized 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
collateralized 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 nine months ended September 30, 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.
Accounting Pronouncements Not Yet Implemented
In September 2011, accounting guidance was issued which requires that employers provide
additional separate disclosures for multiemployer pension plans and multiemployer other
postretirement benefit plans. The additional quantitative and qualitative disclosures will provide
users with more detailed information about an employers involvement in multiemployer pension
plans. This standard is effective for annual periods ending after December 15, 2011. The Company
has determined that the adoption of this standard will affect the Companys disclosures but will
not have a material effect on the Companys financial position or results of operations.
8
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In June 2011, accounting guidance was issued which requires an entity to present the
total of comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. This guidance eliminates the option to present the components
of other comprehensive income as part of the statement of equity. This standard is effective for
periods beginning after December 15, 2011. The Company has determined that the adoption of this
standard will affect the Companys disclosures but will not have a material effect on the Companys
financial position or results of operations.
In May 2011, accounting guidance was issued which generally aligns the principles for fair
value measurements and the related disclosure requirements under Generally Accepted Accounting
Principles and International Financial Reporting Standards. This guidance requires additional
disclosures regarding details about Level 3 fair value measurements, including quantitative
information about the significant unobservable inputs used in estimating fair value, a discussion
of the sensitivity of the measurement to these inputs and a description of the entitys valuation
processes. Disclosures will also be needed concerning any transfers between Level 1 and 2 of the
fair value hierarchy (not just significant transfers as previous guidance required) and the
hierarchy classification for items whose fair value is not recorded on the balance sheet but is
disclosed in the notes. This standard is effective for periods beginning after December 15, 2011.
The Company has determined that the adoption of this standard will affect the Companys disclosures
but will not have a material effect on the Companys financial position or results of operations.
3. INVENTORIES
Inventories consisted of the following:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Coal stockpiles |
$ | 792 | $ | 678 | ||||
Coal fuel inventories |
2,025 | 1,936 | ||||||
Materials and supplies |
23,599 | 21,538 | ||||||
Reserve for obsolete inventory |
(575 | ) | (581 | ) | ||||
Total |
$ | 25,841 | $ | 23,571 | ||||
4. RESTRICTED INVESTMENTS AND BOND COLLATERAL
The Companys restricted investments and bond collateral consists of the following:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Coal Segment: |
||||||||
Westmoreland Mining debt reserve account |
$ | 10,764 | $ | 7,514 | ||||
Reclamation bond collateral: |
||||||||
Absaloka Mine |
13,555 | 10,956 | ||||||
Rosebud Mine |
12,264 | 12,263 | ||||||
Beulah Mine |
1,270 | 1,270 | ||||||
Jewett Mine |
| 3,001 | ||||||
Power Segment: |
||||||||
Letter of credit account |
5,978 | 5,990 | ||||||
Debt protection account |
| 905 | ||||||
Repairs and maintenance account |
| 1,067 | ||||||
Ash reserve account |
| 602 | ||||||
Corporate Segment: |
||||||||
Postretirement medical benefit bonds |
6,645 | 5,466 | ||||||
Workers compensation bonds |
6,457 | 6,350 | ||||||
Total restricted investments and bond collateral |
$ | 56,933 | $ | 55,384 | ||||
9
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 investments 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.
The Companys carrying value and estimated fair value of its restricted investments and bond
collateral at September 30, 2011 are as follows:
Carrying Value | Fair Value | |||||||
(In thousands) | ||||||||
Cash and cash equivalents |
$ | 42,525 | $ | 42,525 | ||||
Time deposits |
7,698 | 7,698 | ||||||
Held-to-maturity securities |
4,923 | 5,297 | ||||||
Available-for-sale securities |
1,787 | 1,787 | ||||||
$ | 56,933 | $ | 57,307 | |||||
The Company recorded a gain of $0.1 million on the sale of available-for-sale securities
held as restricted investments and bond collateral in the nine months ended September 30, 2011.
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 losses and fair value of
held-to-maturity securities at September 30, 2011 is as follows (in thousands):
Amortized cost |
$ | 4,923 | ||
Gross unrealized holding gains |
414 | |||
Gross unrealized holding losses |
(40 | ) | ||
Fair value |
$ | 5,297 | ||
Maturities of held-to-maturity securities are as follows at September 30, 2011:
Amortized Cost | Fair Value | |||||||
(In thousands) | ||||||||
Within one year |
$ | 123 | $ | 120 | ||||
Due in five years or less |
3,067 | 3,116 | ||||||
Due after five years to ten years |
792 | 967 | ||||||
Due in more than ten years |
941 | 1,094 | ||||||
$ | 4,923 | $ | 5,297 | |||||
The cost basis, gross unrealized holding gains and fair value of available-for-sale
securities at September 30, 2011 is as follows (in thousands):
Cost basis |
$ | 1,566 | ||
Gross unrealized holding gains |
221 | |||
Fair value |
$ | 1,787 | ||
10
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 | ||||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Corporate: |
||||||||
Senior secured notes |
$ | 150,000 | $ | | ||||
Convertible notes |
| 18,495 | ||||||
Debt discount |
(7,020 | ) | (4,823 | ) | ||||
Westmoreland Mining, LLC: |
||||||||
Revolving line of credit |
| 1,500 | ||||||
Term debt |
120,000 | 125,000 | ||||||
Capital lease obligations |
15,163 | 18,407 | ||||||
Other term debt |
2,172 | 2,556 | ||||||
Westmoreland Resources, Inc.: |
||||||||
Revolving line of credit |
| 16,900 | ||||||
Term debt |
| 9,600 | ||||||
Capital lease obligations |
6,145 | 7,821 | ||||||
ROVA: |
||||||||
Term debt |
| 46,220 | ||||||
Debt premiums |
| 428 | ||||||
Total debt outstanding |
286,460 | 242,104 | ||||||
Less current portion |
(19,796 | ) | (14,973 | ) | ||||
Total debt outstanding, less current portion |
$ | 266,664 | $ | 227,131 | ||||
The following table presents aggregate contractual debt maturities of all long-term debt
and the lines of credit at September 30, 2011 (in thousands):
Remainder of 2011 |
$ | 4,347 | ||
2012 |
21,639 | |||
2013 |
24,944 | |||
2014 |
22,630 | |||
2015 |
21,910 | |||
Thereafter |
198,010 | |||
Total |
293,480 | |||
Less: debt discount |
(7,020 | ) | ||
Total debt |
$ | 286,460 | ||
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 which began 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 nine months ended September 30, 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.
11
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The indenture governing the Parent Notes contains, among other provisions, events of default
and various affirmative and negative covenants. As of September 30, 2011, the Company was in
compliance with all covenants.
Westmoreland Mining LLC
WML has outstanding $120.0 million in term debt as of September 30, 2011 and is party to a
revolving credit facility with a maximum availability of $25.0 million. In the nine months ended
September 30, 2011, WML repaid $5.0 million on its term debt and $4.0 million of its capital lease
obligations and other term debt. WML entered into capital lease agreements in the amount of $0.4
million during the nine months ended September 30, 2011. The weighted average interest rate for
WMLs capital leases and other term debt was 8.01% and 6.18%, respectively, at September 30, 2011.
The available balance on the $25.0 million revolving line of credit at September 30, 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
September 30, 2011.
WMLs lending arrangements contain, among other provisions, events of default and various
affirmative and negative covenants. As of September 30, 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 nine months ended September 30, 2011, WRI repaid $1.8 million of its capital lease
obligations. WRI entered into capital lease agreements in the amount of $0.1 million during the
nine months ended September 30, 2011. The weighted average interest rate for WRIs capital leases
was 6.72% at September 30, 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.
12
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company incurred net periodic benefit costs of providing these pension benefits as
follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Components of net periodic benefit cost: |
||||||||||||||||
Service cost |
$ | 195 | $ | 147 | $ | 585 | $ | 458 | ||||||||
Interest cost |
1,186 | 1,168 | 3,554 | 3,505 | ||||||||||||
Expected return on plan assets |
(1,343 | ) | (1,092 | ) | (3,913 | ) | (3,277 | ) | ||||||||
Amortization of deferred items |
442 | 332 | 1,212 | 996 | ||||||||||||
Total net periodic benefit cost |
$ | 480 | $ | 555 | $ | 1,438 | $ | 1,682 | ||||||||
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 $3.2 million in cash and $4.2 million in company stock to its pension
plans in the nine months ended September 30, 2011 and does not expect to make anymore 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Components of net periodic
benefit cost: |
||||||||||||||||
Service cost |
$ | 123 | $ | 133 | $ | 369 | $ | 403 | ||||||||
Interest cost |
2,628 | 2,625 | 7,883 | 7,874 | ||||||||||||
Amortization of deferred items |
(72 | ) | (68 | ) | (216 | ) | (206 | ) | ||||||||
Total net periodic benefit cost |
$ | 2,679 | $ | 2,690 | $ | 8,036 | $ | 8,071 | ||||||||
The following table shows the net periodic medical benefit costs that relate to current
operations and former mining operations:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Former mining operations |
$ | 2,316 | $ | 2,311 | $ | 6,944 | $ | 6,935 | ||||||||
Current operations |
363 | 379 | 1,092 | 1,136 | ||||||||||||
Total net periodic benefit cost |
$ | 2,679 | $ | 2,690 | $ | 8,036 | $ | 8,071 | ||||||||
13
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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.
The Company expects to pay approximately $4.3 million for postretirement medical benefits
during the remainder of 2011, net of Medicare Part D reimbursements. A total of $9.3 million was
paid in the nine months ended September 30, 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Health care benefits |
$ | 2,445 | $ | 2,932 | $ | 7,208 | $ | 7,551 | ||||||||
Combined benefit fund payments |
686 | 756 | 2,057 | 2,268 | ||||||||||||
Workers compensation benefits |
162 | 175 | 485 | 540 | ||||||||||||
Black lung benefits |
603 | 378 | 1,365 | 1,191 | ||||||||||||
Total |
$ | 3,896 | $ | 4,241 | $ | 11,115 | $ | 11,550 | ||||||||
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 September 30, 2011 are summarized
below:
Contractual Third- | ||||||||||||
Asset Retirement | Party Reclamation | Reclamation | ||||||||||
Obligations | Receivables | Deposits | ||||||||||
(In thousands) | ||||||||||||
Rosebud |
$ | 109,266 | $ | 15,342 | $ | 70,801 | ||||||
Jewett |
81,203 | 81,203 | | |||||||||
Absaloka |
33,860 | 538 | | |||||||||
Beulah |
18,756 | | | |||||||||
Savage |
2,846 | | | |||||||||
ROVA |
756 | | | |||||||||
Total |
$ | 246,687 | $ | 97,083 | $ | 70,801 | ||||||
14
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Asset Retirement Obligations
Changes in the Companys asset retirement obligations are as follows:
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Asset retirement obligations, beginning of period |
$ | 241,643 | $ | 244,615 | ||||
Accretion |
15,058 | 14,830 | ||||||
Liabilities settled |
(10,014 | ) | (10,924 | ) | ||||
Asset retirement obligations, end of period |
246,687 | 248,521 | ||||||
Less current portion |
(16,677 | ) | (16,545 | ) | ||||
Asset retirement obligations, less current portion |
$ | 230,010 | $ | 231,976 | ||||
The Companys contract with Coyote Station, located adjacent to our Beulah Mine, expires
in May 2016. The Company has been negotiating with the Coyote Station owners in a competitive bid
process for another long-term supply contract. Based on the direction of those negotiations, the
Company will be changing various accounting estimates due to the uncertainty of entering into a new
agreement upon the conclusion of the current contract in 2016. These changes in estimates will take
effect in the fourth quarter of 2011 and will result in revised depreciable asset lives, coal
reserve lives and asset retirement obligations. The Company expects increases in depreciation,
depletion and accretion expense as a result of these changes in estimates. The Company has not yet
determined an updated estimate of the asset retirement obligation related to the Beulah Mine, but
does not expect the impact of the change to be material to its financial position.
Contractual Third-Party Reclamation Receivables
The Company has recognized an asset of $97.1 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 September 30, 2011
are as follows:
Carrying Value | Fair Value | |||||||
(In thousands) | ||||||||
Cash and cash equivalents |
$ | 34,845 | $ | 34,845 | ||||
Held-to-maturity securities |
20,636 | 22,006 | ||||||
Time deposits |
14,218 | 14,218 | ||||||
Available-for-sale securities |
1,102 | 1,102 | ||||||
$ | 70,801 | $ | 72,171 | |||||
The Company recorded a gain of $0.1 million on the sale of available-for-sale securities
held as reclamation deposits in the nine months ended September 30, 2011.
15
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 September 30, 2011 are as follows (in thousands):
Amortized cost |
$ | 20,636 | ||
Gross unrealized holding gains |
1,412 | |||
Gross unrealized holding losses |
(42 | ) | ||
Fair value |
$ | 22,006 | ||
Maturities of held-to-maturity securities at September 30, 2011 are as follows:
Amortized Cost | Fair Value | |||||||
(In thousands) | ||||||||
Due in five years or less |
$ | 8,339 | $ | 8,466 | ||||
Due after five years to ten years |
6,236 | 6,717 | ||||||
Due in more than ten years |
6,061 | 6,823 | ||||||
$ | 20,636 | $ | 22,006 | |||||
The cost basis, gross unrealized holding gains and fair value of available-for-sale
securities at September 30, 2011 are as follows (in thousands):
Cost basis |
$ | 1,000 | ||
Gross unrealized holding gains |
102 | |||
Fair value |
$ | 1,102 | ||
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 outstanding derivative instruments not designated as hedging instruments on
the accompanying Consolidated Balance Sheet are as follows:
Balance Sheet | September 30, | December 31, | ||||||||
Derivative Instruments | Location | 2011 | 2010 | |||||||
(In thousands) | ||||||||||
Convertible debt conversion feature |
Other liabilities | $ | | $ | 3,588 |
16
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The effect of derivative instruments not designated as hedging instruments on the
accompanying Consolidated Statements of Operations are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||||
Statement of | September 30, | September 30, | ||||||||||||||||
Derivative Instruments | Operations Location | 2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||||
Convertible debt conversion feature |
Other income (loss) | $ | | $ | | $ | (3,079 | ) | $ | 102 | ||||||||
Warrant |
Other income (loss) | | | | 30 |
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. |
The table below sets forth, by level, the Companys financial assets that are accounted for at
fair value:
Fair Value at | ||||
September 30, 2011 | ||||
Level 1 | ||||
(In thousands) | ||||
Assets: |
||||
Available-for-sale investments included in Restricted investments and bond collateral |
$ | 1,787 | ||
Available-for-sale investments included in Reclamation deposits |
1,102 | |||
Total assets |
$ | 2,889 | ||
The following table summarizes the change in the fair values of the derivative instrument
liabilities categorized as Level 3:
Three Months Ended | Nine Months Ended | |||||||
September 30, 2011 | September 30, 2011 | |||||||
(In thousands) | ||||||||
Beginning balance |
$ | | $ | 3,588 | ||||
Change in fair value |
| 3,079 | ||||||
Settlements |
| (6,667 | ) | |||||
Ending balance |
$ | | $ | | ||||
17
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company calculates the fair value of its debt by using discount rate estimates based
on interest rates as of September 30, 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 | ||||
September 30, 2011 |
$ | 262,980 | $ | 266,680 |
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. In June 2011, approximately
169 shares of preferred stock were converted into 1,152 shares of common stock.
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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 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 |
$ | 438 | $ | 208 | $ | 1,540 | $ | 792 | ||||||||
Contributions of stock to the Companys 401(k) plan |
578 | 669 | 2,268 | 2,414 | ||||||||||||
Total share-based compensation expense |
$ | 1,016 | $ | 877 | $ | 3,808 | $ | 3,206 | ||||||||
Restricted Stock Units
A summary of restricted stock unit activity for the nine months ended September 30, 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 | |||||||||
Granted |
189,721 | $ | 15.15 | |||||||||
Vested |
(73,203 | ) | 8.13 | |||||||||
Forfeited |
(1,056 | ) | $ | 8.11 | ||||||||
Non-vested at September 30, 2011 |
308,159 | $ | 12.45 | $ | 3,152 | (1) | ||||||
1 | Expected to be recognized over the next three 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.
18
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Stock Options |
Information with respect to stock option activity for the nine months ended September 30, 2011
is as follows:
Weighted Average | Unamortized | |||||||||||||||||||
Weighted | Remaining | Aggregate | Compensation | |||||||||||||||||
Stock | Average | Contractual Life | Intrinsic Value | Expense | ||||||||||||||||
Options | Exercise Price | (in years) | (In thousands) | (In thousands) | ||||||||||||||||
Outstanding at December 31, 2010 |
318,590 | $ | 18.99 | |||||||||||||||||
Exercised |
(31,200 | ) | $ | 13.53 | $ | 86 | ||||||||||||||
Expired or forfeited |
(66,967 | ) | $ | 16.49 | ||||||||||||||||
Outstanding and exercisable at
September 30, 2011 |
220,423 | $ | 20.53 | 5.3 | $ | | $ | | ||||||||||||
Stock Appreciation Rights
Information with respect to stock appreciation rights, or SARs, activity for the nine months
ended September 30, 2011 is as follows:
Weighted Average | Aggregate | Unamortized | ||||||||||||||||||
Weighted | Remaining | Intrinsic | Compensation | |||||||||||||||||
Average | Contractual Life | Value | Expense | |||||||||||||||||
SARs | Base Price | (in years) | (In thousands) | (In thousands) | ||||||||||||||||
Outstanding at
December 31, 2010 |
118,934 | $ | 22.13 | |||||||||||||||||
Expired |
(7,200 | ) | $ | 21.14 | ||||||||||||||||
Outstanding and
exercisable at
September 30, 2011 |
111,734 | $ | 22.20 | 3.9 | $ | | $ | | ||||||||||||
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, and restricted stock units. No such items were included in the computation of diluted loss
per share in the nine months ended September 30, 2011 because the Company incurred a loss from
operations in this period and the effect of inclusion would have been anti-dilutive.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Income (loss) for basic earnings per share calculation: |
||||||||||||||||
Net income (loss) allocated to common shareholders |
$ | 2,389 | $ | 2,513 | $ | (23,309 | ) | $ | 237 | |||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic weighted average shares outstanding |
13,384 | 10,849 | 12,990 | 10,676 | ||||||||||||
Effect of restricted stock units, stock options and SARs |
58 | 62 | | 82 | ||||||||||||
Effect of convertible notes and securities |
| | | | ||||||||||||
Diluted weighted average shares outstanding |
13,442 | 10,911 | 12,990 | 10,758 | ||||||||||||
19
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Convertible notes and securities |
1,093 | 2,943 | 1,093 | 2,943 | ||||||||||||
Restricted stock units, stock options and SARs |
582 | 649 | 640 | 628 | ||||||||||||
Total shares excluded from diluted shares
calculation |
1,675 | 3,592 | 1,733 | 3,571 | ||||||||||||
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.
Summarized financial information by segment is as follows:
Coal | Power | Heritage | Corporate | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Three Months Ended September 30, 2011 |
||||||||||||||||||||
Revenues |
$ | 108,823 | $ | 23,626 | $ | | $ | | $ | 132,449 | ||||||||||
Depreciation, depletion, and amortization |
8,966 | 2,570 | | 76 | 11,612 | |||||||||||||||
Operating income (loss) |
9,679 | 4,694 | (4,076 | ) | (1,726 | ) | 8,571 | |||||||||||||
Total assets |
514,169 | 200,280 | 13,356 | 41,162 | 768,967 | |||||||||||||||
Capital expenditures |
2,354 | 482 | | 297 | 3,133 | |||||||||||||||
Three Months Ended September 30, 2010 |
||||||||||||||||||||
Revenues |
$ | 100,482 | $ | 23,598 | $ | | $ | | $ | 124,080 | ||||||||||
Depreciation, depletion, and amortization |
8,334 | 2,529 | | 101 | 10,964 | |||||||||||||||
Operating income (loss) |
8,869 | 5,059 | (4,729 | ) | (1,360 | ) | 7,839 | |||||||||||||
Total assets |
530,751 | 213,665 | 11,769 | 8,815 | 765,000 | |||||||||||||||
Capital expenditures |
6,155 | 219 | | (272 | ) | 6,102 | ||||||||||||||
Nine Months Ended September 30, 2011 |
||||||||||||||||||||
Revenues |
$ | 303,734 | $ | 68,619 | $ | | $ | | $ | 372,353 | ||||||||||
Depreciation, depletion, and amortization |
25,971 | 7,666 | | 224 | 33,861 | |||||||||||||||
Operating income (loss) |
20,576 | 11,764 | (12,062 | ) | (5,268 | ) | 15,010 | |||||||||||||
Total assets |
514,169 | 200,280 | 13,356 | 41,162 | 768,967 | |||||||||||||||
Capital expenditures |
13,541 | 1,178 | | 384 | 15,103 | |||||||||||||||
Nine Months Ended September 30, 2010 |
||||||||||||||||||||
Revenues |
$ | 310,490 | $ | 67,662 | $ | | $ | | $ | 378,152 | ||||||||||
Depreciation, depletion, and amortization |
25,565 | 7,588 | | 282 | 33,435 | |||||||||||||||
Operating income (loss) |
21,944 | 10,536 | (12,745 | ) | (5,249 | ) | 14,486 | |||||||||||||
Total assets |
530,751 | 213,665 | 11,769 | 8,815 | 765,000 | |||||||||||||||
Capital expenditures |
13,752 | 1,349 | | 544 | 15,645 |
20
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A reconciliation of segment operating income to income (loss) before income taxes
follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Income from operations |
$ | 8,571 | $ | 7,839 | $ | 15,010 | $ | 14,486 | ||||||||
Interest expense |
(7,650 | ) | (5,756 | ) | (22,262 | ) | (17,245 | ) | ||||||||
Loss on extinguishment of debt |
| | (17,030 | ) | | |||||||||||
Interest income |
423 | 603 | 1,134 | 1,380 | ||||||||||||
Other income (loss) |
147 | 17 | (2,630 | ) | 907 | |||||||||||
Income (loss) before income taxes |
$ | 1,491 | $ | 2,703 | $ | (25,778 | ) | $ | (472 | ) | ||||||
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.
21
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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:
CONSOLIDATING BALANCE SHEETS
September 30, 2011
(In thousands)
September 30, 2011
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Assets | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 32,026 | $ | 3,285 | $ | 3 | $ | 7,915 | $ | | $ | 43,229 | ||||||||||||
Receivables: |
||||||||||||||||||||||||
Trade |
| 14,350 | 347 | 32,001 | | 46,698 | ||||||||||||||||||
Contractual third-party reclamation
receivables |
| | 112 | 7,315 | | 7,427 | ||||||||||||||||||
Intercompany receivable/payable |
(19,955 | ) | | 9,647 | (23,161 | ) | 33,469 | | ||||||||||||||||
Other |
265 | 24 | 10,749 | 2,934 | (9,970 | ) | 4,002 | |||||||||||||||||
(19,690 | ) | 14,374 | 20,855 | 19,089 | 23,499 | 58,127 | ||||||||||||||||||
Inventories |
| 2,025 | 4,517 | 19,299 | | 25,841 | ||||||||||||||||||
Other current assets |
786 | 720 | 784 | 4,973 | (550 | ) | 6,713 | |||||||||||||||||
Total current assets |
13,122 | 20,404 | 26,159 | 51,276 | 22,949 | 133,910 | ||||||||||||||||||
Property, plant and equipment: |
||||||||||||||||||||||||
Land and mineral rights |
| 1,156 | 17,806 | 65,071 | | 84,033 | ||||||||||||||||||
Capitalized asset retirement cost |
| 239 | 20,463 | 94,154 | | 114,856 | ||||||||||||||||||
Plant and equipment |
2,993 | 217,083 | 118,701 | 180,456 | | 519,233 | ||||||||||||||||||
2,993 | 218,478 | 156,970 | 339,681 | | 718,122 | |||||||||||||||||||
Less accumulated depreciation,
depletion and amortization |
(2,209 | ) | (49,554 | ) | (88,244 | ) | (179,834 | ) | | (319,841 | ) | |||||||||||||
Net property, plant and equipment |
784 | 168,924 | 68,726 | 159,847 | | 398,281 | ||||||||||||||||||
Advanced coal royalties |
| | 548 | 2,590 | | 3,138 | ||||||||||||||||||
Reclamation deposits |
| | | 70,801 | | 70,801 | ||||||||||||||||||
Restricted investments and bond collateral |
13,102 | 5,978 | 13,555 | 24,298 | | 56,933 | ||||||||||||||||||
Contractual third-party reclamation
receivables, less current portion |
| | 425 | 89,231 | | 89,656 | ||||||||||||||||||
Intangible assets |
| 4,972 | | 325 | | 5,297 | ||||||||||||||||||
Investment in subsidiaries |
167,707 | | (717 | ) | 3,770 | (170,760 | ) | | ||||||||||||||||
Other assets |
7,076 | | 1,236 | 2,639 | | 10,951 | ||||||||||||||||||
Total assets |
$ | 201,791 | $ | 200,278 | $ | 109,932 | $ | 404,777 | $ | (147,811 | ) | $ | 768,967 | |||||||||||
22
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATING BALANCE SHEETS
September 30, 2011
(In thousands)
September 30, 2011
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Liabilities and Shareholders Deficit | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Current installments of long-term debt |
$ | 1,621 | $ | | $ | 2,394 | $ | 18,201 | $ | (2,420 | ) | $ | 19,796 | |||||||||||
Accounts payable and accrued expenses: |
||||||||||||||||||||||||
Trade |
2,116 | 8,966 | 3,640 | 36,889 | (7,691 | ) | 43,920 | |||||||||||||||||
Production taxes |
| 1 | 1,401 | 26,494 | | 27,896 | ||||||||||||||||||
Workers compensation |
946 | | | | | 946 | ||||||||||||||||||
Postretirement medical benefits |
12,198 | | | 1,383 | | 13,581 | ||||||||||||||||||
SERP |
304 | | | | | 304 | ||||||||||||||||||
Deferred revenue |
| 8,594 | 1,025 | 2,945 | (550 | ) | 12,014 | |||||||||||||||||
Asset retirement obligations |
| | 2,810 | 13,867 | | 16,677 | ||||||||||||||||||
Other current liabilities |
2,765 | | 1,844 | 86 | (13 | ) | 4,682 | |||||||||||||||||
Total current liabilities |
19,950 | 17,561 | 13,114 | 99,865 | (10,674 | ) | 139,816 | |||||||||||||||||
Long-term debt, less current installments |
143,779 | | 3,750 | 119,135 | | 266,664 | ||||||||||||||||||
Workers compensation, less current portion |
9,279 | | | | | 9,279 | ||||||||||||||||||
Excess of pneumoconiosis benefit obligation over
trust assets |
3,611 | | | | | 3,611 | ||||||||||||||||||
Postretirement medical benefits, less current portion |
167,959 | | | 28,271 | | 196,230 | ||||||||||||||||||
Pension and SERP obligations, less current portion |
10,875 | 95 | | 2,056 | | 13,026 | ||||||||||||||||||
Deferred revenue, less current portion |
| 60,633 | | 7,687 | | 68,320 | ||||||||||||||||||
Asset retirement obligations, less current portion |
| 756 | 31,050 | 198,204 | | 230,010 | ||||||||||||||||||
Intangible liabilities |
| 7,899 | | | | 7,899 | ||||||||||||||||||
Other liabilities |
451 | | 6,674 | 1,355 | | 8,480 | ||||||||||||||||||
Intercompany receivable/payable |
20,255 | | 2,258 | 26,542 | (49,055 | ) | | |||||||||||||||||
Total liabilities |
376,159 | 86,944 | 56,846 | 483,115 | (59,729 | ) | 943,335 | |||||||||||||||||
Shareholders deficit: |
||||||||||||||||||||||||
Preferred stock |
160 | | | | | 160 | ||||||||||||||||||
Common stock |
34,404 | 5 | 110 | 132 | (247 | ) | 34,404 | |||||||||||||||||
Other paid-in capital |
125,498 | 52,742 | 17,215 | 56,034 | (125,991 | ) | 125,498 | |||||||||||||||||
Accumulated other comprehensive loss |
(57,195 | ) | (196 | ) | 14 | (13,103 | ) | 13,285 | (57,195 | ) | ||||||||||||||
Accumulated earnings (deficit) |
(269,990 | ) | 60,783 | 35,747 | (121,401 | ) | 24,871 | (269,990 | ) | |||||||||||||||
Total Westmoreland Coal Company shareholders deficit |
(167,123 | ) | 113,334 | 53,086 | (78,338 | ) | (88,082 | ) | (167,123 | ) | ||||||||||||||
Noncontrolling interest |
(7,245 | ) | | | | | (7,245 | ) | ||||||||||||||||
Total equity (deficit) |
(174,368 | ) | 113,334 | 53,086 | (78,338 | ) | (88,082 | ) | (174,368 | ) | ||||||||||||||
Total liabilities and shareholders deficit |
$ | 201,791 | $ | 200,278 | $ | 109,932 | $ | 404,777 | $ | (147,811 | ) | $ | 768,967 | |||||||||||
23
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WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 | |||||||||||
24
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATING BALANCE SHEETS
December 31, 2010
(In thousands)
December 31, 2010
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Liabilities and Shareholders 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 |
| | 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 shareholders deficit |
$ | 131,245 | $ | 207,642 | $ | 107,103 | $ | 411,436 | $ | (107,120 | ) | $ | 750,306 | |||||||||||
25
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2011
(In thousands)
Three Months Ended September 30, 2011
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | |||||||||||||||||||
Revenues |
$ | | $ | 23,626 | $ | 16,323 | $ | 108,109 | $ | (15,609 | ) | $ | 132,449 | |||||||||||
Costs, expenses and other: |
||||||||||||||||||||||||
Cost of sales |
| 15,055 | 12,748 | 87,970 | (15,609 | ) | 100,164 | |||||||||||||||||
Depreciation, depletion and amortization |
76 | 2,570 | 2,050 | 6,916 | | 11,612 | ||||||||||||||||||
Selling and administrative |
2,091 | 1,308 | 1,134 | 5,351 | | 9,884 | ||||||||||||||||||
Heritage health benefit expenses |
3,688 | | | 208 | | 3,896 | ||||||||||||||||||
Loss on sales of assets |
| | | 91 | | 91 | ||||||||||||||||||
Other operating income |
| | (1,769 | ) | | | (1,769 | ) | ||||||||||||||||
5,855 | 18,933 | 14,163 | 100,536 | (15,609 | ) | 123,878 | ||||||||||||||||||
Operating income (loss) |
(5,855 | ) | 4,693 | 2,160 | 7,573 | | 8,571 | |||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||
Interest expense |
(4,471 | ) | (29 | ) | (115 | ) | (3,066 | ) | 31 | (7,650 | ) | |||||||||||||
Interest income |
71 | | 49 | 334 | (31 | ) | 423 | |||||||||||||||||
Other income |
34 | | 26 | 87 | | 147 | ||||||||||||||||||
(4,366 | ) | (29 | ) | (40 | ) | (2,645 | ) | | (7,080 | ) | ||||||||||||||
Income (loss) before income taxes and income
of consolidated subsidiaries |
(10,221 | ) | 4,664 | 2,120 | 4,928 | | 1,491 | |||||||||||||||||
Equity in income of subsidiaries |
11,437 | | | | (11,437 | ) | | |||||||||||||||||
Income (loss) before income taxes |
1,216 | 4,664 | 2,120 | 4,928 | (11,437 | ) | 1,491 | |||||||||||||||||
Income tax expense (benefit) from operations |
(358 | ) | | 620 | 1,897 | (2,243 | ) | (84 | ) | |||||||||||||||
Net income (loss) |
1,574 | 4,664 | 1,500 | 3,031 | (9,194 | ) | 1,575 | |||||||||||||||||
Less net loss attributable to
noncontrolling interest |
(1,154 | ) | | | | | (1,154 | ) | ||||||||||||||||
Net income (loss) attributable to the Parent
company |
$ | 2,728 | $ | 4,664 | $ | 1,500 | $ | 3,031 | $ | (9,194 | ) | $ | 2,729 | |||||||||||
26
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2010
(In thousands)
Three Months Ended September 30, 2010
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | |||||||||||||||||||
Revenues |
$ | | $ | 23,598 | $ | 13,217 | $ | 100,134 | $ | (12,869 | ) | $ | 124,080 | |||||||||||
Costs, expenses and other: |
||||||||||||||||||||||||
Cost of sales |
| 15,135 | 11,095 | 80,847 | (12,869 | ) | 94,208 | |||||||||||||||||
Depreciation, depletion and amortization |
101 | 2,529 | 1,985 | 6,349 | | 10,964 | ||||||||||||||||||
Selling and administrative |
1,796 | 875 | 980 | 5,279 | | 8,930 | ||||||||||||||||||
Heritage health benefit expenses |
4,063 | | | 178 | | 4,241 | ||||||||||||||||||
Loss on sales of assets |
| | 28 | 137 | | 165 | ||||||||||||||||||
Other operating income |
| | (2,267 | ) | | | (2,267 | ) | ||||||||||||||||
5,960 | 18,539 | 11,821 | 92,790 | (12,869 | ) | 116,241 | ||||||||||||||||||
Operating income (loss) |
(5,960 | ) | 5,059 | 1,396 | 7,344 | | 7,839 | |||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||
Interest expense |
(833 | ) | (1,143 | ) | (646 | ) | (3,144 | ) | 10 | (5,756 | ) | |||||||||||||
Interest income |
91 | 7 | 66 | 449 | (10 | ) | 603 | |||||||||||||||||
Other income (loss) |
| | 22 | (5 | ) | | 17 | |||||||||||||||||
(742 | ) | (1,136 | ) | (558 | ) | (2,700 | ) | | (5,136 | ) | ||||||||||||||
Income (loss) before income taxes and income of
consolidated subsidiaries |
(6,702 | ) | 3,923 | 838 | 4,644 | | 2,703 | |||||||||||||||||
Equity in income of subsidiaries |
(8,810 | ) | | | | 8,810 | | |||||||||||||||||
Income (loss) before income taxes |
2,108 | 3,923 | 838 | 4,644 | (8,810 | ) | 2,703 | |||||||||||||||||
Income tax expense (benefit) from operations |
(310 | ) | 32 | 803 | 1,391 | (1,631 | ) | 285 | ||||||||||||||||
Net income (loss) |
2,418 | 3,891 | 35 | 3,253 | (7,179 | ) | 2,418 | |||||||||||||||||
Less net loss attributable to noncontrolling interest |
(435 | ) | | | | | (435 | ) | ||||||||||||||||
Net income (loss) attributable to the Parent company |
$ | 2,853 | $ | 3,891 | $ | 35 | $ | 3,253 | $ | (7,179 | ) | $ | 2,853 | |||||||||||
27
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2011
(In thousands)
Nine Months Ended September 30, 2011
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | |||||||||||||||||||
Revenues |
$ | | $ | 68,619 | $ | 44,186 | $ | 301,650 | $ | (42,102 | ) | $ | 372,353 | |||||||||||
Costs, expenses and other: |
||||||||||||||||||||||||
Cost of sales |
| 45,959 | 35,703 | 249,405 | (42,103 | ) | 288,964 | |||||||||||||||||
Depreciation, depletion and amortization |
224 | 7,666 | 6,049 | 19,922 | | 33,861 | ||||||||||||||||||
Selling and administrative |
6,735 | 3,040 | 3,275 | 15,174 | | 28,224 | ||||||||||||||||||
Heritage health benefit expenses |
10,496 | | | 619 | | 11,115 | ||||||||||||||||||
Loss on sales of assets |
| 189 | 24 | 202 | | 415 | ||||||||||||||||||
Other operating income |
| | (5,236 | ) | | | (5,236 | ) | ||||||||||||||||
17,455 | 56,854 | 39,815 | 285,322 | (42,103 | ) | 357,343 | ||||||||||||||||||
Operating income (loss) |
(17,455 | ) | 11,765 | 4,371 | 16,328 | 1 | 15,010 | |||||||||||||||||
Other expense: |
||||||||||||||||||||||||
Interest expense |
(11,929 | ) | (460 | ) | (553 | ) | (9,380 | ) | 60 | (22,262 | ) | |||||||||||||
Loss on extinguishment of debt |
(7,873 | ) | (9,073 | ) | (84 | ) | | | (17,030 | ) | ||||||||||||||
Interest income |
195 | 10 | 152 | 837 | (60 | ) | 1,134 | |||||||||||||||||
Other income (loss) |
(3,013 | ) | | 159 | 224 | | (2,630 | ) | ||||||||||||||||
(22,620 | ) | (9,523 | ) | (326 | ) | (8,319 | ) | | (40,788 | ) | ||||||||||||||
Income (loss) from operations before income taxes and
income of consolidated subsidiaries |
(40,075 | ) | 2,242 | 4,045 | 8,009 | 1 | (25,778 | ) | ||||||||||||||||
Equity in income of subsidiaries |
14,483 | | | | (14,483 | ) | | |||||||||||||||||
Income (loss) before income taxes |
(25,592 | ) | 2,242 | 4,045 | 8,009 | (14,482 | ) | (25,778 | ) | |||||||||||||||
Income tax expense (benefit) from operations |
(520 | ) | | 1,065 | 3,618 | (4,869 | ) | (706 | ) | |||||||||||||||
Net income (loss) |
(25,072 | ) | 2,242 | 2,980 | 4,391 | (9,613 | ) | (25,072 | ) | |||||||||||||||
Less net loss attributable to noncontrolling interest |
(2,783 | ) | | | | | (2,783 | ) | ||||||||||||||||
Net income (loss) attributable to the Parent company |
$ | (22,289 | ) | $ | 2,242 | $ | 2,980 | $ | 4,391 | $ | (9,613 | ) | $ | (22,289 | ) | |||||||||
28
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2010
(In thousands)
Nine Months Ended September 30, 2010
(In thousands)
Non- | ||||||||||||||||||||||||
Parent/ | Guarantor | Guarantor | Consolidating | |||||||||||||||||||||
Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | |||||||||||||||||||
Revenues |
$ | | $ | 67,662 | $ | 40,240 | $ | 309,418 | $ | (39,168 | ) | $ | 378,152 | |||||||||||
Costs, expenses and other: |
||||||||||||||||||||||||
Cost of sales |
| 46,316 | 34,000 | 255,218 | (39,168 | ) | 296,366 | |||||||||||||||||
Depreciation, depletion and amortization |
282 | 7,588 | 5,933 | 19,632 | | 33,435 | ||||||||||||||||||
Selling and administrative |
6,455 | 3,222 | 3,206 | 15,695 | | 28,578 | ||||||||||||||||||
Heritage health benefit expenses |
11,084 | | | 466 | | 11,550 | ||||||||||||||||||
Loss (gain) on sales of assets |
| (1 | ) | 28 | 229 | | 256 | |||||||||||||||||
Other operating income |
| | (6,519 | ) | | | (6,519 | ) | ||||||||||||||||
17,821 | 57,125 | 36,648 | 291,240 | (39,168 | ) | 363,666 | ||||||||||||||||||
Operating income (loss) |
(17,821 | ) | 10,537 | 3,592 | 18,178 | | 14,486 | |||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||
Interest expense |
(2,316 | ) | (3,548 | ) | (1,926 | ) | (9,564 | ) | 109 | (17,245 | ) | |||||||||||||
Interest income |
193 | 30 | 83 | 1,187 | (113 | ) | 1,380 | |||||||||||||||||
Other income |
199 | 29 | 29 | 650 | | 907 | ||||||||||||||||||
(1,924 | ) | (3,489 | ) | (1,814 | ) | (7,727 | ) | (4 | ) | (14,958 | ) | |||||||||||||
Income (loss) before income taxes and income of consolidated subsidiaries |
(19,745 | ) | 7,048 | 1,778 | 10,451 | (4 | ) | (472 | ) | |||||||||||||||
Equity in income of subsidiaries |
(18,814 | ) | | | | 18,814 | | |||||||||||||||||
Income (loss) before income taxes |
(931 | ) | 7,048 | 1,778 | 10,451 | (18,818 | ) | (472 | ) | |||||||||||||||
Income tax expense (benefit) from operations |
(310 | ) | 97 | 549 | 4,652 | (4,839 | ) | 149 | ||||||||||||||||
Net income (loss) |
(621 | ) | 6,951 | 1,229 | 5,799 | (13,979 | ) | (621 | ) | |||||||||||||||
Less net loss attributable to noncontrolling interest |
(1,878 | ) | | | | | (1,878 | ) | ||||||||||||||||
Net income (loss) attributable to the Parent company |
$ | 1,257 | $ | 6,951 | $ | 1,229 | $ | 5,799 | $ | (13,979 | ) | $ | 1,257 | |||||||||||
29
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2011
(In thousands)
Nine Months Ended September 30, 2011
(In thousands)
Parent/ | Guarantor | Non-Guarantor | Consolidating | |||||||||||||||||||||
Statements of Cash Flows | Issuer | Co-Issuer | Subsidiaries | Subsidiaries | Adjustments | Total | ||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net income (loss) |
$ | (25,072 | ) | $ | 2,242 | $ | 2,980 | $ | 4,391 | $ | (9,613 | ) | $ | (25,072 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided
by operation activities: |
||||||||||||||||||||||||
Equity in income of subsidiaries |
14,484 | | | | (14,484 | ) | | |||||||||||||||||
Loss on derivative instruments |
3,079 | | | | | 3,079 | ||||||||||||||||||
Non-cash tax benefits |
(308 | ) | | | | | (308 | ) | ||||||||||||||||
Depreciation, depletion, and amortization |
224 | 7,666 | 6,049 | 19,922 | | 33,861 | ||||||||||||||||||
Accretion of asset retirement obligation and receivable |
| 41 | 2,275 | 5,784 | | 8,100 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net |
| 467 | | 27 | | 494 | ||||||||||||||||||
Share-based compensation |
3,808 | | | | | 3,808 | ||||||||||||||||||
Loss on sale of assets |
| 189 | 24 | 202 | | 415 | ||||||||||||||||||
Loss on extinguishment of debt |
7,873 | 9,073 | 84 | | | 17,030 | ||||||||||||||||||
Amortization of deferred financing costs |
1,107 | (21 | ) | 297 | 503 | | 1,886 | |||||||||||||||||
Gain on the sale of investments |
| | (75 | ) | (75 | ) | | (150 | ) | |||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||||||
Receivables, net |
(199 | ) | (28 | ) | (6,115 | ) | 3,310 | 7,805 | 4,773 | |||||||||||||||
Inventories |
| (89 | ) | 107 | (2,288 | ) | | (2,270 | ) | |||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets |
1,365 | | | | | 1,365 | ||||||||||||||||||
Accounts payable and accrued expenses |
(371 | ) | (385 | ) | 498 | 6,842 | (5,223 | ) | 1,361 | |||||||||||||||
Deferred revenue |
| (6,886 | ) | 676 | 1,490 | (550 | ) | (5,270 | ) | |||||||||||||||
Accrual for workers compensation |
(153 | ) | | | | | (153 | ) | ||||||||||||||||
Asset retirement obligations |
| | (766 | ) | (3,891 | ) | | (4,657 | ) | |||||||||||||||
Accrual for postretirement medical benefits |
(2,156 | ) | | | 891 | | (1,265 | ) | ||||||||||||||||
Pension and SERP obligations |
(4,742 | ) | (52 | ) | | 2,827 | | (1,967 | ) | |||||||||||||||
Other assets and liabilities |
(145 | ) | (992 | ) | 2,915 | (2,494 | ) | (316 | ) | (1,032 | ) | |||||||||||||
Net cash provided by (used in) operating activities |
(1,206 | ) | 11,225 | 8,949 | 37,441 | (22,381 | ) | 34,028 | ||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Distributions received by subsidiaries |
20,200 | | | | (20,200 | ) | | |||||||||||||||||
Additions to property, plant and equipment |
(383 | ) | (1,179 | ) | (1,341 | ) | (12,200 | ) | | (15,103 | ) | |||||||||||||
Change in restricted investments and bond collateral and
reclamation deposits |
(1,283 | ) | 2,585 | (3,705 | ) | (1,076 | ) | | (3,479 | ) | ||||||||||||||
Net proceeds from sales of assets |
| | | 87 | | 87 | ||||||||||||||||||
Proceeds from sale of restricted investments |
| | 1,075 | 2,275 | | 3,350 | ||||||||||||||||||
Receivable from customer for property and equipment purchases |
| | | (350 | ) | | (350 | ) | ||||||||||||||||
Net cash provided by (used in) investing activities |
18,534 | 1,406 | (3,971 | ) | (11,264 | ) | (20,200 | ) | (15,495 | ) | ||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Book overdrafts |
(140 | ) | | (352 | ) | (143 | ) | | (635 | ) | ||||||||||||||
Borrowings of long-term debt, net of debt discount |
142,500 | | | | | 142,500 | ||||||||||||||||||
Repayments of long-term debt |
(2,532 | ) | (46,220 | ) | (11,396 | ) | (9,038 | ) | | (69,186 | ) | |||||||||||||
Borrowings on revolving lines of credit |
| 1,500 | 12,200 | 73,500 | | 87,200 | ||||||||||||||||||
Repayments on revolving lines of credit |
| (1,500 | ) | (29,100 | ) | (75,000 | ) | | (105,600 | ) | ||||||||||||||
Debt issuance and other refinancing costs |
(5,842 | ) | (9,077 | ) | 100 | | | (14,819 | ) | |||||||||||||||
Exercise of stock options |
422 | | | | | 422 | ||||||||||||||||||
Distributions / dividends |
(20,961 | ) | (7,500 | ) | | (12,700 | ) | 20,200 | (20,961 | ) | ||||||||||||||
Transactions with Parent/affiliates |
(99,020 | ) | 52,571 | 23,573 | 495 | 22,381 | | |||||||||||||||||
Net cash provided by (used in) financing activities |
14,427 | (10,226 | ) | (4,975 | ) | (22,886 | ) | 42,581 | 18,921 | |||||||||||||||
Net increase in cash and cash equivalents |
31,755 | 2,405 | 3 | 3,291 | | 37,454 | ||||||||||||||||||
Cash and cash equivalents, beginning of year |
271 | 880 | | 4,624 | | 5,775 | ||||||||||||||||||
Cash and cash equivalents, end of year |
$ | 32,026 | $ | 3,285 | $ | 3 | $ | 7,915 | $ | | 43,229 | |||||||||||||
30
Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2010
(In thousands)
Nine Months Ended September 30, 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) |
$ | (621 | ) | $ | 6,951 | $ | 1,229 | $ | 5,799 | $ | (13,979 | ) | $ | (621 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by operation activities: |
||||||||||||||||||||||||
Equity in income of subsidiaries |
(18,815 | ) | | | | 18,815 | | |||||||||||||||||
Depreciation, depletion, and amortization |
(102 | ) | (30 | ) | | | | (132 | ) | |||||||||||||||
Accretion of asset retirement obligation and receivable |
1,236 | | | | | 1,236 | ||||||||||||||||||
Amortization of intangible assets and liabilities, net |
282 | 7,588 | 5,933 | 19,632 | | 33,435 | ||||||||||||||||||
Share-based compensation |
| 38 | 2,255 | 6,394 | | 8,687 | ||||||||||||||||||
Loss (gain) on sale of assets |
| 465 | | (117 | ) | | 348 | |||||||||||||||||
Non-cash interest expense |
3,206 | | | | | 3,206 | ||||||||||||||||||
Amortization of deferred financing costs |
| (1 | ) | 28 | 229 | | 256 | |||||||||||||||||
Loss (gain) on the sales of investment securities |
1,075 | (241 | ) | 356 | 501 | | 1,691 | |||||||||||||||||
Gain on derivative |
(97 | ) | | | (507 | ) | | (604 | ) | |||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||||||
Receivables, net |
(99 | ) | 40 | (3,536 | ) | (2,704 | ) | 2,383 | (3,916 | ) | ||||||||||||||
Inventories |
| (173 | ) | (209 | ) | 1,377 | | 995 | ||||||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets |
1,190 | | | | | 1,190 | ||||||||||||||||||
Accounts payable and accrued expenses |
(114 | ) | 1,216 | (332 | ) | 12,406 | (2,461 | ) | 10,715 | |||||||||||||||
Deferred revenue |
| (3,954 | ) | (177 | ) | 2,990 | | (1,141 | ) | |||||||||||||||
Accrual for workers compensation |
(143 | ) | | | | | (143 | ) | ||||||||||||||||
Asset retirement obligations |
| | (566 | ) | (3,977 | ) | | (4,543 | ) | |||||||||||||||
Accrual for postretirement medical benefits |
(2,450 | ) | (57 | ) | | 249 | | (2,258 | ) | |||||||||||||||
Pension and SERP obligations |
(3,298 | ) | | | (491 | ) | | (3,789 | ) | |||||||||||||||
Other assets and liabilities |
(898 | ) | (581 | ) | (105 | ) | (5,495 | ) | 51 | (7,028 | ) | |||||||||||||
Net cash provided by (used in) operating activities |
(19,648 | ) | 11,261 | 4,876 | 36,286 | 4,809 | 37,584 | |||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Distributions received by subsidiaries |
25,400 | | | | (25,400 | ) | | |||||||||||||||||
Additions to property, plant and equipment |
(544 | ) | (1,349 | ) | (3,732 | ) | (10,020 | ) | | (15,645 | ) | |||||||||||||
Change in restricted investments and bond collateral and reclamation deposits |
(1,287 | ) | (168 | ) | (1,673 | ) | (990 | ) | | (4,118 | ) | |||||||||||||
Net proceeds from sales of assets |
| 1 | 7 | 381 | | 389 | ||||||||||||||||||
Proceeds from the sale of restricted investments |
156 | | | 2,151 | | 2,307 | ||||||||||||||||||
Receivable from customer for property and equipment purchases |
| | | 117 | | 117 | ||||||||||||||||||
Net cash provided by (used in) investing activities |
23,725 | (1,516 | ) | (5,398 | ) | (8,361 | ) | (25,400 | ) | (16,950 | ) | |||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Book overdrafts |
(67 | ) | | (638 | ) | (684 | ) | | (1,389 | ) | ||||||||||||||
Repayments of long-term debt |
| (9,355 | ) | (3,377 | ) | (4,970 | ) | | (17,702 | ) | ||||||||||||||
Borrowings on revolving lines of credit |
| 7,300 | 68,300 | 46,500 | | 122,100 | ||||||||||||||||||
Repayments on revolving lines of credit |
| (3,800 | ) | (67,800 | ) | (46,500 | ) | | (118,100 | ) | ||||||||||||||
Exercise of stock options |
8 | | | | | 8 | ||||||||||||||||||
Dividends/distributions |
| | | (25,400 | ) | 25,400 | | |||||||||||||||||
Transactions with Parent/affiliates |
(4,569 | ) | (246 | ) | 4,096 | 5,528 | (4,809 | ) | | |||||||||||||||
Net cash provided by (used in) financing activities |
(4,628 | ) | (6,101 | ) | 581 | (25,526 | ) | 20,591 | (15,083 | ) | ||||||||||||||
Net increase (decrease) in cash and cash equivalents |
(551 | ) | 3,644 | 59 | 2,399 | | 5,551 | |||||||||||||||||
Cash and cash equivalents, beginning of year |
755 | 138 | | 9,626 | | 10,519 | ||||||||||||||||||
Cash and cash equivalents, end of year |
$ | 204 | $ | 3,782 | $ | 59 | $ | 12,025 | $ | | 16,070 | |||||||||||||
31
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 are not limited to, statements we make about our
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
twelve months and for the next several years, our intended use of the net proceeds remaining from
the Parent Notes offering is for general corporate purposes including the possible acquisition of
new reserves, our expectation that distributions from ROVA and WRI will comprise a significant
source of liquidity for us and that we expect an increase in depreciation, depletion and accretion
expense as a result of the changes in estimates of the life of the Beulah Mine.
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 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; |
| our potential inability to enter into new coal supply agreements with existing customers due to the unfavorable result of competitive bid processes or the shutdown of a power facility due to new environmental legislation or regulations; |
| 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 Environmental Protection Agency, or 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 under Part I, Item 1A of the 2010 Form 10-K and in subsequent Quarterly Reports on Form 10-Q, including this Quarterly Report. |
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.
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.)
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 consist of our coal and power segments. We also have 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. As a result of the Parent Notes offering, discussed below, we have $43.2 million
cash on hand at September 30, 2011. 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.
Recent Developments
Our contract with Coyote Station, located adjacent to our Beulah Mine, expires in May 2016.
We have been negotiating with the Coyote Station owners in a competitive bid process for another
long-term supply contract. Based on the direction of those negotiations, we will be changing
various accounting estimates due to the uncertainty of entering into a new agreement upon the
conclusion of the current contract in 2016. These changes in estimates will take effect in the
fourth quarter of 2011 and will result in revised depreciable asset lives, coal reserve lives and
asset retirement obligations. We expect increases in depreciation, depletion and accretion expense
as a result of these changes in estimates. We have not yet determined an updated estimate of the
asset retirement obligation related to the Beulah Mine, but do not expect the impact of the change
to be material to our financial position.
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. On September 1, 2011, we closed the exchange offer pursuant to which we exchanged all of
the outstanding Parent Notes for new notes registered under the Securities Act of 1933.
Results of Operations
Items that Affect Comparability of Our Results
For the three and nine months ended September 30, 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Loss on extinguishment of debt |
$ | | $ | | $ | (17,030 | ) | $ | | |||||||
Fair value adjustment on
derivatives and related
amortization of debt discount |
| (358 | ) | (3,215 | ) | (870 | ) | |||||||||
Impact (pre-tax) |
$ | | $ | (358 | ) | $ | (20,245 | ) | $ | (870 | ) | |||||
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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.)
Items recorded in the nine months ended September 30, 2011
| In the nine months ended September 30, 2011 and 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. |
| In the nine months ended September 30, 2011 upon the Parent Notes offering and subsequent 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. |
Items recorded in the three and nine months ended September 30, 2010
| In the three months ended September 30, 2010, we recorded $0.4 million of interest expense of a related debt discount. |
| In the nine months ended September 30, 2010, we recorded income of $0.1 million resulting from the mark-to-market accounting of the conversion feature in our convertible notes with $1.0 million of interest expense of a related debt discount. |
Quarter Ended September 30, 2011 Compared to Quarter Ended September 30, 2010
Summary
Our third quarter 2011 revenues increased to $132.4 million compared with $124.1 million in
the third quarter of 2010. This increase was primarily driven by an increase in our coal segment
revenues due to increased sales at our Absaloka, Beulah, and Jewett Mines. Favorable pricing also
contributed to the increased revenues. Our third quarter 2011 power segment revenues were
comparable with our third quarter 2010 power segment revenues.
Our third quarter 2011 net income applicable to common shareholders decreased to $2.4 million
compared with $2.5 million in the third quarter of 2010. Excluding $0.4 million of third quarter
2010 expense discussed in Items that Affect Comparability of Our Results, our net income decreased
by $0.5 million. The primary factors, in aggregate, driving this decrease in net income were:
Three Months | ||||
Ended | ||||
September 30, 2011 | ||||
(In millions) | ||||
Increase in interest expense primarily due to the Parent Notes offering |
$ | (2.3 | ) | |
Increase in our coal segment operating income primarily from favorable pricing |
0.8 | |||
Increase in the noncontrolling interest adjustment to reduce losses from a
partially owned consolidated coal segment subsidiary |
0.7 | |||
Increase due to other factors |
0.3 | |||
$ | (0.5 | ) | ||
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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.)
Coal Segment Operating Results
The following table shows comparative coal revenues, operating income and sales volume and
percentage changes between periods:
Three Months Ended September 30, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
Revenues (in thousands) |
$ | 108,823 | $ | 100,482 | $ | 8,341 | 8.3 | % | ||||||||
Operating income (in thousands) |
9,679 | 8,869 | 810 | 9.1 | % | |||||||||||
Adjusted EBITDA (in thousands)1 |
22,070 | 20,839 | 1,231 | 5.9 | % | |||||||||||
Tons sold millions of equivalent tons |
6.0 | 6.5 | (0.5 | ) | (7.7 | )% | ||||||||||
Operating income per ton sold |
$ | 1.61 | $ | 1.36 | $ | 0.25 | 18.2 | % |
1) | Adjusted EBITDA is defined and reconciled to net income (loss) at the end of this Results of Operations section. |
Our third quarter 2011 coal segment revenues increased to $108.8 million compared with
$100.5 million in the third quarter of 2010. This $8.3 million increase was primarily due to
increased sales at our Absaloka, Beulah, and Jewett Mines. Favorable pricing also contributed to
the increased revenues. Overall tons sold decreased during the quarter due to lower sales at our
Rosebud Mine as a result of favorable hydropower conditions, which displaced our customers coal
generated power; however, revenues were largely unaffected due to favorable pricing.
Our coal segment operating income was $9.7 million in the third quarter of 2011 compared to
$8.9 million in the third quarter of 2010. This $0.8 million increase was primarily driven by
favorable pricing.
Power Segment Operating Results
The following table shows comparative power revenues, operating income, production and
percentage changes between periods:
Three Months Ended September 30, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues |
$ | 23,626 | $ | 23,598 | $ | 28 | 0.1 | % | ||||||||
Operating income |
4,694 | 5,059 | (365 | ) | (7.2 | )% | ||||||||||
Adjusted EBITDA1 |
7,441 | 7,761 | (320 | ) | (4.1 | )% | ||||||||||
Megawatts hours |
445 | 439 | 6 | 1.4 | % |
1) | Adjusted EBITDA is defined and reconciled to net income (loss) at the end of this Results of Operations section. |
Our third quarter 2011 power segment revenues were comparable with our third quarter 2010
power segment revenues.
Our power segment operating income decreased to $4.7 million in the third quarter of 2011
compared to $5.1 million in the third quarter of 2010. This $0.4 million decrease was primarily
from increased property tax expenses.
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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.)
Heritage Segment Operating Results
The following table shows comparative detail of the heritage segments operating expenses and
percentage changes between periods:
Three Months Ended September 30, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Health care benefits |
$ | 2,445 | $ | 2,932 | $ | (487 | ) | (16.6 | )% | |||||||
Combined benefit fund payments |
686 | 756 | (70 | ) | (9.3 | )% | ||||||||||
Workers compensation benefits |
162 | 175 | (13 | ) | (7.4 | )% | ||||||||||
Black lung benefits |
603 | 378 | 225 | 59.5 | % | |||||||||||
Total heritage health benefit expenses |
3,896 | 4,241 | (345 | ) | (8.1 | )% | ||||||||||
Selling and administrative costs |
180 | 488 | (308 | ) | (63.1 | )% | ||||||||||
Heritage segment operating loss |
$ | 4,076 | $ | 4,729 | $ | (653 | ) | (13.8 | )% | |||||||
Our third quarter 2011 heritage operating expenses of $4.1 million are comparable to the
operating expenses of $4.7 million for the third quarter of 2010.
Corporate Segment Operating Results
Our corporate segment operating expenses for the third quarter of 2011 of $1.7 million are
comparable to $1.4 million in the third quarter of 2010.
Nonoperating Results (including interest expense, other income, income tax expense
(benefit), and noncontrolling interest)
Our interest expense for the third quarter of 2011 increased to $7.7 million compared with
$5.8 million for the third quarter of 2010. This increase was primarily due to the higher overall
debt levels resulting from the Parent Notes offering.
Our other income for the third quarter of 2011 of $0.1 million was comparable to the third
quarter of 2010.
Our income tax benefit for the third quarter of 2011 was $0.1 million compared with an income
tax expense of $0.3 million for the third quarter of 2010. This change was due to lower taxable
income.
Our noncontrolling interest for the third quarter of 2011 increased to $1.2 million compared
with $0.4 million for the third quarter of 2010. This was due to an increase in the noncontrolling
interest adjustment to reduce losses from a partially owned consolidated coal segment subsidiary.
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010
Summary
Our revenues for the first nine months of 2011 decreased to $372.4 million compared with
$378.2 million in the first nine months of 2010. This decrease was primarily driven by a decrease
in our coal segment revenues due to favorable hydropower conditions, which displaced our customers
coal-generated power. Record high levels of snow in the Pacific Northwest displaced power
primarily at our Rosebud Mine. Coal revenues also decreased due to flooding conditions which
disrupted rail service to our Absaloka Mine and to the expiration of an unprofitable coal contract
at our Rosebud Mine. The above decreases in our coal segment revenues were partially offset with
an increase in our power segment revenues of $1.0 million related to an increase in megawatt hours
sold as a result of shorter planned outages.
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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 net loss applicable to common shareholders for the first nine months of 2011 increased to
$23.3 million compared with $0.2 million income in the first nine months of 2010. Excluding the
$20.2 million of expenses in the first nine months of 2011 and the $0.9 million of expenses in the
first nine months of 2010 discussed in Items that Affect Comparability of Our Results, our net loss
increased by $4.2 million. The primary factors, in aggregate, driving this increase in net loss
were:
Nine Months Ended | ||||
September 30, 2011 | ||||
(In millions) | ||||
Increase in interest expense primarily due to the Parent Notes offering |
$ | (5.9 | ) | |
Decrease in our coal segment operating income primarily driven by
hydropower and flooding conditions, partially offset with the expiration of
an unprofitable coal contract at our Rosebud Mine |
(1.4 | ) | ||
Increase in our power segment operating income primarily from an
increase in megawatt hours sold as a result of shorter planned outages, and
decreased maintenance costs |
1.2 | |||
Increase in the noncontrolling interest adjustment to reduce losses
from a partially owned consolidated coal segment subsidiary |
0.9 | |||
Decrease in income tax expense due to lower taxable income |
0.9 | |||
Increase due to other factors |
0.1 | |||
$ | (4.2 | ) | ||
Coal Segment Operating Results
The following table shows comparative coal revenues, operating income and sales volume, and
percentage changes between periods:
Nine Months Ended September 30, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
Revenues (in thousands) |
$ | 303,734 | $ | 310,490 | $ | (6,756 | ) | (2.2 | )% | |||||||
Operating income (in thousands) |
20,576 | 21,944 | (1,368 | ) | (6.2 | )% | ||||||||||
Adjusted EBITDA (in thousands)1 |
57,262 | 58,753 | (1,491 | ) | (2.5 | )% | ||||||||||
Tons sold millions of equivalent tons |
16.0 | 18.8 | (2.8 | ) | (14.9 | )% | ||||||||||
Operating income per ton sold |
$ | 1.29 | $ | 1.17 | $ | 0.12 | 10.2 | % |
1) | Adjusted EBITDA is defined and reconciled to net income (loss) at the end of this Results of Operations section. |
Our coal segment revenues for the first nine months of 2011 decreased to $303.7 million
compared with $310.5 million in the first nine months of 2010. This $6.8 million decrease was
primarily due to favorable hydropower conditions, which displaced our customers coal-generated
power. Coal revenues also decreased due to flooding conditions which disrupted rail service to our
Absaloka Mine and to the expiration of an unprofitable coal contract at our Rosebud Mine.
Our coal segments operating income decreased to $20.6 million in the first nine months of
2011 compared to $21.9 million in the first nine months of 2010. This decrease was primarily
driven by the same factors that decreased our coal segment revenues described above.
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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.)
Power Segment Operating Results
The following table shows comparative power revenues, operating income and production and
percentage changes between periods:
Nine Months Ended September 30, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues |
$ | 68,619 | $ | 67,662 | $ | 957 | 1.4 | % | ||||||||
Operating income |
11,764 | 10,536 | 1,228 | 11.7 | % | |||||||||||
Adjusted EBITDA1 |
20,152 | 18,644 | 1,508 | 8.1 | % | |||||||||||
Megawatts hours |
1,282 | 1,242 | 40 | 3.2 | % |
1) | Adjusted EBITDA is defined and reconciled to net income (loss) at the end of this Results of Operations section. |
Our power segment revenues for the first nine months of 2011 increased to $68.6 million
compared to $67.7 million in the first nine months of 2010. This increase related primarily to an
increase in megawatt hours sold as a result of shorter planned outages.
Our power segments operating income increased to $11.8 million in the first nine months of
2011 compared to $10.5 million in the first nine months of 2010. This increase resulted primarily
from an increase in megawatt hours sold as a result of shorter planned outages, and decreased
maintenance costs.
Heritage Segment Operating Results
The following table shows comparative detail of the heritage segments operating expenses and
percentage changes between periods:
Nine Months Ended September 30, | ||||||||||||||||
Increase / (Decrease) | ||||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Health care benefits |
$ | 7,208 | $ | 7,551 | $ | (343 | ) | (4.5 | )% | |||||||
Combined benefit fund payments |
2,057 | 2,268 | (211 | ) | (9.3 | )% | ||||||||||
Workers compensation benefits |
485 | 540 | (55 | ) | (10.2 | )% | ||||||||||
Black lung benefits |
1,365 | 1,191 | 174 | 14.6 | % | |||||||||||
Total heritage health benefit expenses |
11,115 | 11,550 | (435 | ) | (3.8 | )% | ||||||||||
Selling and administrative costs |
947 | 1,195 | (248 | ) | (20.8 | )% | ||||||||||
Heritage segment operating loss |
$ | 12,062 | $ | 12,745 | $ | (683 | ) | (5.4 | )% | |||||||
Our heritage operating expenses for the first nine months of 2011 are comparable to the
operating expenses for the first nine months of 2010.
Corporate Segment Operating Results
Our corporate segments operating expenses for the first nine months of 2011 of $5.3 million
are comparable to $5.2 million in the first nine months of 2010.
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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.)
Nonoperating Results (including interest expense, other income (loss), income tax
expense (benefit), and noncontrolling interest)
Our interest expense for the first nine months of 2011 increased to $22.3 million compared
with $17.2 million for the first nine months of 2010. This increase was primarily due to the
higher overall debt levels resulting from the Parent Notes offering.
Our other loss for the first nine months of 2011 increased to $2.6 million compared with $0.9
million of income for the first nine months of 2010. Excluding the $3.2 million impact of the fair
value adjustment on derivatives discussed in Items that Affect Comparability of Our Results, our
other expense increased $0.3 million primarily due to gains on sales of securities during the first
nine months of 2010.
Our income tax benefit for the first nine months of 2011 increased to $0.7 million compared
with $0.1 million of expense for the first nine months of 2010. This increase was due to lower
taxable income.
Our noncontrolling interest for the first nine months of 2011 increased to $2.8 million
compared with $1.9 million for the first nine months of 2010. This was due to an increase in the
noncontrolling interest adjustment to reduce losses from a partially owned consolidated coal
segment subsidiary.
Reconciliation of Adjusted EBITDA to Net Income (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 |
| 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. |
39
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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.)
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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Reconciliation of Adjusted EBITDA to net income
(loss) |
||||||||||||||||
Net income (loss) |
$ | 1,575 | $ | 2,418 | $ | (25,072 | ) | $ | (621 | ) | ||||||
Income tax expense (benefit) from continuing
operations |
(84 | ) | 285 | (705 | ) | 149 | ||||||||||
Other loss (income) |
(147 | ) | (17 | ) | 2,630 | (908 | ) | |||||||||
Interest income |
(423 | ) | (603 | ) | (1,134 | ) | (1,380 | ) | ||||||||
Loss on extinguishment of debt |
| | 17,030 | | ||||||||||||
Interest expense |
7,650 | 5,756 | 22,262 | 17,246 | ||||||||||||
Depreciation, depletion and amortization |
11,612 | 10,964 | 33,861 | 33,435 | ||||||||||||
Accretion of ARO and receivable |
2,700 | 2,847 | 8,100 | 8,687 | ||||||||||||
Amortization of intangible assets and liabilities |
167 | 112 | 494 | 348 | ||||||||||||
EBITDA |
23,050 | 21,762 | 57,466 | 56,956 | ||||||||||||
Loss on sale of assets |
91 | 165 | 415 | 256 | ||||||||||||
Share-based compensation |
1,016 | 877 | 3,808 | 3,206 | ||||||||||||
Adjusted EBITDA |
$ | 24,157 | $ | 22,804 | $ | 61,689 | $ | 60,418 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Adjusted EBITDA by Segment |
||||||||||||||||
Coal |
$ | 22,070 | $ | 20,839 | $ | 57,262 | $ | 58,753 | ||||||||
Power |
7,441 | 7,761 | 20,152 | 18,644 | ||||||||||||
Heritage |
(4,076 | ) | (4,729 | ) | (12,062 | ) | (12,745 | ) | ||||||||
Corporate |
(1,278 | ) | (1,067 | ) | (3,663 | ) | (4,234 | ) | ||||||||
Total |
$ | 24,157 | $ | 22,804 | $ | 61,689 | $ | 60,418 | ||||||||
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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.)
Liquidity and Capital Resources
At September 30, 2011, we had $43.2 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
twelve months and 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 which began 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.
The following table outlines the use of the proceeds from the Parent Notes offering (in
millions):
Proceeds received from the Parent Notes offering |
$ | 150.0 | ||
Repayment of ROVA debt outstanding term loan and revolving line of credit |
(43.6 | ) | ||
Repayment of WRI debt outstanding term loan and revolving line of credit |
(20.1 | ) | ||
Payment of preferred stock dividend arrearages |
(19.9 | ) | ||
ROVA make-whole payment |
(9.1 | ) | ||
Initial Purchasers discount |
(7.5 | ) | ||
Offering costs |
(7.5 | ) | ||
Payment to retire certain of our convertible notes |
(2.5 | ) | ||
Remaining proceeds |
$ | 39.8 | ||
The holder of our convertible notes agreed to convert the convertible notes not retired
into shares of our common 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 by the principal payments due 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 our insurance
subsidiary is also available to us through dividends, subject to maintaining a statutory minimum
level of capital, which is two hundred and fifty thousand.
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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 payments on our heritage health and pension
obligations as follows:
2011 Remaining | ||||||||
Year-to-date | Expected | |||||||
2011 Actual | Amounts | |||||||
(In millions) | ||||||||
Postretirement medical benefits |
$ | 9.3 | $ | 4.3 | ||||
Pension contributions(1) |
7.4 | | ||||||
CBF premiums |
2.1 | 0.6 | ||||||
Workers compensation benefits |
0.4 | 0.6 |
(1) | Of the 2011 pension contribution, $4.2 million was made through the contribution of Company stock. |
In addition to the Parent Notes mentioned above, WML has $120.0 million of fixed rate
term debt outstanding at September 30, 2011. Principal on the notes is scheduled to be paid as
follows (in millions):
Remainder of 2011 |
$ | 2.5 | ||
2012 |
14.0 | |||
2013 |
18.0 | |||
2014 |
18.0 | |||
2015 |
20.0 | |||
2016 |
20.0 | |||
2017 |
22.0 | |||
2018 |
5.5 |
The revolving credit facility has a borrowing limit of $25.0 million and matures in June
2013. At September 30, 2011, WML had no outstanding balance under the revolving credit facility
and the revolving credit facility supported a letter of credit of $1.9 million, leaving it with
$23.1 million of borrowing availability. 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:
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Cash provided by (used in): |
||||||||
Operating activities |
$ | 34,028 | $ | 37,584 | ||||
Investing activities |
(15,495 | ) | (16,950 | ) | ||||
Financing activities |
18,921 | (15,083 | ) |
Cash Flow from Operations
Cash provided by operating activities decreased by $3.6 million in the nine months ended
September 30, 2011 compared to the nine months ended September 30, 2010, primarily due to the
increase in interest payments in 2011 related to the Parent Notes.
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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.)
Cash used in investing activities decreased $1.5 million in the nine months ended September
30, 2011 compared to the nine months ended September 30, 2010. Proceeds from the sale of
investments increased by $1.0 million in 2011 compared to 2010. Additions to property, plant and
equipment were $15.1 million for the nine months ended September 30, 2011 compared to $15.6 million
for the same period in 2010.
Cash provided by financing activities increased by $34.0 million for the nine months ended
September 30, 2011 compared to the nine months ended September 30, 2010, primarily as a result of
the Parent Notes offering.
Our working capital deficit at September 30, 2011 decreased by $29.9 million to $5.9 million
compared to a $35.8 million deficit at December 31, 2010 primarily as a result of a $37.5 million
increase in cash and cash equivalents mostly due to the Parent Notes offering.
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 nine months
ended September 30, 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 nine months ended September 30, 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
September 30, 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 September 30, 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 September 30, 2011, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
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Table of Contents
PART II
OTHER INFORMATION
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.
ITEM 1A
RISK FACTORS
RISK FACTORS
We have disclosed under the heading Risk Factors in our 2010 Form 10-K and subsequent
Quarterly Reports on Form 10-Q, the risk factors that we believe materially affect our business,
financial condition or results of operations. Except as provided below, 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, subsequent Quarterly Reports on Form 10-Q, 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.
The Cross-State Air Pollution Rules, if commenced on January 1, 2012, could adversely affect cost
of operations at our Roanoke Valley Energy Facility.
The Environmental Protection Agency promulgated the Cross-State Air Pollution Rule, or CSAPR,
which sets strict new limits on the emission of nitrogen oxides, or NOx, and sulfur dioxide, or
SO2, for each of the 28 states covered by CSAPR. To date, there are more than 30 lawsuits asking
the U.S. Court of Appeals for the District of Columbia Circuit to block CSAPR, while a number of
states and other third parties have filed motions as interveners asking the court to uphold the
EPAs rules set to begin on January 1, 2012.
Should these numerous lawsuits and motions be resolved in favor of the EPA and CSAPR become
effective on January 1st, it will have a dramatic impact on the cost of operations at our Roanoke
Valley Energy facility. While the cost of credits in the open market is unknown at this time, NOx
and SO2 credits, which are required to run the facility, could increase in cost over 2011 by as
much as 1000% under CSAPR. As it is unlikely we would be able to pass through these additional
costs to Dominion Virginia Power, such an increase would adversely affect our results of operations
and profitability.
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Table of Contents
PART II
OTHER INFORMATION (CONT.)
OTHER INFORMATION (CONT.)
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 13, 2011, the Company made contributions totaling 425,000 shares of the Companys
common stock (the Shares) to one of the Companys employee pension plans to satisfy certain
funding obligations. The Shares were valued at 425,000 shares at $8.96 or $3.8 million in the
aggregate. The Shares were contributed to the plan in lieu of cash contributions in a private
placement transaction made in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended. The Company will not receive any proceeds from the
contribution.
The Companys purchases of its common stock during the nine months ended September
30, 2011 were as follows:
Total Number of | Average Price Paid | |||||||
Period | Shares Purchased (1) | per Share | ||||||
July 1, 2011 |
23,038 | $ | 17.98 |
(1) | Shares purchased indicated in this table represent the withholding of a portion of restricted shares to cover taxes on vested restricted shares. |
ITEM 5
OTHER INFORMATION
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 and the Rocky Mountain Coal Mining Institute Surface Mine
Safety Award for the surface mine with the lowest reportable rate of incidents in the eight-member
state region in 2010. Our other mines had excellent safety records in 2010, which continued
through the third 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.)
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 |
8 | | | | | | I | | | |||||||||||||||||||||||
Absaloka Mine / 24-00910 |
6 | | | | | | I | | | |||||||||||||||||||||||
Savage Mine / 24-00106 |
3 | | | | | | I | | | |||||||||||||||||||||||
Jewett Mine / 41-03164 |
1 | | | | | | I | | | |||||||||||||||||||||||
Beulah Mine / 32-00043 |
1 | | | | | | I | | |
(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) | Not assessed as of 9/30/2011. |
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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: November 8, 2011 | /s/ Kevin A. Paprzycki | |||
Kevin A. Paprzycki | ||||
Chief Financial Officer and Treasurer (A Duly Authorized Officer) |
||||
Date: November 8, 2011 | /s/ Russell H. Werner | |||
Russell H. Werner | ||||
Controller and
Principal Accounting Officer (A Duly Authorized Officer) |
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Table of Contents
EXHIBIT INDEX
Incorporated by Reference | ||||||||||||||||
Exhibit | File | Filing | Filed | Submitted | ||||||||||||
Number | Exhibit Description | Form | Number | Exhibit | Date | Herewith | Herewith | |||||||||
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 | ||||||||||||||
101 | Interactive Data
File (Form 10-Q for
the quarterly
period ended
September 30, 2011
furnished in XBRL).
Users of this data
are advised in
accordance with
Rule 406T of
Regulation S-T
promulgated by the
Securities and
Exchange Commission
that this
Interactive Data
File is deemed not
filed or part of a
registration
statement or
prospectus for
purposes of
sections 11 or 12
of the Securities
Act of 1933, is
deemed not filed
for purposes of
section 18 of the
Securities Exchange
Act of 1934, and
otherwise is not
subject to
liability under
these sections. The
financial
information
contained in the
XBRL-related
documents is
unaudited and
unreviewed.
|
X |
50