WESTMORELAND COAL Co - FORM 10-Q - August 2, 2016

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________
FORM 10-Q
 __________________________________________
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
or
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
  ___________________________________________
(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.)
 
 
9540 South Maroon Circle, Suite 200
Englewood, CO
80112
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (855) 922-6463
 __________________________________________
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 x 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 x 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
x
Non-accelerated filer
o
(Do not check if a smaller reporting company.)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of July 29, 2016: 18,569,845 shares of common stock, $0.01 par value.



TABLE OF CONTENTS
 


2

PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
 
June 30,
2016
 
December 31,
2015
 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
35,876

 
$
22,936

Receivables:
 
 
 
Trade
142,587

 
134,141

Loan and lease receivables
5,851

 
6,157

Contractual third-party reclamation receivables
12,781

 
8,020

Other
18,937

 
11,598

 
180,156

 
159,916

Inventories
129,881

 
121,858

Other current assets
19,823

 
16,103

Total current assets
365,736

 
320,813

Property, plant and equipment:
 
 
 
Land and mineral rights
597,450

 
476,447

Plant and equipment
875,122

 
790,677

 
1,472,572

 
1,267,124

Less accumulated depreciation, depletion and amortization
613,745

 
554,008

Net property, plant and equipment
858,827

 
713,116

Loan and lease receivables
50,161

 
49,313

Advanced coal royalties
17,206

 
19,781

Reclamation deposits
73,434

 
77,364

Restricted investments and bond collateral
144,061

 
140,807

Contractual third-party reclamation receivables, less current portion
154,926

 
86,915

Investment in joint venture
28,045

 
27,374

Intangible assets, net of accumulated amortization of $3.4 million and $15.9 million at June 30, 2016 and December 31, 2015, respectively
28,050

 
29,190

Other assets
22,767

 
11,904

Total Assets
$
1,743,213

 
$
1,476,577

See accompanying Notes to Consolidated Financial Statements.

3

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(Unaudited)
 
June 30,
2016
 
December 31,
2015
 
(In thousands)
Liabilities and Shareholders’ Deficit
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
87,754

 
$
38,852

Revolving lines of credit
3,000

 
1,970

Accounts payable and accrued expenses:
 
 
 
Trade and other accrued liabilities
134,429

 
109,850

Interest payable
20,386

 
15,527

Production taxes
46,797

 
46,895

Postretirement medical benefits
13,855

 
13,855

SERP
368

 
368

Deferred revenue
19,834

 
10,715

Asset retirement obligations
50,944

 
43,950

Other current liabilities
29,888

 
30,688

Total current liabilities
407,255

 
312,670

Long-term debt, less current installments
1,047,244

 
979,073

Workers’ compensation, less current portion
4,992

 
5,068

Excess of black lung benefit obligation over trust assets
17,594

 
17,220

Postretirement medical benefits, less current portion
286,739

 
285,518

Pension and SERP obligations, less current portion
43,702

 
44,808

Deferred revenue, less current portion
22,441

 
24,613

Asset retirement obligations, less current portion
449,857

 
375,813

Intangible liabilities, net of accumulated amortization of $10.3 million and $9.8 million at June 30, 2016 and December 31, 2015, respectively
2,936

 
3,470

Other liabilities
33,566

 
30,208

Total liabilities
2,316,326

 
2,078,461

Shareholders’ deficit:
 
 
 
Common stock of $0.01 par value
 
 
 
Authorized 30,000,000 shares; issued and outstanding 18,569,845 shares at June 30, 2016 and 18,162,148 shares at December 31, 2015
186

 
182

Other paid-in capital
245,050

 
240,721

Accumulated other comprehensive loss
(150,259
)
 
(171,300
)
Accumulated deficit
(667,002
)
 
(672,219
)
Total Westmoreland Coal Company shareholders’ deficit
(572,025
)
 
(602,616
)
Noncontrolling interest
(1,088
)
 
732

Total deficit
(573,113
)
 
(601,884
)
Total Liabilities and Deficit
$
1,743,213

 
$
1,476,577

See accompanying Notes to Consolidated Financial Statements.

4

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share data)
Revenues
$
356,247

 
$
348,959

 
$
710,968

 
$
720,444

Cost, expenses and other:
 
 
 
 
 
 
 
Cost of sales
290,113

 
285,480

 
563,915

 
587,189

Depreciation, depletion and amortization
33,663

 
34,263

 
68,676

 
72,322

Selling and administrative
32,019

 
28,508

 
63,691

 
55,228

Heritage health benefit expenses
3,222

 
2,162

 
6,237

 
5,221

Loss (gain) on sale/disposal of assets
(2,253
)
 
784

 
(1,917
)
 
1,013

Restructuring charges
—

 
103

 
—

 
656

Derivative loss (gain)
(5,878
)
 
6,178

 
(3,278
)
 
902

Income from equity affiliates
(1,287
)
 
(1,653
)
 
(2,580
)
 
(3,678
)
Other operating loss
3,659

 
—

 
1,697

 
—

 
353,258

 
355,825

 
696,441

 
718,853

Operating income (loss)
2,989

 
(6,866
)
 
14,527

 
1,591

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(31,510
)
 
(25,304
)
 
(61,179
)
 
(50,039
)
Interest income
2,356

 
2,567

 
4,147

 
4,707

Gain (loss) on foreign exchange
(364
)
 
(1,313
)
 
(1,751
)
 
795

Other income
254

 
534

 
132

 
726

 
(29,264
)
 
(23,516
)
 
(58,651
)
 
(43,811
)
Loss before income taxes
(26,275
)
 
(30,382
)
 
(44,124
)
 
(42,220
)
Income tax expense (benefit)
(100
)
 
7,469

 
(48,035
)
 
9,509

Net income (loss)
(26,175
)
 
(37,851
)

3,911


(51,729
)
Less net loss attributable to noncontrolling interest
(808
)
 
(1,246
)
 
(1,306
)
 
(3,392
)
Net income (loss) applicable to common shareholders
$
(25,367
)
 
$
(36,605
)
 
$
5,217

 
$
(48,337
)
Net income (loss) per share applicable to common shareholders:
 
 
 
 
 
 
 
Basic and diluted
$
(1.37
)
 
$
(2.04
)
 
$
0.28

 
$
(2.72
)
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
18,540

 
17,926

 
18,401

 
17,775

Diluted
18,540

 
17,926

 
18,418

 
17,775

See accompanying Notes to Consolidated Financial Statements.

5

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Net income (loss)
$
(26,175
)
 
$
(37,851
)
 
$
3,911

 
$
(51,729
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
Pension and other postretirement plans:
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
1,772

 
1,157

 
2,590

 
2,267

Adjustments to accumulated actuarial losses and transition obligations, pension
(199
)
 
(488
)
 
(27
)
 
(285
)
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
323

 
327

 
523

 
654

Adjustments of accumulated actuarial losses and transition obligations, postretirement medical benefit
1,672

 
—

 
984

 
—

Tax effect of other comprehensive income gains and losses
(1,314
)
 
225

 
(1,371
)
 
(350
)
Change in foreign currency translation adjustment
(617
)
 
4,924

 
18,622

 
(22,216
)
Unrealized and realized gains and losses on available-for-sale securities
1

 
(1,785
)
 
(280
)
 
(1,460
)
Other comprehensive income (loss), net of income taxes
1,638

 
4,360

 
21,041

 
(21,390
)
Comprehensive income (loss)
(24,537
)
 
(33,491
)
 
24,952

 
(73,119
)
Less: Comprehensive loss attributable to noncontrolling interest
(792
)
 
(1,246
)
 
(1,292
)
 
(3,392
)
Comprehensive income (loss) attributable to common shareholders
$
(23,745
)
 
$
(32,245
)
 
$
26,244

 
$
(69,727
)
See accompanying Notes to Consolidated Financial Statements.

6

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Deficit
Six Months Ended June 30, 2016
(Unaudited)

 
Common Stock
 
Other
Paid-In
Capital
 
Accumulated
Other
Comprehensive Loss
 
Accumulated
Deficit
 
Non-controlling
Interest
 
Total
Deficit
 
Shares
 
Amount
 
 
 
 
 
 
(In thousands, except shares data)
Balance at December 31, 2015
18,162,148

 
$
182

 
$
240,721

 
$
(171,300
)
 
$
(672,219
)
 
$
732

 
$
(601,884
)
WMLP distributions
—

 
—

 
—

 
—

 
—

 
(528
)
 
(528
)
Common stock issued as compensation
342,353

 
3

 
4,531

 
—

 
—

 
—

 
4,534

Issuance of restricted stock
65,344

 
1

 
(202
)
 
—

 
—

 
—

 
(201
)
Net income (loss)
—

 
—

 
—

 
—

 
5,217

 
(1,306
)
 
3,911

Other comprehensive income
—

 
—

 
—

 
21,041

 
—

 
14

 
21,055

Balance at June 30, 2016
18,569,845

 
$
186

 
$
245,050

 
$
(150,259
)
 
$
(667,002
)
 
$
(1,088
)
 
$
(573,113
)
See accompanying Notes to Consolidated Financial Statements.

7

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
3,911

 
$
(51,729
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
68,676

 
72,322

Accretion of asset retirement obligation and receivable
14,297

 
14,112

Share-based compensation
4,534

 
3,646

Non-cash interest expense
4,554

 
2,664

Amortization of deferred financing costs
6,630

 
4,997

Loss (gain) on derivative instruments
(3,278
)
 
902

Loss (gain) on foreign exchange
1,751

 
(795
)
Income from equity affiliates
(2,580
)
 
(3,678
)
Deferred income tax expense (benefit)
(47,547
)
 
10,265

Other
(3,696
)
 
1,832

Changes in operating assets and liabilities:
 
 


Receivables
(2,008
)
 
1,283

Inventories
6,677

 
(8,789
)
Accounts payable and accrued expenses
(8,045
)
 
(1,560
)
Deferred revenue
6,948

 
(6,141
)
Other assets and liabilities
2,995

 
(16,367
)
Asset retirement obligations
(16,415
)
 
(10,914
)
Net cash provided by operating activities
37,404

 
12,050

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(12,231
)
 
(38,554
)
Change in restricted investments
658

 
(10,598
)
Cash received from restricted deposits
—

 
34,000

Cash payments related to acquisitions and other
(125,314
)
 
(35,887
)
Cash acquired related to acquisition, net
—

 
2,782

Net proceeds from sales of assets
6,706

 
12,396

Receipts from loan and lease receivables
3,268

 
12,606

Payments related to loan and lease receivables
(334
)
 
(2,466
)
Other
3,095

 
1,193

Net cash used in investing activities
(124,152
)
 
(24,528
)
Cash flows from financing activities:
 
 
 
Borrowings from long-term debt, net of debt discount
122,250

 
79,359

Repayments of long-term debt
(17,991
)
 
(33,724
)
Borrowings on revolving lines of credit
195,400

 
35,175

Repayments on revolving lines of credit
(194,370
)
 
(42,251
)
Debt issuance costs and other refinancing costs
(5,709
)
 
(4,252
)
Other
(529
)
 
1,660

Net cash provided by financing activities
99,051

 
35,967

Effect of exchange rate changes on cash
637

 
(1,871
)
Net increase in cash and cash equivalents
12,940

 
21,618

Cash and cash equivalents, beginning of period
22,936

 
14,258

Cash and cash equivalents, end of period
$
35,876

 
$
35,876

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
47,972

 
$
29,444

Non-cash transactions:
 
 
 
Accrued purchases of property and equipment
$
5,762

 
$
5,770

Capital leases and other financing sources
9,334

 
12,763

See accompanying Notes to Consolidated Financial Statements.

8

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 including those of Westmoreland Resource Partners LP (“WMLP”). All intercompany transactions and accounts have been eliminated in consolidation. The consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and require the use of management’s estimates. The financial information contained in this Quarterly Report on Form 10-Q is unaudited, but reflects all adjustments which in the opinion of management are necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. Certain prior period amounts have been reclassified to conform to current period presentation. The results of operations for the six months ended June 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016.
These unaudited quarterly consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”).
Recently Adopted Accounting Pronouncements
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this standard on January 1, 2016 and retrospectively applied the guidance to prior periods. The adoption of this standard resulted in the reclassification of $25.8 million of unamortized debt issuance costs from the non-current asset, Other assets, to a reduction of Long-term debt, less current portion on the consolidated balance sheet as of December 31, 2015.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, issued as a new Topic, Accounting Standards Codification (“ASC”) Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to fiscal years beginning after December 15, 2017. The Company can either adopt these standards retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations, cash flows and financial position.
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The amendments in ASU 2016-02 require companies that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations generated by contracts longer than one year. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The guidance is required to be applied by the modified retrospective transition approach. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations, cash flows and financial position.
2. ACQUISITION
Acquisition of San Juan
On January 31, 2016, Westmoreland San Juan, LLC (“WSJ”), a variable interest entity of the Company, acquired San Juan Coal Company (“SJCC”), which operates the San Juan mine in Farmington, New Mexico, and San Juan Transportation Company (together with SJCC, the “San Juan Entities” and such transaction, the “San Juan Acquisition”) for a total cash purchase price of approximately $125.3 million, subject to post-closing adjustments. The San Juan mine is the exclusive supplier of coal to the adjacent San Juan Generating Station (“SJGS”) under a coal supply agreement through 2022. The San Juan operations are included in the Company’s Coal - U.S. segment.
WSJ financed the San Juan Acquisition with available cash on hand and with a $125.0 million loan from NM Capital Utility Corporation, an affiliate of Public Service Company of New Mexico (one of the owners of SJGS).

9
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

The San Juan Acquisition has been accounted for under the acquisition method of accounting that requires the total purchase consideration to be allocated to the assets acquired and liabilities assumed based on estimates of fair value.
The allocation of the purchase price is preliminary pending the completion of various estimates. During the measurement period (which is not to exceed one year from the acquisition date), additional assets or liabilities may be recognized if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The preliminary allocation may be adjusted after obtaining additional information regarding, among other things, asset valuations, liabilities assumed and revisions of previous estimates, and these adjustments may be significant. Certain estimates in the San Juan purchase price allocation are classified as Level 3 fair value estimates.
A preliminary allocation of the purchase consideration follows (in millions):
 
Provisional
as of
June 30, 2016
Purchase price:
 
Cash paid
$
125.3

 
 
Preliminary allocation of purchase price:
 
Assets:
 
     Inventories - coal and supplies
$
8.8

     Other Receivables
9.5

Contractual third-party reclamation receivable
4.6

Total current assets
22.9

     Land and mineral rights
107.1

     Plant and equipment
73.5

Contractual third-party reclamation receivable
66.8

Other assets
10.5

Total assets
280.8

Liabilities:
 
     Trade payables and other accrued liabilities
13.8

Production taxes
2.0

     Other liabilities
9.4

Asset retirement obligations
4.6

Total current liabilities
29.8

     Asset retirement obligations, less current portion
66.8

Postretirement medical
1.9

Deferred income taxes
47.6

     Other liabilities
9.4

Total liabilities
155.5

Net fair value
$
125.3

Pro Forma Information
The following pro forma information has been prepared for illustrative purposes only and assumes the San Juan Acquisition occurred on January 1, 2015. The unaudited pro forma results have been prepared based on estimates and assumptions, which the Company believes are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the acquisitions occurred on the dates indicated above, or of future results of operations.

10
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

(In thousands, except per share data)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2016
 
2015
Total revenues
 
 
 
 
 
As reported
$
348,959

 
$
710,968

 
$
720,444

Pro forma
$
421,427

 
$
737,243

 
$
873,211

 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
As reported
$
(6,866
)
 
$
14,527

 
$
1,591

Pro forma
$
4,813

 
$
15,622

 
$
22,963

 
 
 
 
 
 
Net income (loss) applicable to common shareholders
 
 
 
 
 
As reported
$
(36,605
)
 
$
5,217

 
$
(48,337
)
Pro forma
$
(28,525
)
 
$
5,642

 
$
(34,113
)
 
 
 
 
 
 
Net income (loss) per share applicable to common shareholders (basic and diluted)
 
 
 
 
 
As reported
$
(2.04
)
 
$
0.28

 
$
(2.72
)
Pro forma
$
(1.59
)
 
$
0.31

 
$
(1.92
)

3. VARIABLE INTEREST ENTITY

As of June 30, 2016, the Company consolidated our 100% owned WSJ subsidiary which is a variable interest entity (“VIE”). WSJ is a VIE due to another party potentially having the right to receive WSJ’s expected residual returns. The Company is the primary beneficiary because it has the power to direct the activities that most significantly impact WSJ’s economic performance. See Note 2 - Acquisition and Note 6 - Debt and Lines of Credit. Accordingly, the Company consolidates the operating results, assets and liabilities of WSJ. The following table presents the carrying amounts, after eliminating the effect of intercompany transactions, included in the Consolidated Balance Sheet that are for the use of or are the obligation of WSJ (in thousands):
 
June 30, 2016
Assets
$
310,290

Liabilities
296,312

Net carrying amount
$
13,978

4. INVENTORIES
Inventories consisted of the following:
 
June 30, 2016
 
December 31, 2015
 
(In thousands)
Coal stockpiles
$
40,851

 
$
38,636

Coal fuel inventories
7,913

 
7,194

Materials and supplies
84,077

 
78,784

Reserve for obsolete inventory
(2,960
)
 
(2,756
)
Total
$
129,881

 
$
121,858


5. RESTRICTED INVESTMENTS AND BOND COLLATERAL
The Company invests certain bond collateral, reclamation deposits, and other restricted investments in a limited selection of fixed-income investment options and receives the investment returns on these investments. These investments are not available to meet the Company’s general cash needs. These accounts include available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses excluded from earnings and reported in Accumulated other comprehensive loss.

11
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

The Company’s carrying value and estimated fair value of its restricted investments at June 30, 2016 were as follows:
 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cash and cash equivalents
$
64,627

 
$
1,610

 
$
66,237

Time deposits
2,462

 
—

 
2,462

Available-for-sale
76,972

 
71,824

 
148,796

 
$
144,061

 
$
73,434

 
$
217,495

The Company’s carrying value and estimated fair value of its restricted investments at December 31, 2015 were as follows:
 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cash and cash equivalents
$
102,539

 
$
45,819

 
$
148,358

Time deposits
2,455

 
—

 
2,455

Available-for-sale
35,813

 
31,545

 
67,358

 
$
140,807

 
$
77,364

 
$
218,171

Available-for-Sale Restricted Investments
The cost basis, gross unrealized holding gains and losses, and fair value of available-for-sale securities at June 30, 2016 were as follows:
 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cost basis
$
77,655

 
$
72,376

 
$
150,031

Gross unrealized holding gains
333

 
575

 
908

Gross unrealized holding losses
(1,016
)
 
(1,127
)
 
(2,143
)
Fair value
$
76,972

 
$
71,824

 
$
148,796

The cost basis, gross unrealized holding gains and losses, and fair value of available-for-sale securities at December 31, 2015 were as follows:

 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cost basis
$
36,715

 
$
31,977

 
$
68,692

Gross unrealized holding gains
167

 
521

 
688

Gross unrealized holding losses
(1,069
)
 
(953
)
 
(2,022
)
Fair value
$
35,813

 
$
31,545

 
$
67,358




12
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

6. DEBT AND LINES OF CREDIT
The Company and its subsidiaries are subject to the following debt arrangements:
 
Total Debt Outstanding
 
June 30, 2016
 
December 31, 2015
 
(In thousands)
8.75% Notes
$
350,000

 
$
350,000

WCC Term Loan Facility
325,527

 
327,172

San Juan Loan
125,000

 
—

WMLP Term Loan Facility
303,301

 
299,248

Capital lease obligations
67,506

 
71,168

Revolving Credit Facility
3,000

 
1,970

Other
6,697

 
7,251

Total debt
1,181,031


1,056,809

Less debt discount and debt issuance costs
(43,033
)
 
(36,914
)
Less current installments
(90,754
)
 
(40,822
)
Total debt outstanding, less current installments
$
1,047,244

 
$
979,073

The following table presents aggregate contractual debt maturities of all debt: 
 
June 30, 2016
 
(In thousands)
2016
$
54,904

2017
73,377

2018
319,811

2019
18,861

2020
340,221

Thereafter
373,857

Total debt
$
1,181,031

8.75% Notes
The senior secured 8.75% Notes mature on January 1, 2022 and pay interest semiannually on January 1 and July 1 of each year at a fixed 8.75% interest rate. The 8.75% Notes are a primary obligation of the Parent and are guaranteed by Westmoreland Energy LLC, Westmoreland Mining LLC and Westmoreland Resources, Inc. and their respective subsidiaries (other than Absaloka Coal, LLC, Westmoreland Risk Management, Inc. and certain other immaterial subsidiaries), referred to as the “Guarantors.” The 8.75% Notes are not guaranteed by Westmoreland Canada LLC or any of its subsidiaries, Westmoreland San Juan, LLC or any of its subsidiaries, or Westmoreland Resources GP, LLC or WMLP, referred to as the “Non-guarantors.” As of June 30, 2016, we were in compliance with all covenants for the 8.75% Notes.
WCC Term Loan Facility
The WCC Term Loan Facility matures on December 16, 2020 and pays interest on a quarterly basis at a variable interest rate which is set at our election of (i) one-, two-, three- or six-month London Interbank Offered Rate ("LIBOR") plus 6.50% or (ii) a base rate (determined with reference to the highest of the prime rate, the Federal Funds Rate plus 0.05%, or one-month LIBOR plus 1.00%) plus 5.50%. As of June 30, 2016, the interest rate was 7.50%. The WCC Term Loan Facility is a primary obligation of the Parent and is guaranteed by the Guarantors. As of June 30, 2016, we were in compliance with all covenants of the WCC Term Loan Facility.

13
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

San Juan Loan
We financed the San Juan Acquisition in part with the San Juan Loan, a senior secured $125.0 million term loan from NM Capital Utility Corporation, an affiliate of Public Service Company of New Mexico (one of the owners of SJGS). The San Juan Loan matures February 1, 2021 and pays interest and principal on a quarterly basis at an interest rate of (i) 7.25% (the “Margin Rate”) plus (ii) (A) the LIBOR for a three month period plus (B) a statutory reserve rate, which such Margin Rate increases incrementally during each year of the San Juan Loan term. It is a primary obligation of Westmoreland San Juan, LLC, is guaranteed by SJCC, and is secured by substantially all of SJCC’s assets. The San Juan Loan has no prepayment penalties. The agreements governing the San Juan Loan include representations and warranties and covenants regarding the ownership and operation of SJCC and the properties acquired in the San Juan Acquisition and standard special purpose bankruptcy remote entity covenants designed to preserve the separateness from Westmoreland of each of (i) WSJ, (ii) its direct parent company, Westmoreland San Juan Holdings, Inc., and (iii) SJCC (collectively, the “Westmoreland San Juan Entities”). Obligations under the San Juan Loan are recourse only to the Westmoreland San Juan Entities and their assets and neither Westmoreland nor its subsidiaries (other than the Westmoreland San Juan Entities) is an obligor under the San Juan Loan in any respect. The agreement governing the San Juan Loan requires that all revenues of the Westmoreland San Juan Entities, aside from payments on certain leases, are deposited into a cash management collection account swept monthly for operating expenses, capital expenditures, and loan payment and prepayment. The assets and credit of SJCC are not available to satisfy the debts and other obligations of any of the Company other than the Westmoreland San Juan Entities.
WMLP Term Loan Facility
The WMLP Term Loan Facility matures in December 2018 and pays interest on a quarterly basis at a variable rate per annum equal to the LIBOR floor of (0.75%) plus 8.5% or the reference rate as defined in the financing agreement. As of June 30, 2016, the cash interest rate is 9.25%. The WMLP Term Loan Facility is a primary obligation of Oxford Mining Company, LLC, a wholly owned subsidiary of WMLP, is guaranteed by WMLP and its subsidiaries, and is secured by substantially all of WMLP’s and its subsidiaries’ assets. At June 30, 2016, we were in compliance with all covenants of the WMLP Term Loan Facility.
The WMLP Term Loan Facility also provides for Paid In Kind Interest (“PIK Interest”) at a variable rate per annum between 1.00% and 3.00% based on our consolidated total net leverage ratio as defined in the financing agreement. The rate of PIK Interest is recalculated on a quarterly basis with the PIK Interest added quarterly to the then-outstanding principal amount of the term loan under the financing agreement. PIK Interest under the financing agreement was $4.6 million for the six months ended June 30, 2016. The outstanding term loan amount represents the principal balance of $291.9 million, plus PIK Interest of $11.4 million.
WMLP Revolving Credit Facility
The WMLP Revolving Credit Facility permits WMLP to borrow up to the aggregate principal amount of $15.0 million and also allows letters of credit in an aggregate outstanding amount of up to $10.0 million, which reduces availability under the WMLP revolving credit facility on a dollar-for-dollar basis. At June 30, 2016, availability under the WMLP revolving credit facility was $15.0 million.
Capital Lease Obligations
During the six months ended June 30, 2016, the Company entered into $9.3 million of new capital leases.
Revolving Credit Facility
The Company amended the terms of its revolving credit facility on June 29, 2016. The revolver’s fixed charge coverage ratio (bank adjusted EBITDA to fixed charges for the prior four fiscal quarters) changed to 1.10 from 1.15 for the consolidated U.S. and Canadian calculation commencing with the fiscal quarter ending June 30, 2016. Under the Company’s Revolving Credit Facility the Company has a total aggregate borrowing capacity of $60.0 million between June 15th and August 31st of each year, with an aggregate borrowing capacity of $50.0 million outside of these periods. The availability of the Revolving Credit Facility consists of a $30.0 million sub-facility ($35.0 million with the seasonal increase) available to our U.S. borrowers and a $20.0 million sub-facility ($25.0 million with the seasonal increase) available to our Canadian borrowers. The facility may support an equal amount of letters of credit, with outstanding letter of credit balances reducing availability under the facility. At June 30, 2016, availability on the Revolving Credit Facility was $43.3 million with an outstanding balance of $13.7 million supporting letters of credit and $3.0 million drawn on the Revolving Credit Facility.  The Revolving Credit Facility has a maturity date of December 31, 2018. We were in compliance with all covenant requirements of the Revolving Credit Facility as of June 30, 2016.

14
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)



7. POSTRETIREMENT MEDICAL BENEFITS AND PENSION
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 components of net periodic postretirement medical benefit cost are as follows: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2016
 
2015
 
2016
 
2015
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
809

 
$
1,054

 
$
1,744

 
$
2,108

Interest cost
3,091

 
2,907

 
6,202

 
5,815

Amortization of deferred items
323

 
327

 
523

 
654

Total net periodic benefit cost
$
4,223

 
$
4,288

 
$
8,469

 
$
8,577

The following table shows the net periodic postretirement medical benefit costs that relate to current and former mining operations: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Former mining operations
$
2,135

 
$
2,034

 
$
4,270

 
$
4,068

Current operations
2,088

 
2,254

 
4,199

 
4,509

Total net periodic benefit cost
$
4,223

 
$
4,288

 
$
8,469

 
$
8,577

The costs for the former mining operations are included in Heritage health benefit expenses and costs for current operations are included in Cost of sales and Selling and administrative expenses.
Pension
The Company provides pension benefits to qualified full-time employees pursuant to collective bargaining agreements.
The Company incurred net periodic benefit costs of providing these pension benefits as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
260

 
$
376

 
$
868

 
$
882

Interest cost
3,075

 
1,971

 
5,362

 
3,957

Expected return on plan assets
(3,812
)
 
(2,680
)
 
(7,043
)
 
(5,319
)
Settlements
—

 
(347
)
 
—

 
(347
)
Amortization of deferred items
1,552

 
1,140

 
2,590

 
2,250

Total net periodic pension cost
$
1,075

 
$
460

 
$
1,777

 
$
1,423


These costs are included in Cost of sales and Selling and administrative expenses. The Company made $0.4 million of contributions to its pension plans in the six months ended June 30, 2016. The Company expects to make $0.1 million of contributions to its pension plans during the remainder of 2016.

15
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

8. DERIVATIVE INSTRUMENTS
The Company has power purchase contracts at its Roanoke Valley Power Facility (“ROVA”) to manage exposure to power price fluctuations. These contracts cover the period from April 2014 to March 2019 and contracted power prices range from $41.05 to $55.20 per megawatt hour, with a weighted average contract price of $43.73 over the remaining contract lives. The contracts are not designated as hedging instruments, and accordingly their fair value is recognized on the Consolidated Balance Sheets, with changes in fair value recognized in the Consolidated Statement of Operations. Fair value is based on a comparison of contracted prices to projected future market prices which are Level 2 inputs based on the hierarchy defined in the fair value footnote.
The fair value of outstanding derivative instruments not designated as hedging instruments on the accompanying unaudited Consolidated Balance Sheets was as follows (in thousands): 
Derivative Instruments
 
Balance Sheet Location
 
June 30, 2016
 
December 31, 2015
Contracts to purchase power
 
Other current liabilities
 
$
11,903

 
$
13,679

Contracts to purchase power
 
Other liabilities
 
21,853

 
23,656

The effect of derivative instruments not designated as hedging instruments on the accompanying unaudited Consolidated Statements of Operations was as follows (in thousands): 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Derivative Instruments
 
Statement of
Operations Location
 
2016
 
2015
 
2016
 
2015
Contracts to purchase power
 
Derivative gain (loss)
 
$
5,878

 
$
(6,178
)
 
$
3,278

 
$
(902
)

9. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The 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. For other fair value disclosures, see also Note 5 - Restricted Investments And Bond Collateral and Note 8 - Derivative Instruments.
•
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 Company’s financial assets and liabilities that are accounted for at fair value at June 30, 2016:

16
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

 
Fair
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Value
 
Level 1
 
Level 2
(In thousands)
Assets:
 
 
 
 
 
Available-for-sale investments included in Restricted investments
$
76,972

 
$
76,972

 
$
—

Available-for-sale investments included in Reclamation deposits
71,824

 
71,824

 
—

Total assets
$
148,796

 
$
148,796

 
$
—

Liabilities:
 
 
 
 
 
Contracts to purchase power included in Other current liabilities and Other liabilities
$
33,756

 
$
—

 
$
33,756

Warrants issued by WMLP included in Other liabilities
555

 
555

 
—

Total liabilities
$
34,311

 
$
555

 
$
33,756

Long-term debt fair value estimates are based on observed prices for securities with an active trading market when available (Level 2) and otherwise using discount rate estimates based on interest rates (Level 3). As of June 30, 2016, the Company valued the WMLP Term Loan Facility and the San Juan Loan with Level 3 fair values. The estimated fair values of the Company’s debt with fixed and variable interest rates are as follows:
 
Fixed Interest Rate
 
Variable Interest Rate
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
(In thousands)
 
(In thousands)
June 30, 2016
$
336,898

 
$
260,750

 
$
733,594

 
$
587,323

December 31, 2015
$
336,000

 
$
213,500

 
$
612,727

 
$
397,601


10. INCOME TAX

For interim income tax reporting the Company estimates its annual effective tax rate and applies this effective tax rate to its year to date pre-tax (loss) income. For the six months ended June 30, 2015, the effective tax rate differed from the statutory rate primarily as a result of the U.S. and Canadian valuation allowances and the impact of the statutory rate change in Alberta, Canada. For the six months ended June 30, 2016, the effective tax rate differed from the statutory rate primarily due to the U.S. and Canadian valuation allowances, and for the recognition of changes in the Company’s net deferred tax assets due to the acquisition of SJCC.

As part of the San Juan acquisition, the Company acquired $47.6 million in deferred tax liabilities. Changes in the acquiring company’s deferred tax assets or liabilities subsequent to a business combination are required to be recorded in income during the quarter in which the transaction occurs. Accordingly, the $47.6 million decrease in the Company’s net deferred tax assets resulted in the release of a corresponding $47.6 million valuation allowance and recognition of a tax benefit in the six months ended June 30, 2016.


17
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

11. STOCKHOLDERS’ DEFICIT AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in Accumulated Other Comprehensive Loss
The following table reflects the changes in accumulated other comprehensive loss by component:
 
Pension
 
Postretirement
medical benefits
 
Unrealized gains and losses on available-for-sale
securities, net
 
Foreign currency translation adjustment
 
Tax effect of
other
comprehensive
income gains
 
Accumulated
other
comprehensive
income (loss)
 
(In thousands)
Balance at December 31, 2015
$
(34,558
)
 
$
(31,086
)
 
$
(1,325
)
 
$
(69,901
)
 
$
(34,430
)
 
$
(171,300
)
Other comprehensive income (loss) before reclassifications
(27
)
 
984

 
(556
)
 
18,622

 
(1,371
)
 
17,652

Amounts reclassified from accumulated other comprehensive income (loss)
2,590

 
523

 
276

 
—

 
—

 
3,389

Balance at June 30, 2016
$
(31,995
)
 
$
(29,579
)
 
$
(1,605
)
 
$
(51,279
)
 
$
(35,801
)
 
$
(150,259
)
The following table reflects the reclassifications out of accumulated other comprehensive loss for the three and six months ended June 30, 2016 (in thousands):
Details about accumulated other comprehensive loss components
Amount reclassified from accumulated other
comprehensive loss
 
Affected line item
in the statement
where net income (loss) is presented
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
 
Available-for-sale securities
 
 
 
 
 
Realized gains and losses on available-for-sale securities
$
189

 
$
276

 
Other income (loss)
 
 
 
 
 
 
Amortization of defined benefit pension items
 
 
 
 
 
Prior service costs
$
2

 
$
4

 
Cost of sales and Selling and administrative
Actuarial losses
1,550

 
2,586

 
Cost of sales and Selling and administrative
Total
$
1,552

 
$
2,590

 
 
Amortization of postretirement medical items
 
 
 
 
 
Prior service costs
$
(159
)
 
$
(318
)
 
Cost of sales and Selling and administrative
Actuarial losses
482

 
841

 
Cost of sales and Selling and administrative
Total
$
323

 
$
523

 
 


18
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

12. SHARE-BASED COMPENSATION
The Company grants employees and non-employee directors restricted stock units. The Company recognized compensation expense from share-based arrangements shown in the following table:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Recognition of fair value of restricted stock units, stock options and SARs over vesting period; and issuance of stock
$
1,230

 
$
1,161

 
$
2,342

 
$
1,824

Contributions of stock to the Company’s 401(k) plan
726

 
963

 
2,192

 
1,822

Total share-based compensation expense
$
1,956

 
$
2,124

 
$
4,534

 
$
3,646

Restricted Stock Units
Unamortized compensation expense is expected to be recognized over the next three years. A summary of outstanding restricted stock units as of June 30, 2016 is as follows:
 
Units
 
Weighted
Average
Grant-Date
Fair Value
 
Unamortized
Compensation
Expense
(In thousands)
Non-vested at December 31, 2015
354,311

 
$
28.44

 

Granted
477,192

 
9.15

 
 
Vested
(91,455
)
 
27.07

 
 
Forfeited
—

 
—

 
 
Non-vested at June 30, 2016
740,048

 
$
15.36

 
$
8,057

Stock Options
No stock options were granted, vested, or forfeited during the the six months ended June 30, 2016. A summary of stock options outstanding as of June 30, 2016 is as follows:
 
Stock Options
 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Life
(In years)
 
Aggregate Intrinsic
Value
(In thousands)
 
Unamortized
Compensation
Expense
(In thousands)
Outstanding at June 30, 2016
109,306

 
$
22.16

 
1.7

 
$
—

 
$
—

SARs
There were no SARs granted during the six months ended June 30, 2016. A summary of SARs activity for the six months ended June 30, 2016 is as follows:
 
SARs
 
Weighted
Average Exercise Price
 
Weighted
Average
Remaining
Contractual
Life
(In years)
 
Aggregate Intrinsic
Value
(In thousands)
 
Unamortized
Compensation
Expense
(In thousands)
Outstanding at December 31, 2015
16,943

 
$
25.44

 
 
 
 
 
 
Expired
(16,943
)
 
25.44

 
 
 
 
 
 
Outstanding at June 30, 2016
—

 
$
—

 
0.0
 
$
—

 
$
—


During 2015, the Company contributed 269,567 common shares to match employees’ contributions to their 401k plans. For the six months ended June 30, 2016, the Company contributed 342,353 common shares. In May 2016, the Company discontinued matching employees’ contributions with common shares and elected instead to match with cash contributions.


19
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

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 stock options, stock appreciation rights and restricted stock units. No such items were included in the computations of diluted loss per share in the three months ended June 30, 2016 and in the three and six months ended June 30, 2015 because the Company incurred a net loss applicable to common shareholders in those periods and the effect of inclusion would have been anti-dilutive.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Income (loss) for basic earning per share calculation:
 
 
 
 
 
 
 
Net income (loss) allocated to common shareholders
$
(25,367
)
 
$
(36,605
)
 
$
5,217

 
$
(48,337
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
18,540

 
17,926

 
18,401

 
17,775

Effect of restricted stock units
—

 
—

 
17

 
—

Diluted weighted average shares outstanding
18,540

 
17,926

 
18,418

 
17,775

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 June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016

2015
 
(In thousands)
Restricted stock units, stock options and SARs
849

 
492

 
832

 
492

14. SEGMENT INFORMATION
Segment information is based on a management approach, which requires segmentation based upon the Company’s internal organization, reporting of revenue, and operating income. The Company’s operations are classified into six reporting segments: Coal - U.S., Coal - Canada, Coal - WMLP, Power, Heritage, and Corporate. On August 1, 2015, the Company contributed 100% of the outstanding equity interests in Westmoreland Kemmerer, LLC (“Kemmerer”) to WMLP (the “Kemmerer Drop”), and, accordingly, to enable comparability, all segment disclosures have been adjusted to remove financial information for Kemmerer from the Coal - U.S. segment and present it in the Coal - WMLP segment for each of the three and six months ended ended June 30, 2016 and 2015.

20
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

Summarized financial information by segment is as follows:
 
Coal -
U.S.(1)
 
Coal - Canada
 
Coal - WMLP(2)
 
Power(3)
 
Heritage
 
Corporate(2)
 
Consolidated(4)
 
(In thousands)
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
151,433

 
$
109,064

 
$
80,468

 
$
21,944

 
$
—

 
$
(6,662
)
 
$
356,247

Restructuring charges
—

 
—

 
—

 
—

 
—

 
—

 
—

Depreciation, depletion, and amortization
12,435

 
6,717

 
14,547

 
—

 
—

 
(36
)
 
33,663

Operating income (loss)
3,850

 
4,200

 
(4,282
)
 
6,731

 
(3,518
)
 
(3,992
)
 
2,989

Total assets
950,021

 
504,537

 
397,865

 
41,819

 
16,468

 
(167,497
)
 
1,743,213

Capital expenditures
4,559

 
1,139

 
985

 
—

 
—

 
—

 
6,683

Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
132,620

 
$
106,162

 
$
97,033

 
$
21,334

 
$
—

 
$
(8,190
)
 
$
348,959

Restructuring charges
—

 
—

 
103

 
—

 
—

 
—

 
103

Depreciation, depletion, and amortization
9,297

 
8,611

 
13,921

 
2,476

 
—

 
(42
)
 
34,263

Operating income (loss)
801

 
9,524

 
(936
)
 
(9,035
)
 
(2,400
)
 
(4,820
)
 
(6,866
)
Total assets
561,007

 
582,412

 
441,840

 
170,126

 
16,241

 
(9,201
)
 
1,762,425

Capital expenditures
6,771

 
9,879

 
8,348

 
528

 
—

 
1

 
25,527

Six Months Ended June 30, 2016


 
 
 
 







Revenues
$
306,611

 
$
202,498

 
$
172,949

 
$
43,940

 
$
—

 
$
(15,030
)

$
710,968

Restructuring charges
—

 
—

 
—

 
—

 
—

 
—

 
—

Depreciation, depletion, and amortization
26,573

 
12,356

 
29,812

 
—

 
—

 
(65
)

68,676

Operating income (loss)
15,129

 
16,609

 
(3,473
)
 
931

 
(6,999
)
 
(7,670
)

14,527

Total assets
950,021

 
504,537

 
397,865

 
41,819

 
16,468

 
(167,497
)

1,743,213

Capital expenditures
7,214

 
2,488

 
2,529

 
—

 
—

 
—


12,231

Six Months Ended June 30, 2015


 
 
 
 







Revenues
$
287,487


$
209,405

 
$
206,123

 
$
41,984


$
—


$
(24,555
)

$
720,444

Restructuring charges
—

 
—

 
656

 
—

 
—

 
—

 
656

Depreciation, depletion, and amortization
18,674


19,876

 
28,810

 
4,962


—


—


72,322

Operating income (loss)
7,919


19,388

 
(1,306
)
 
(8,618
)

(5,749
)

(10,043
)

1,591

Total assets
561,007


582,412

 
441,840

 
170,126


16,241


(9,201
)

1,762,425

Capital expenditures
15,427

 
13,928

 
11,661

 
1,107

 
—

 
(3,569
)
 
38,554

____________________
(1)
The San Juan Acquisition was completed on January 31, 2016. For the three and six months ended June 30, 2016, revenues for the San Juan Entities were $50.0 million and $76.6 million, respectively, and operating income was $5.1 million and $8.2 million, respectively.
(2)
The Coal - WMLP segment recorded revenues of $6.4 million and $14.3 million for intersegment revenues to the Coal - U.S. segment for the three and six months ended June 30, 2016, respectively and $6.6 million and $21.1 million for the three and six months ended June 30, 2015, respectively. Eliminations for intersegment revenues and cost of sales are presented within the Corporate segment.
(3)
Total assets as of June 30, 2016 reflect a $133.1 million asset impairment in the Power segment that was recorded during the fourth quarter of 2015. No such impairment had been recorded as of June 30, 2015.
(4)
Deferred tax assets of $15.2 million as of June 30, 2015 were reclassified into liabilities on adoption of ASU 2015-17 - Income Taxes: Balance Sheet Classification of Deferred Taxes.

21
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

15. CONTINGENCIES

The Company is a party to or receives notification of routine claims, lawsuits and regulatory proceedings 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.


22

ITEM 2
— MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 recent acquisitions and their anticipated effects on us, and our expectation that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future.
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 therefore caution you against relying on any of these forward-looking statements. They are statements neither 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:

•
The effect of legal and administrative proceedings, settlements, investigations and claims, including any related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage;
•
Existing and future legislation and regulation affecting both our coal mining operations and our customers’ coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases;
•
The effect of the Environmental Protection Agency’s and Canadian and provincial governments’ inquiries and regulations on the operations of the power plants to which we provide coal;
•
Our ability to manage the San Juan Entities following the San Juan Acquisition;
•
Our substantial level of indebtedness and our ability to adhere to financial covenants related to our borrowing arrangements;
•
Changes in our post-retirement medical benefit and pension obligations and the impact of the recently enacted healthcare legislation on our employee health benefit costs;
•
Inaccuracies in our estimates of our coal reserves;
•
Our potential inability to expand or continue current coal operations due to limitations in obtaining bonding capacity for new mining permits, and/or increases in our mining costs as a result of increased bonding expenses;
•
The effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers;
•
The inability to control costs, recognize favorable tax credits and/or receive adequate train traffic at our open market mine operations;
•
Our ability to realize growth opportunities and cost synergies as a result of the acquisition of our Canadian mines;
•
The ability or inability of our hedging arrangement with respect to our ROVA facility to generate cash flow due to the fully hedged position through March 2019;
•
Competition within our industry and with producers of competing energy sources;
•
Our relationships with, and other conditions affecting, our customers;
•
The availability and costs of key supplies or commodities, such as diesel fuel, steel and explosives;
•
Potential title defects or loss of leasehold interests in our properties, which could result in unanticipated costs or an inability to mine the properties; and
•
Other factors that are described under the heading “Risk Factors” found in our reports filed with the Securities and Exchange Commission, including our 2015 Form 10-K.
Unless otherwise specified, the forward-looking statements in this report speak as of the filing date of this report. 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 because of new information, future developments or otherwise, except as may be required by law.

23
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Overview
Westmoreland Coal Company is the oldest independent coal company in the United States. Our coal operations include surface coal mines in the United States and Canada, underground coal mines in Ohio and New Mexico, a char production facility, and a 50% interest in an activated carbon plant. We also own the general partner of, and a majority of the equity interests in, WMLP, a publicly-traded coal master limited partnership. Our power operations include two coal-fired power generation units in North Carolina. We classify our business into four operating segments (Coal - U.S., Coal - Canada, Coal - WMLP and Power) and two non-operating segments (Heritage and Corporate). Our Heritage segment primarily includes the costs of benefits we provide to former mining operation employees and our Corporate segment consists primarily of corporate administrative and business development expenses.
We are a holding company and conduct our operations through subsidiaries. We have significant cash requirements to fund our ongoing debt obligations, pension contributions, heritage health benefit costs, and corporate overhead costs. The principal sources of cash flow to us are distributions from our operating subsidiaries.
San Juan Acquisition and related financing
On January 31, 2016, WSJ, a special purpose subsidiary of Westmoreland, acquired SJCC, which operates the San Juan mine in Farmington, New Mexico, and San Juan Transportation Company for a total cash purchase price of approximately $125.3 million, subject to post-closing adjustments. The San Juan mine is the exclusive supplier of coal to the adjacent SJGS under a coal supply agreement through 2022. For details of the financing structure, see Note 6 - Debt and Lines of Credit.
Results of Operations
Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015
Consolidated Results of Operations
The following table shows the comparative consolidated results and changes between periods:
 
Three Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands)
Revenues
$
356,247

 
$
348,959

 
$
7,288

 
2.1
 %
Net loss applicable to common shareholders
(25,367
)
 
(36,605
)
 
11,238

 
30.7
 %
Adjusted EBITDA(1)
43,558

 
55,281

 
(11,723
)
 
(21.2
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.
Revenue growth was driven by our January 31, 2016 San Juan acquisition, offset by softer demand at other mines. Net income increased as a result of $9.9 million in operating income growth and a $7.6 million decrease in income tax expense, offset by a $6.2 million increase in interest expense due to higher debt levels. Adjusted EBITDA decreased as a result of an $8.7 million decrease in receipts from loan and lease receivables as well as demand softness at certain of our Canadian and U.S. mines. This was offset by the addition of $9.4 million in Adjusted EBITDA by our San Juan acquisition.

24
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Coal - U.S. Segment Operating Results
As a result of the Kemmerer Drop, results for all periods presented reflect Kemmerer as part of the Coal - WMLP segment and not part of the Coal - U.S. segment: 
 
Three Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands, except ton data)
Revenues
$
151,433

 
$
132,620

 
$
18,813

 
14.2
 %
Operating income
3,850

 
801

 
3,049

 
380.6
 %
Adjusted EBITDA(1)
19,761

 
14,186

 
5,575

 
39.3
 %
Tons sold—millions of equivalent tons
4.7


5.3

 
(0.6
)
 
(11.3
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to Net income (loss) at the end of this “Results of Operations” section.
Our San Juan acquisition added $50.0 million in revenue. This growth was offset by decreases arising from the expiration of certain contracts, which had been expected. Certain mines experienced a decrease due to softer demand. Further, cost reduction initiatives at cost plus mines led to a corresponding decrease in revenue. Our San Juan acquisition added $5.1 million in operating income and $9.4 million in Adjusted EBITDA. Adjusted EBITDA also benefited from the absence of a prior year customer shut-down, offset slightly by the aforementioned revenue pressures.
Coal - Canada Segment Operating Results
 
Three Months Ended June 30,
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands, except ton data)
Revenues
$
109,064

 
$
106,162

 
$
2,902

 
2.7
 %
Operating income
4,200

 
9,524

 
(5,324
)
 
(55.9
)%
Adjusted EBITDA(1)
13,431

 
32,915

 
(19,484
)
 
(59.2
)%
Tons sold—millions of equivalent tons
5.6

 
5.9

 
(0.3
)
 
(5.1
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.
Revenue grew as a result of increased tons delivered by our Coal Valley operations offset by continued export pricing pressure. This increase was offset by decreases in tons delivered at other locations, as well as a weaker Canadian Dollar. Operating Income was negatively impacted by wet weather, offset by a gain on the disposal of an idled loadout facility. Adjusted EBITDA for our Canadian operations decreased as a result of $8.7 million lower loan and lease receivable repayment in the current year, primarily driven by a one-time prior year repayment that was not expected to recur in 2016.
Coal - WMLP Segment Operating Results
As a result of the Kemmerer Drop, results for all periods presented reflect Kemmerer as part of the Coal - WMLP segment and not part of the Coal - U.S. segment: 
 
Three Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands, except ton data)
Revenues
$
80,468

 
$
97,033

 
$
(16,565
)
 
(17.1
)%
Operating loss
(4,282
)
 
(936
)
 
(3,346
)
 
(357.5
)%
Adjusted EBITDA(1)
16,303

 
15,175

 
1,128

 
7.4
 %
Tons sold—millions of equivalent tons
1.7

 
2.1

 
(0.4
)
 
(19.0
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

25
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Revenue decreased largely as a result of soft demand in the Ohio region decreasing tons delivered. Increases in the operating loss were driven by the revenue decreases, however were offset by lower fuel costs and other cost saving initiatives. Higher interest expense due to the debt incurred from the 2015 Kemmerer drop as well as a second quarter asset impairment also decreased operating income. Adjusted EBITDA grew as the strength of fuel and other cost savings outpaced the revenue pressures.
Power Segment Operating Results
 
Three Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands)
Revenues
$
21,944

 
$
21,334

 
$
610

 
2.9
%
Operating income (loss)
6,731

 
(9,035
)
 
15,766

 
*

Adjusted EBITDA(1)
614

 
(614
)
 
1,228

 
*

____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.
*
Not meaningful
Operating income increased due to a gain on our power derivative of $5.9 million during the the second quarter of 2016 compared to a loss on our power derivative of $6.2 million during the second quarter of 2015, as well as $2.5 million lower depreciation expense in 2016 as a result of the fourth quarter 2015 impairment charge.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015
Consolidated Results of Operations
The following table shows the comparative consolidated results and changes between periods:
 
Six Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands)
Revenues
$
710,968

 
$
720,444

 
$
(9,476
)
 
(1.3
)%
Net income (loss) applicable to common shareholders
5,217

 
(48,337
)
 
53,554

 
*

Adjusted EBITDA(1)
106,513

 
111,309

 
(4,796
)
 
(4.3
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.
*
Not meaningful
Revenue growth was driven by our January 31, 2016 San Juan acquisition, offset by softer demand at other mines. Net income increased as a result of $12.9 million in operating income growth and an income tax benefit of $48.0 million in the first six months of 2016 compared to income tax expense of $9.5 million in the comparable period in 2015. The income tax benefit was primarily a result of the first quarter release of our valuation allowance on our net operating loss deferred tax assets arising from the San Juan acquisition. These increases in net income were offset by an $11.1 million increase in interest expense due to higher debt levels. Adjusted EBITDA decreased as a result of a $10.1 million decrease in receipts from loan and lease receivables as well as demand softness at certain of our Canadian and U.S. mines. This was offset by the addition of $17.0 million in Adjusted EBITDA by our San Juan acquisition.

26
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Coal - U.S. Segment Operating Results
As a result of the Kemmerer Drop, results for all periods presented reflect Kemmerer as part of the Coal - WMLP segment and not part of the Coal - U.S. segment: 
 
Six Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands, except ton data)
Revenues
$
306,611

 
$
287,487

 
$
19,124

 
6.7
 %
Operating income
15,129

 
7,919

 
7,210

 
91.0
 %
Adjusted EBITDA(1)
49,299

 
34,452

 
14,847

 
43.1
 %
Tons sold—millions of equivalent tons
10.7

 
11.1

 
(0.4
)
 
(3.6
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to Net income (loss) at the end of this “Results of Operations” section.
Our San Juan acquisition added $76.6 million in revenue. This growth was offset by decreases arising from the expiration of certain contracts, which had been expected. Certain mines experienced a decrease due to softer demand. Further, cost reduction initiatives at cost plus mines led to a corresponding decrease in revenue. Our San Juan acquisition added $8.2 million in operating income and $17.0 million in Adjusted EBITDA. Adjusted EBITDA also benefited from the absence of a prior year customer shut-down, offset slightly by the aforementioned revenue pressures.
Coal - Canada Segment Operating Results
 
Six Months Ended June 30,
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands, except ton data)
Revenues
$
202,498

 
$
209,405

 
$
(6,907
)
 
(3.3
)%
Operating income
16,609

 
19,388

 
(2,779
)
 
(14.3
)%
Adjusted EBITDA(1)
36,874

 
57,838

 
(20,964
)
 
(36.2
)%
Tons sold—millions of equivalent tons
11.4

 
11.2

 
0.2

 
1.8
 %
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.
Revenue decreased as a result of continued price pressure and a weaker Canadian Dollar. These decreases were offset by an increase in tons delivered at Coal Valley. Operating income was negatively impacted by wet weather, offset by a gain on the disposal of an idled loadout facility and operational improvements. Adjusted EBITDA for our Canadian operations decreased as a result of $10.1 million lower loan and lease receivable repayment in the current year, primarily driven by a one-time prior year repayment that was not expected to recur in 2016.
Coal - WMLP Segment Operating Results
As a result of the Kemmerer Drop, results for all periods presented reflect Kemmerer as part of the Coal - WMLP segment and not part of the Coal - U.S. segment: 
 
Six Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands, except ton data)
Revenues
$
172,949

 
$
206,123

 
$
(33,174
)
 
(16.1
)%
Operating loss
(3,473
)
 
(1,306
)
 
(2,167
)
 
(165.9
)%
Adjusted EBITDA(1)
35,580

 
34,177

 
1,403

 
4.1
 %
Tons sold—millions of equivalent tons
3.7

 
4.4

 
(0.7
)
 
(15.9
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

27
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Revenue has decreased largely as a result of soft demand in the Ohio region decreasing tons delivered. Increases in the operating loss were driven by the revenue decreases, however were offset by lower fuel costs and other cost saving initiatives. Higher interest expense due to the debt incurred from the 2015 Kemmerer drop as well as a second quarter asset impairment also decreased operating income. Adjusted EBITDA grew as the strength of fuel and other cost savings outpaced the revenue pressures.
Power Segment Operating Results
 
Six Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands)
Revenues
$
43,940

 
$
41,984

 
$
1,956

 
4.7
%
Operating income (loss)
931

 
(8,618
)
 
9,549

 
*

Adjusted EBITDA(1)
(2,733
)
 
(3,227
)
 
494

 
15.3
%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.
*
Not meaningful
Operating income increased due to a gain on our power derivative of $3.3 million during the the first six months of 2016 compared to a loss of $0.9 million during the first six months of 2015, as well as $5.0 million lower depreciation expense in 2016 as a result of the fourth quarter 2015 impairment charge.
Reconciliation of Net Income (Loss) to Adjusted EBITDA
The discussion in “Results of Operations” includes references to our Adjusted EBITDA results. EBITDA is defined as earnings before interest expense, interest income, income taxes, depreciation, depletion, amortization and accretion expense. EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, generally accepted accounting principles (“GAAP”). EBITDA and Adjusted EBITDA are key metrics used by us to assess our operating performance and as a basis for strategic planning and forecasting 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 company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
•
are used by rating agencies, lenders and other parties to evaluate our creditworthiness; 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.
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

28
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

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 calculated EBITDA and Adjusted EBITDA, including a breakdown by segment, and reconcile Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Reconciliation of Net Income (Loss) to Adjusted EBITDA
 
 
 
 
 
 
 
Net income (loss)
$
(26,175
)
 
$
(37,851
)
 
$
3,911

 
$
(51,729
)
 
 
 
 
 
 
 
 
Income tax expense (benefit)
(100
)
 
7,469

 
(48,035
)
 
9,509

Interest income
(2,356
)
 
(2,567
)
 
(4,147
)
 
(4,707
)
Interest expense
31,510

 
25,304

 
61,179

 
50,039

Depreciation, depletion and amortization
33,663

 
34,263

 
68,676

 
72,322

Accretion of ARO and receivable
7,290

 
7,077

 
14,297

 
14,108

Amortization of intangible assets and liabilities
(260
)
 
(253
)
 
(427
)
 
(506
)
EBITDA
43,572

 
33,442

 
95,454

 
89,036

 
 
 
 
 
 
 
 
Restructuring charges
—

 
103

 
—

 
656

Loss (gain) on foreign exchange
364

 
1,313

 
1,751

 
(795
)
Acquisition related costs (1)
133

 
—

 
568

 
1,400

Customer payments received under loan and lease receivables (2)
2,727

 
11,418

 
5,387

 
15,521

Derivative loss (gain)
(5,878
)
 
6,178

 
(3,278
)
 
902

Loss (gain) on sale/disposal of assets and other adjustments
684

 
703

 
2,097

 
943

Share-based compensation
1,956

 
2,124

 
4,534

 
3,646

Adjusted EBITDA
$
43,558

 
$
55,281

 
$
106,513

 
$
111,309

____________________
(1)
Includes the impact of cost of sales related to the sale of inventory written up to fair value in the acquisition of Westmoreland Resources GP, LLC, the general partner of WMLP.
(2)
Represents a return of and on capital. These amounts are not included in operating income or operating cash flows, as the capital outlays are treated as loan and lease receivables, but are included within Adjusted EBITDA so that the cash received by the Company is treated consistently with all other contracts within the Company that do not result in loan and lease receivable accounting.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Adjusted EBITDA by Segment
 
 
 
 
 
 
 
Coal - U.S.
$
19,761

 
$
14,186

 
$
49,299

 
$
34,452

Coal - Canada
13,431

 
32,915

 
36,874

 
57,838

Coal - WMLP
16,303

 
15,175

 
35,580

 
34,177

Power
614

 
(614
)
 
(2,733
)
 
(3,227
)
Heritage
(3,518
)
 
(2,401
)
 
(6,999
)
 
(5,749
)
Corporate
(3,033
)
 
(3,980
)
 
(5,508
)
 
(6,182
)
Total
$
43,558

 
$
55,281

 
$
106,513

 
$
111,309



29
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Liquidity and Capital Resources
We had the following liquidity at June 30, 2016 and December 31, 2015: 
 
June 30, 2016
 
December 31, 2015
 
(In millions)
Cash and cash equivalents
$
35.9

 
$
22.9

Availability under our Revolving Credit Facility
43.3

 
28.2

Availability under WMLP Revolving Credit Facility
15.0

 
15.0

Total
$
94.2


$
66.1

We anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future.
We conduct our operations through subsidiaries. We have significant cash requirements to fund our debt obligations, ongoing heritage health benefit costs, pension contributions, and corporate overhead expenses. The principal sources of cash flow to the parent company are distributions from our operating subsidiaries. The cash at all of our subsidiaries is immediately available, except Westmoreland Risk Management, Inc. (“WRMI”), the Westmoreland San Juan Entities, and WMLP. The cash at our captive insurance entity, WRMI, is available to us through dividends and is subject to maintaining a statutory minimum level of capital, which is $0.25 million. The cash at the Westmoreland San Juan Entities is governed as described in Note 6 - Debt and Lines of Credit. The cash at WMLP is available to us through quarterly distributions subject to certain restrictions.
Debt Obligations
See Note 6 - Debt and Lines of Credit for a description of our different debt facilities.
Restricted Group and Unrestricted Group Results
Under the indenture governing the 8.75% Notes (the “Indenture”), the WCC Term Loan Facility and the Revolving Credit Facility, WSJ, Westmoreland Resources GP, LLC, WMLP and all of WMLP’s subsidiaries are designated as “unrestricted subsidiaries” (the “Unrestricted Group”). All of our other subsidiaries are restricted subsidiaries (the “Restricted Group”).

30
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

The Indenture requires summary information for the Restricted Group and Unrestricted Group provided as follows:
 
Restricted Group
 
Unrestricted Group
 
Total
 
(In thousands)
Balance sheet information as of June 30, 2016:
 
 
 
 
 
Cash and cash equivalents
$
15,293

 
$
20,583

 
$
35,876

Total current assets
238,398

 
127,338

 
365,736

Total assets
901,610

 
841,603

 
1,743,213

Total current liabilities
250,300

 
156,955

 
407,255

Total debt
708,256

 
429,742

 
1,137,998

Total liabilities
1,617,812

 
698,514

 
2,316,326

 
 
 
 
 
 
Statement of operations information for the six months ended June 30, 2016:
 
 
 
 
 
Revenues
$
461,458

 
$
249,510

 
$
710,968

Operating costs and expenses
451,671

 
244,770

 
696,441

Operating income
9,787

 
4,740

 
14,527

Other income and expenses
(31,412
)
 
(27,239
)
 
(58,651
)
Loss before income taxes
(21,625
)
 
(22,499
)
 
(44,124
)
Income tax benefit
(48,035
)
 
—

 
(48,035
)
Net income (loss)
26,410

 
(22,499
)
 
3,911

Less net loss attributable to noncontrolling interest
—

 
(1,306
)
 
(1,306
)
Net income (loss) attributable to the Parent company
$
26,410

 
$
(21,193
)
 
$
5,217

For the six months ended June 30, 2016, Adjusted EBITDA associated with the Restricted Group and Unrestricted Group was $53.9 million and $52.6 million, respectively.
Non-guarantor Restricted Subsidiaries Results
The Indenture requires summary information for non-guarantor subsidiaries (as defined in the Indenture) which is provided as follows:

Absaloka Coal, LLC, WRMI, Westmoreland Canada LLC, the Canadian Subsidiaries and our Netherlands subsidiary (collectively, the “non-guarantor Restricted Subsidiaries”) had $742.8 million in total assets as of June 30, 2016, representing approximately 42.6% of our consolidated total assets, and generated $202.5 million in revenue for the six months ended June 30, 2015 representing approximately 28.5% of our consolidated revenue, and generated Adjusted EBITDA of $37.2 million representing approximately 34.9% of our consolidated Adjusted EBITDA. As of June 30, 2016, our non-guarantor Restricted Subsidiaries had $44.5 million of total indebtedness and $225.7 million of total liabilities, and our non-guarantor Canadian Subsidiaries had availability of up to $22.0 million under the Canadian tranche of the Revolving Credit Facility.


31
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Heritage Health Costs and Pension Contributions

Our liquidity continues to be affected by payments of our heritage health and pension obligations as follows: 
 
Six Months Ended June 30,
 
2016 Remaining
Expected
Amounts
 
2016
 
2015
 
 
(In millions)
Postretirement medical benefits
$
6.4

 
$
6.8

 
$
6.1

Combined Benefit Fund premiums
0.8

 
0.9

 
1.0

Workers’ compensation benefits
0.1

 
0.2

 
0.4

Total heritage health payments
$
7.3

 
$
7.9

 
$
7.5

 
 
 
 
 
 
Pension contributions
$
0.4

 
$
3.3

 
$
0.1

Historical Sources and Uses of Cash
The following table summarizes net cash provided by (used in) operating activities, investing activities, and financing activities for the six months ended June 30, 2016 and June 30, 2015: 
 
Six Months Ended June 30,
 
2016
 
2015
 
(In thousands)
Cash provided by (used in):
 
 
 
Operating activities
$
37,404

 
$
12,050

Investing activities
(124,152
)
 
(24,528
)
Financing activities
99,051

 
35,967

For the first six months of 2016, our operating activities generated $37.4 million in cash flows as a result of our continued execution on our mine mouth strategy. Investing activities used $124.2 million in cash, including $125.3 million used to acquire San Juan. Financing activities provided $99.1 million in cash, most notably $122.3 million in borrowings to finance the San Juan acquisition. This was offset by $18.0 million in repayments of long-term debt, mostly capital leases.
Asset Retirement Obligations, Contractual Third-party Reclamation Receivables, Reclamation Deposits and Reclamation Bond Collateral
The asset retirement obligations and related contractual third-party reclamation receivables, reclamation deposits and reclamation bond collateral for each of the Company’s operating segments at June 30, 2016 are summarized below:
 
Asset
Retirement
Obligations
 
Contractual
Third-Party
Reclamation
Receivables
 
Reclamation
Deposits
 
Restricted Investments and Bond Collateral
 
(In thousands)
Coal - U.S.
$
321,684

 
$
162,379

 
$
73,434

 
$
16,276

Coal - Canada
119,638

 
5,328

 
—

 
52,196

Coal - WMLP
58,404

 
—

 
—

 
37,506

Power
1,075

 
—

 
—

 
—

Other restricted investments:
 
 
 
 
 
 
 
Power derivative collateral (ROVA)
—

 
—

 
—

 
22,200

Other
—

 
—

 
—

 
15,883

Total
$
500,801


$
167,707


$
73,434


$
144,061


Other restricted investments include various investments not associated with reclamation obligations. Reclamation spend, net of customer receipts for reclamation, was $17.5 million for the six months ended June 30, 2016.

32
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Critical Accounting Policies and Estimates
Please refer to the corresponding section in Part II, Item 7 of our 2015 Form 10-K for a discussion of our accounting policies and estimates.
Recent Accounting Pronouncements
See Note 1 - Basis Of Presentation of the Notes to the Unaudited Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements.”
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. We utilize surety bonds and letters of credit 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. 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.
Our off-balance sheet arrangements are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2015 Form 10-K.
ITEM 3
— QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Other than the changes below, there have been no material changes in our market risk since December 31, 2015. For additional information, refer to the “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of our 2015 Form 10-K.
Commodity Price Risk
We are exposed to commodity price risk on sales of power at our ROVA facility. We have entered into derivative contracts to purchase power in the future at fixed prices. Such derivative contracts are structured to manage our exposure to changing power prices and not for trading. For the six months ended June 30, 2016 and 2015, we incurred a gain of $3.3 million and a loss of $0.9 million, respectively, from these derivative contracts. Since any resales which we may make in the open market under these derivative contracts would be made at prevailing market prices, we may be subject to further losses under these hedging arrangements in the event that the market price for power falls below the level of our hedged position. Based on current market pricing trends, we may experience further losses under these hedging arrangements before the market price for power regains a level which is commensurate with our hedged position. If these trends continue, these losses could continue to adversely impact our results of operations and cash flows, and anticipated future cash losses are likely to be material.
ITEM 4
— CONTROLS AND PROCEDURES.
As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 June 30, 2016. 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.
On January 31, 2016, we closed on the San Juan Acquisition. As a result of this acquisition, we are in the process of reviewing the internal controls of the San Juan mine operations and, if necessary, will make appropriate changes as we incorporate our controls and procedures into the acquired operations. Except for the San Juan Acquisition, there have been no changes in internal control over financial reporting that occurred during the six months ended June 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

33

PART II
OTHER INFORMATION

ITEM 1
— LEGAL PROCEEDINGS.
We are subject, from time-to-time, to various proceedings, lawsuits, disputes, and claims (“Actions”) arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. We cannot predict with assurance the outcome of Actions brought against us. Accordingly, adverse developments, settlements, or resolutions may occur and may result in a negative impact on income in the quarter of such development, settlement, or resolution. However, we do not believe that the outcome of any current Action would have a material adverse effect on our financial results.
ITEM 1A
— RISK FACTORS.
We have disclosed under the heading “Risk Factors” in our 2015 Form 10-K, the risk factors that we believe materially affect our business, financial condition or results of operations. For the six months ended June 30, 2016, there have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in the 2015 Form 10-K and the other information set forth elsewhere in this Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and or operating results.

ITEM 2
— UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The Company’s purchases of its common stock during the three months ended June 30, 2016 were as follows:
Period
Total Number
of Shares
Purchased (1)
 
Average Price
Paid per Share
April 1, 2016
22,517

 
$
7.19

____________________
(1)
Shares purchased as indicated in this table represent the withholding of a portion of restricted shares to cover taxes on vested restricted shares and were not made pursuant to a publicly announced share repurchase plan or program.

In July 2016, the Company learned that transactions in Westmoreland Common Stock in the San Juan Salaried Employee 401(k) Plan (the “Transitional 401(k) Plan”), a one year transitional plan governing a small group of San Juan Coal Company participants until it is merged into the Company’s existing 401(k) Plan, were executed without such transitional plan being explicitly referenced on the Company’s previously filed registration statement on Form S-8 covering 401(k) plan interests and so may be considered unregistered sales of Westmoreland Common Stock. The transactions in Westmoreland Common Stock in the Transitional 401(k) Plan may have included: (i) initial investment of salary reduction contributions from employees, (ii) fixed matching source funds from Westmoreland and (iii) intra-plan transfers of funds by participants out of other investments into Westmoreland Common Stock (collectively, the “Transactions”).  The Transactions took place after February 24, 2016, with a total of 29,479 shares at an average price paid per share of $6.91.


ITEM 4— MINE SAFETY DISCLOSURES
On July 21, 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). Section 1503(a) of the Dodd-Frank Act contains reporting requirements regarding mine safety. Mine safety violations or other regulatory matters, as required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K, are included as Exhibit 95.1 to this report on Form 10-Q.
ITEM 6
— EXHIBITS.

See Exhibit Index at the end of this report.


34

ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

On May 17, 2016, Jan Packwood, who is an independent director, was elected as Chairman of Westmoreland’s Board of Directors. Mr. Packwood replaced Mr. Klingaman who retired as chairman at the Company’s annual meeting. 


35

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:
August 2, 2016
/s/ Jason W. Veenstra
 
 
Jason W. Veenstra
 
 
Chief Financial Officer
(Principal Financial Officer and A Duly Authorized Officer)
 
 
 
Date:
August 2, 2016
/s/ Nathan M. Troup
 
 
Nathan M. Troup
 
 
Chief Accounting Officer and Corporate Controller
(Principal Accounting Officer and A Duly Authorized Officer)


36

WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED BALANCE SHEETS
(Parent Company Information — See Notes to Condensed Financial Statements)

 
June 30,
2016
 
December 31,
2015
 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
7,389

 
$
14,245

Receivables:
 
 
 
Intercompany receivable
33,046

 
27,732

Other
1,494

 
3,053

 
34,540

 
30,785

Deferred income taxes
—

 
—

Other current assets
775

 
1,048

Total current assets
42,704

 
46,078

Property, plant and equipment:
 
 
 
Plant and equipment
4,191

 
4,096

Less accumulated depreciation, depletion and amortization
3,276

 
3,101

Net property, plant and equipment
915

 
995

Restricted investments
15,884

 
15,753

Investment in subsidiaries
128,754

 
143,952

Intercompany receivable/payable
247,687

 
200,140

Other assets
1,088

 
1,479

Total Assets
$
437,032

 
$
408,397


37

WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED BALANCE SHEETS
(Parent Company Information — See Notes to Condensed Financial Statements)
 
June 30,
2016
 
December 31,
2015
 
(In thousands)
Liabilities and Shareholders’ Deficit
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
3,288

 
$
3,288

Revolving lines of credit
—

 
—

Accounts payable and accrued expenses:
 
 
 
Trade and other accrued liabilities
12,084

 
10,598

Interest payable
15,419

 
15,398

Workers’ compensation
580

 
590

Postretirement medical benefits
11,985

 
11,985

SERP
368

 
368

Intercompany payable
—

 
2,150

Other current liabilities
636

 
131

Total current liabilities
44,360

 
44,508

Long-term debt, less current installments
650,283

 
649,766

Workers’ compensation, less current portion
4,992

 
5,068

Excess of black lung benefit obligation over trust assets
17,594

 
17,220

Postretirement medical benefits, less current portion
239,276

 
239,122

Pension and SERP obligations, less current portion
40,029

 
40,516

Deferred income taxes
—

 
—

Other liabilities
466

 
466

Intercompany payable
13,145

 
13,615

Total liabilities
1,010,145

 
1,010,281

Shareholders’ deficit:
 
 
 
Common stock
186

 
182

Other paid-in capital
245,050

 
240,721

Accumulated other comprehensive loss
(150,259
)
 
(171,300
)
Accumulated deficit
(667,002
)
 
(672,219
)
Total shareholders’ deficit
(572,025
)
 
(602,616
)
Noncontrolling interests in consolidated subsidiaries
(1,088
)
 
732

Total deficit
(573,113
)
 
(601,884
)
Total Liabilities and Deficit
$
437,032

 
$
408,397


38

WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED STATEMENTS OF OPERATIONS
(Parent Company Information — See Notes to Condensed Financial Statements)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share data)
Revenues
$
—

 
$
—

 
$
—

 
$
—

Cost, expenses and other:
 
 
 
 
 
 
 
Cost of sales
(493
)
 
(501
)
 
(975
)
 
(1,007
)
Depreciation, depletion and amortization
85

 
42

 
176

 
85

Selling and administrative
5,378

 
4,481

 
10,510

 
8,738

Heritage health benefit expenses
3,026

 
1,963

 
5,844

 
4,832

Loss on sale/disposal of assets
—

 
—

 
—

 
—

Restructuring charges
—

 
—

 
—

 
—

 
7,996

 
5,985

 
15,555

 
12,648

Operating loss
(7,996
)
 
(5,985
)
 
(15,555
)
 
(12,648
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(15,139
)
 
(17,155
)
 
(30,267
)
 
(33,698
)
Interest income
4,370

 
4,929

 
8,702

 
8,864

Gain (loss) on foreign exchange
—

 
—

 
12

 
(2
)
Other income (expense)
97

 
(6
)
 
24

 
(5
)
 
(10,672
)
 
(12,232
)
 
(21,529
)
 
(24,841
)
Loss before income taxes and income of consolidated subsidiaries
(18,668
)
 
(18,217
)
 
(37,084
)
 
(37,489
)
Equity in income of subsidiaries
(7,787
)
 
(17,045
)
 
(7,287
)
 
(14,214
)
Loss before income taxes
(26,455
)
 
(35,262
)
 
(44,371
)
 
(51,703
)
Income tax expense (benefit)
(280
)
 
2,589

 
(48,282
)
 
26

Net income (loss)
(26,175
)
 
(37,851
)
 
3,911

 
(51,729
)
Less net loss attributable to noncontrolling interest
(808
)
 
(1,246
)
 
(1,306
)
 
(3,392
)
Net income (loss) attributable to the Parent company
$
(25,367
)
 
$
(36,605
)
 
$
5,217

 
$
(48,337
)


39

WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(Parent Company Information — See Notes to Condensed Financial Statements)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Net income (loss)
$
(26,175
)
 
$
(37,851
)
 
3,911

 
$
(51,729
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
Pension and other postretirement plans:
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
1,772

 
1,157

 
2,590

 
2,267

Adjustments to accumulated actuarial losses and transition obligations, pension
(199
)
 
(488
)
 
(27
)
 
(285
)
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
323

 
327

 
523

 
654

Adjustments of accumulated actuarial losses and transition obligations, postretirement medical benefit
1,672

 
—

 
984

 
—

Tax effect of other comprehensive income gains and losses
(1,314
)
 
225

 
(1,371
)
 
(350
)
Change in foreign currency translation adjustment
(617
)
 
4,924

 
18,622

 
(22,216
)
Unrealized and realized gains and losses on available-for-sale securities
1

 
(1,785
)
 
(280
)
 
(1,460
)
Other comprehensive income (loss), net of income taxes
1,638

 
4,360

 
21,041

 
(21,390
)
Comprehensive income (loss)
(24,537
)
 
(33,491
)
 
24,952

 
(73,119
)
Less: Comprehensive loss attributable to noncontrolling interest
(792
)
 
(1,246
)
 
(1,292
)
 
(3,392
)
Comprehensive income (loss) attributable to parent company
$
(23,745
)
 
$
(32,245
)
 
$
26,244

 
$
(69,727
)

40

WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED STATEMENTS OF CASH FLOWS
(Parent Company Information — See Notes to Condensed Financial Statements)
 
Six Months Ended June 30,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
3,911

 
$
(51,729
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
176

 
85

Share-based compensation
2,396

 
1,640

Amortization of deferred financing costs
2,362

 
2,520

Loss (gain) on foreign exchange
(12
)
 
5

Equity in income of subsidiaries
7,287

 
14,214

Deferred income tax expense (benefit)
(47,547
)
 
817

Distributions received from subsidiaries
4,973

 
909

Other
(1,398
)
 
(350
)
Changes in operating assets and liabilities:
 
 
 
Receivables
1,559

 
797

Accounts payable and accrued expenses
1,507

 
5,732

Other assets and liabilities
1,607

 
(6,495
)
Net cash provided by (used in) operating activities
(23,179
)
 
(31,855
)
Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(95
)
 
(9
)
Change in restricted investments
(3,038
)
 
(122
)
Cash payments in escrow for future acquisitions
—

 
17,000

Proceeds from the sale of investments
2,830

 
—

Net cash provided by (used in) investing activities
(303
)
 
16,869

Cash flows from financing activities:
 
 
 
Borrowings from long-term debt, net of debt discount
—

 
75,000

Repayments of long-term debt
(1,644
)
 
(2,125
)
Borrowings on revolving lines of credit
146,400

 
25,175

Repayments on revolving lines of credit
(146,400
)
 
(32,251
)
Debt issuance costs and other refinancing costs
(93
)
 
(6,109
)
Transactions with Parent/affiliates
18,363

 
(45,366
)
Other
—

 
678

Net cash provided by financing activities
16,626


15,002

Net increase (decrease) in cash and cash equivalents
(6,856
)
 
16

Cash and cash equivalents, beginning of period
14,245

 
697

Cash and cash equivalents, end of period
$
7,389

 
$
713


41
WESTMORELAND COAL COMPANY
SCHEDULE I — NOTES TO CONDENSED FINANCIAL STATEMENTS
(Parent Company Information)



1.
LINES OF CREDIT AND LONG-TERM DEBT
The amounts outstanding under the Parent Company’s long-term debt consisted of the following as of the dates indicated: 
 
Total Debt Outstanding
 
June 30, 2016
 
December 31, 2015
 
(In thousands)
8.75% Notes due 2022
$
350,000

 
$
350,000

WCC Term Loan Facility due 2020
325,527

 
327,172

Revolving Credit Facility
—

 
—

Other
4,500

 
4,500

Total debt
680,027

 
681,672

Less debt discount and debt issuance costs
(26,456
)
 
(28,618
)
Less current installments
(3,288
)
 
(3,288
)
Total debt outstanding, less current installments
$
650,283

 
$
649,766

The following table presents aggregate contractual debt maturities of all long-term debt for the Parent Company: 
 
June 30,
2016
 
(In thousands)
2016
$
1,644

2017
3,288

2018
7,788

2019
3,288

2020
314,019

Thereafter
350,000

Total
$
680,027


The Company amended the terms of its revolving credit facility on June 29, 2016. The revolver’s fixed charge coverage ratio (bank adjusted EBITDA to fixed charges for the prior four fiscal quarters) changed to 1.10 from 1.15 for the consolidated U.S. and Canadian calculation commencing with the fiscal quarter ending June 30, 2016. Under the Company’s Revolving Credit Facility the Company has a total aggregate borrowing capacity of $60.0 million between June 15th and August 31st of each year, with an aggregate borrowing capacity of $50.0 million outside of these periods. The availability of the Revolving Credit Facility consists of a $30.0 million sub-facility ($35.0 million with the seasonal increase) available to our U.S. borrowers and a $20.0 million sub-facility ($25.0 million with the seasonal increase) available to our Canadian borrowers. The facility may support an equal amount of letters of credit, with outstanding letter of credit balances reducing availability under the facility. At June 30, 2016, availability on the Revolving Credit Facility was $43.3 million with an outstanding balance of $13.7 million supporting letters of credit and $3.0 million drawn on the Revolving Credit Facility.  The Revolving Credit Facility has a maturity date of December 31, 2018. We were in compliance with all covenant requirements of the Revolving Credit Facility as of June 30, 2016.
Due to the adoption of ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, debt issuance costs related to the Company’s debt liabilities are now reported in the balance sheet as a direct deduction from the face amount of the notes. The adoption of this standard resulted in the reclassification of $17.5 million of unamortized debt issuance costs from the non-current asset, Other assets, to a reduction of Long-term debt, less current portion on the consolidated balance sheet as of December 31, 2015.


42

EXHIBIT INDEX
 
 
Incorporated by Reference
 
Exhibit
Number
Exhibit Description
Form
File
Number
Exhibit
Filing
Date
Filed
Herewith
 
 
 
 
 
 
 
3.1
Amendment Number One to the Amended and Restated Bylaws of Westmoreland Coal Company dated May 17, 2016
8-K
001-11155
3.1
5/18/2016
 
10.1
Fifth Amendment to Second Amended and Restated Loan and Security Agreement dated May 3, 2016
8-K
001-11155
10.1
5/9/2016
 
10.2
Form of Westmoreland Coal Company Time Vested Cash Unit Agreement 2016
 
 
 
 
X
10.3
Form of Westmoreland Coal Company Performance Vested Restricted Stock Unit Agreement 2016
 
 
 
 
X
10.4
Form of Westmoreland Coal Company Time Vested Restricted Stock Unit Agreement 2016
 
 
 
 
X
10.5
Form of Westmoreland Coal Company Director Time Vested Restricted Stock Unit Agreement 2016
 
 
 
 
X
10.6
Westmoreland Coal Company 2014 Equity Incentive Plan
S-8
333-211446
10.1
5/18/2016
 
10.7
First Amendment to the Westmoreland Coal Company 2014 Equity Incentive Plan
S-8
333-211446
10.2
5/18/2016
 
10.8
Sixth Amendment to Second Amended and Restated Loan and Security Agreement dated June 29, 2016
8-K
001-11155
10.1
6/29/2016
 
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
95.1
Mine Safety Disclosure
 
 
 
 
X
101.INS
XBRL Instance Document
 
 
 
 
X
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
 
 
X
101.CAL
XBRL Taxonomy Calculation Linkbase Document
 
 
 
 
X
101.LAB
XBRL Taxonomy Label Linkbase Document
 
 
 
 
X
101.PRE
XBRL Taxonomy Presentation Linkbase Document
 
 
 
 
X
101.DEF
XBRL Taxonomy Definition Document
 
 
 
 
X

Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL-related document is "unaudited" or "unreviewed."

43

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