WESTMORELAND COAL Co - FORM 10-Q - October 31, 2017

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EX-10.2 - EXHIBIT 10.2 - WESTMORELAND COAL Coexh10-2_assignmentandassum.htm
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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 September 30, 2017
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
  ___________________________________________
wlblogonamea03.jpg
(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 300 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 October 27, 2017: 18,744,151 shares of common stock, $0.01 par value.


TABLE OF CONTENTS
 


2

PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Assets
September 30, 2017
 
December 31, 2016
Current assets:
(In thousands)
Cash and cash equivalents
$
44,143

 
$
60,082

Receivables:
 
 
 
Trade
146,412

 
140,731

Loan and lease receivables
—

 
5,867

Other
12,522

 
13,261

Total receivables
158,934

 
159,859

Inventories
110,176

 
125,515

Other current assets
29,788

 
32,258

Total current assets
343,041

 
377,714

Land, mineral rights, property, plant and equipment
1,670,632

 
1,617,938

Less accumulated depreciation, depletion and amortization
904,246

 
782,417

Net land, mineral rights, property, plant and equipment
766,386

 
835,521

Loan and lease receivables, less current portion
—

 
44,474

Advanced coal royalties
18,665

 
18,722

Restricted investments and bond collateral
224,349

 
219,275

Investment in joint venture
28,244

 
26,951

Other assets
53,827

 
62,252

Total Assets
$
1,434,512

 
$
1,584,909

Liabilities and Shareholders’ Deficit
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
49,712

 
$
86,272

Accounts payable and accrued expenses:
 
 
 
Trade and other accrued liabilities
113,970

 
142,233

Interest payable
15,205

 
22,458

Production taxes
48,936

 
44,995

Postretirement medical benefits
14,892

 
14,892

Deferred revenue
16,248

 
15,253

Asset retirement obligations
44,841

 
32,207

Other current liabilities
26,354

 
20,964

Total current liabilities
330,158

 
379,274

Long-term debt, less current installments
1,021,436

 
1,022,794

Postretirement medical benefits, less current portion
310,183

 
308,709

Pension and SERP obligations, less current portion
42,624

 
43,982

Deferred revenue, less current portion
7,791

 
16,251

Asset retirement obligations, less current portion
451,862

 
451,834

Other liabilities
44,605

 
52,182

Total liabilities
2,208,659

 
2,275,026

Shareholders’ deficit:
 
 
 
Common stock of $.01 par value: Authorized 30,000,000 shares; Issued and outstanding 18,742,143 at September 30, 2017 and 18,570,642 at December 31, 2016
187

 
186

Other paid-in capital
250,729

 
248,143

Accumulated other comprehensive loss
(157,799
)
 
(179,072
)
Accumulated deficit
(864,012
)
 
(757,367
)
Total shareholders’ deficit
(770,895
)
 
(688,110
)
Noncontrolling interests in consolidated subsidiaries
(3,252
)
 
(2,007
)
Total deficit
(774,147
)
 
(690,117
)
Total Liabilities and Shareholders’ Deficit
$
1,434,512

 
$
1,584,909

See accompanying Notes to Consolidated Financial Statements (Unaudited).

3

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except per share data)
Revenues
$
358,011

 
$
371,772

 
$
1,020,772

 
$
1,085,223

Cost, expenses and other:
 
 
 
 
 
 
 
Cost of sales
280,012

 
285,428

 
836,525

 
864,735

Depreciation, depletion and amortization
38,066

 
40,860

 
114,131

 
113,097

Selling and administrative
28,115

 
25,655

 
88,706

 
80,667

Heritage health benefit expenses
3,349

 
3,265

 
9,953

 
9,502

Loss (gain) on sale/disposal of assets
236

 
548

 
202

 
(1,369
)
Derivative (gain) loss
(4,667
)
 
5,442

 
(6,571
)
 
2,164

Income from equity affiliates
(1,355
)
 
(1,547
)
 
(4,274
)
 
(4,127
)
Other operating loss
—

 
3,368

 
—

 
5,065

 
343,756

 
363,019

 
1,038,672

 
1,069,734

Operating income (loss)
14,255

 
8,753

 
(17,900
)
 
15,489

Other (expense) income:
 
 
 
 
 
 
 
Interest expense
(30,017
)
 
(30,882
)
 
(89,388
)
 
(90,669
)
Interest income
1,012

 
1,374

 
2,942

 
5,521

(Loss) gain on foreign exchange
(1,739
)
 
220

 
(3,391
)
 
(1,531
)
Other (loss) income
(3,251
)
 
303

 
(793
)
 
435

 
(33,995
)
 
(28,985
)
 
(90,630
)
 
(86,244
)
Loss before income taxes
(19,740
)
 
(20,232
)
 
(108,530
)
 
(70,755
)
Income tax benefit
(440
)
 
(1,625
)
 
(1,406
)
 
(49,660
)
Net loss
(19,300
)
 
(18,607
)
 
(107,124
)

(21,095
)
Less net loss attributable to noncontrolling interest
(78
)
 
(239
)
 
(715
)
 
(1,545
)
Net loss applicable to common shareholders
$
(19,222
)
 
$
(18,368
)
 
$
(106,409
)
 
$
(19,550
)
 
 
 
 
 
 
 
 
Net loss per share applicable to common shareholders:
 
 
 
 
 
 
 
Basic and diluted
$
(1.03
)
 
$
(0.99
)
 
$
(5.70
)
 
$
(1.06
)
Weighted average number of common shares outstanding:
 
 

 
 
 
 
Basic and diluted
18,742

 
18,570

 
18,672

 
18,458

See accompanying Notes to Consolidated Financial Statements (Unaudited).

4

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Net loss
$
(19,300
)
 
$
(18,607
)
 
$
(107,124
)
 
$
(21,095
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
Pension and other postretirement plans:
 
 
 
 
 
 
 
Amortization of accumulated actuarial losses, pension
588

 
1,294

 
1,765

 
3,639

Adjustments to accumulated actuarial gains (losses) and transition obligations, pension
(112
)
 
813

 
189

 
786

Amortization of accumulated actuarial losses, transition obligations, and prior service costs, postretirement medical benefit
964

 
368

 
2,893

 
891

Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefit
—

 
—

 
—

 
984

Tax effect of other comprehensive income losses
(684
)
 
(1,039
)
 
(2,503
)
 
(2,410
)
Change in foreign currency translation adjustment
9,426

 
(2,432
)
 
17,455

 
16,128

Unrealized and realized gains and losses on available-for-sale securities
278

 
535

 
1,474

 
255

Other comprehensive income (loss), net of income taxes
10,460

 
(461
)
 
21,273

 
20,273

Comprehensive loss
(8,840
)
 
(19,068
)
 
(85,851
)
 
(822
)
Less: Comprehensive loss attributable to noncontrolling interest
(78
)
 
(240
)
 
(715
)
 
(1,532
)
Comprehensive (loss) income attributable to common shareholders
$
(8,762
)
 
$
(18,828
)
 
$
(85,136
)
 
$
710

See accompanying Notes to Consolidated Financial Statements (Unaudited).

5

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(107,124
)
 
$
(21,095
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation, depletion and amortization
114,131

 
113,097

Accretion of asset retirement obligation
33,796

 
30,229

Share-based compensation
3,846

 
5,925

Non-cash interest expense
6,981

 
6,879

Amortization of deferred financing costs
8,183

 
8,324

(Gain) loss on derivative instruments
(6,571
)
 
2,164

Loss on foreign exchange
3,391

 
1,531

Income from equity affiliates
(4,274
)
 
(4,127
)
Distributions from equity affiliates
4,970

 
5,177

Deferred income tax benefit
(1,374
)
 
(48,490
)
Other
3,341

 
(9,217
)
Changes in operating assets and liabilities:
 
 
 
Receivables
(1,223
)
 
9,770

Inventories
19,713

 
8,238

Accounts payable and accrued expenses
(26,965
)
 
1,679

Interest payable
(7,165
)
 
(6,731
)
Deferred revenue
(7,475
)
 
4,314

Other assets and liabilities
17,977

 
23,396

Asset retirement obligations
(33,004
)
 
(45,960
)
Net cash provided by operating activities
21,154

 
85,103

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(25,365
)
 
(30,619
)
Proceeds from sales of restricted investments
33,686

 
31,903

Purchases of and change in restricted investments
(37,945
)
 
(31,633
)
Cash payments related to acquisitions
(3,580
)
 
(125,315
)
Proceeds from sales of assets
774

 
6,176

Receipts from loan and lease receivables
50,488

 
4,852

Payments related to loan and lease receivables
—

 
(2,141
)
Other
(1,384
)
 
(587
)
Net cash provided by (used in) investing activities
16,674

 
(147,364
)
Cash flows from financing activities:
 
 
 
Borrowings from long-term debt, net of debt discount
—

 
122,250

Repayments of long-term debt
(64,078
)
 
(43,876
)
Borrowings on revolving lines of credit
236,100

 
313,900

Repayments on revolving lines of credit
(225,560
)
 
(315,900
)
Debt issuance costs and other refinancing costs
—

 
(7,246
)
Other
(550
)
 
(798
)
Net cash (used in) provided by financing activities
(54,088
)
 
68,330

Effect of exchange rate changes on cash
321

 
(91
)
Net (decrease) increase in cash and cash equivalents
(15,939
)
 
5,978

Cash and cash equivalents, beginning of period
60,082

 
22,936

Cash and cash equivalents, end of period
$
44,143

 
$
28,914

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
81,478

 
$
79,099

Non-cash transactions:
 
 
 
Accrued purchases of property and equipment
$
3,508

 
$
4,166

Capital leases and other financing sources
503

 
19,830


See accompanying Notes to Consolidated Financial Statements (Unaudited).

6

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 (the “Company” or "WCC"), 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 (“Quarterly Report”) 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 nine months ended September 30, 2017 are not necessarily indicative of results to be expected for the year ending December 31, 2017.
These unaudited quarterly consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”). There were no changes to our significant accounting policies from those disclosed in the audited consolidated financial statements and notes to the consolidated financial statements thereto contained in our 2016 Form 10-K, except as described below.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) which requires companies leasing assets to recognize on their balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on contracts longer than one year. The lessee is permitted to make an accounting policy election to not recognize lease assets and lease liabilities for short-term leases. How leases are recorded on the balance sheet represents a significant change from previous GAAP guidance as described in Accounting Standards Codification (“ASC”) Topic 840, Leases. ASU 2016-02 maintains a distinction between finance leases and operating leases similar to the distinction under previous lease guidance for capital leases and operating leases. The impact of leases reported in the Company’s operating results and statement of cash flows are expected to be similar to previous GAAP.
ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted. Adoption of the new lease accounting standard will require the Company to apply the new standard to the earliest period using a modified retrospective approach. The Company is currently in the process of evaluating the impact of the new standard, including the evaluation of the impact, if any, on changes to business processes, systems and controls to support recognition and disclosure under the new guidance, however, at this time is unable to determine the impact this standard will have on the financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This standard is effective for interim and annual periods beginning after December 15, 2017. We anticipate adopting this ASU on January 1, 2018 will have an immaterial impact to the financial statements including reclassification of accumulated other comprehensive income for available-for-sale securities into equity at January 1, 2018, and future changes to the fair value of available-for-sale securities will be recognized in the income statement.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers which was issued as a new Topic, ASC Topic 606. The new revenue recognition standard supersedes all existing revenue recognition guidance. Under this ASU, an entity should recognize revenue when it transfers 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 the first quarter of 2018, with early adoption permitted in the first quarter of 2017. The Company intends to adopt the amended guidance as of January 1, 2018.
In March, April, May, and December 2016, the FASB issued the following updates, respectively, to provide supplemental adoption guidance and clarification to ASU 2014-09. These standards must be adopted concurrently upon the adoption of ASU 2014-09. We are currently evaluating the potential effects of adopting the provisions of these updates.
•
ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net).

7
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

•
ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.
•
ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients.
•
ASU 2016-19, Technical Corrections and Improvements.
We have established an implementation team to execute a multi-phase plan to adopt the requirements of the new standard. The team is in the process of finalizing its conclusions on how the guidance will be applied to all coal sales contracts comprising greater than half of our consolidated revenues. The team is also evaluating the expanded disclosures required by the new standard and reviewing our processes and internal controls over financial reporting to ensure the appropriate information will be available for these disclosures. No changes will be required to our system capabilities to obtain the appropriate information.
Under the new standard, companies may use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We will be adopting the standard under the full retrospective approach.
Based on our implementation team’s analyses, we believe the implementation of the new standard will have a material impact on our consolidated financial statements for sales contracts in which we are entitled to payments from customers to reimburse our costs incurred during final reclamation. Under current GAAP, as these amounts are not fixed and determinable until they are incurred, we have been precluded from recognizing revenue until the costs have been incurred during final reclamation. However, under ASC Topic 606, these payments from customers constitute variable consideration and therefore must be estimated at contract inception and recognized as revenue as we satisfy our performance obligations of delivering coal to the customer. This will ultimately result in a significant acceleration of revenue, most of which will be recognized as a transition adjustment as of January 1, 2016. The implementation team is currently reviewing the models to quantify the exact amount of the transition adjustment and related impact to revenues for the years ended December 31, 2017 and 2016.
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 (“SJTC” and such transaction, the “San Juan Acquisition”) for a total cash purchase price of $121.0 million. 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 principally with a $125.0 million loan from NM Capital Utility Corporation (the “San Juan Loan”), an affiliate of Public Service Company of New Mexico (one of the owners of SJGS).
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. Purchase price accounting was considered final as of December 31, 2016. The allocation of the purchase consideration follows (in millions):

8
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.)

Purchase price:
 
Cash paid
$
121.0

 
 
Allocation of purchase price:
 
Assets:
 
     Inventories
$
8.8

Total current assets
8.8

     Land and mineral rights
143.9

     Plant and equipment
74.6

Other assets
1.3

Total assets
228.6

Liabilities:
 
     Trade payables and other accrued liabilities
13.4

Production taxes
2.0

Asset retirement obligations
0.7

Total current liabilities
16.1

     Asset retirement obligations, less current portion
43.5

Postretirement medical benefits
1.9

Deferred income taxes
46.1

Total liabilities
107.6

Net fair value
$
121.0

Unaudited Pro Forma Information
The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the San Juan Acquisition occurred on January 1, 2016. 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.
 
Nine Months Ended September 30, 2016
 
(In thousands, except per share data)
Revenues
 
As reported
$
1,085,223

Pro forma (unaudited)
1,111,498

 
 
Operating income
 
As reported
$
15,489

Pro forma (unaudited)
16,584

 
 
Net loss applicable to common shareholders
 
As reported
$
(19,550
)
Pro forma (unaudited)
(19,125
)
 
 
Net loss per share applicable to common shareholders (basic and diluted)
 
As reported
$
(1.06
)
Pro forma (unaudited)
(1.04
)


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

3. VARIABLE INTEREST ENTITY

The Company consolidates its 100% owned WSJ subsidiary which qualifies as a variable interest entity (“VIE”) under GAAP. WSJ’s classification as a VIE is due to a third party lender having the potential right to receive WSJ’s 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. Accordingly, the Company consolidated the operating results, assets and liabilities of WSJ. See Note 2 - Acquisition to the consolidated financial statements (unaudited) for details surrounding the VIE’s acquisition and Note 6 - Debt And Lines Of Credit to the consolidated financial statements (unaudited) for the VIE’s debt structure. The following table presents the carrying amounts, after eliminating the effect of intercompany transactions, included in the Consolidated Balance Sheets that are for the use of or are the obligation of WSJ:
 
September 30, 2017
 
December 31, 2016
 
(In thousands)
Assets
$
215,230

 
$
268,910

Liabilities
180,559

 
243,884

Net carrying amount
$
34,671

 
$
25,026


4. INVENTORIES
Inventories consisted of the following:
 
September 30, 2017
 
December 31, 2016
 
(In thousands)
Coal stockpiles
$
36,013

 
$
44,692

Coal fuel inventories
1,338

 
6,816

Materials and supplies
76,669

 
77,628

Reserve for obsolete inventory
(3,844
)
 
(3,621
)
Total
$
110,176

 
$
125,515


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 corresponding investment returns. 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.
The Company’s carrying value and estimated fair value of its restricted investments at September 30, 2017 were as follows:
 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cash and cash equivalents
$
65,441

 
$
3,443

 
$
68,884

Time deposits
2,467

 
—

 
2,467

Available-for-sale
79,505

 
73,493

 
152,998

 
$
147,413

 
$
76,936

 
$
224,349


10
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 December 31, 2016 were as follows:
 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cash and cash equivalents
$
66,860

 
$
2,673

 
$
69,533

Time deposits
2,473

 
—

 
2,473

Available-for-sale
75,580

 
71,689

 
147,269

 
$
144,913

 
$
74,362

 
$
219,275

Available-for-Sale Restricted Investments
The cost basis, gross unrealized holding gains and losses, and fair value of available-for-sale securities at September 30, 2017 were as follows:
 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cost basis
$
79,724

 
$
73,470

 
$
153,194

Gross unrealized holding gains
520

 
624

 
1,144

Gross unrealized holding losses
(739
)
 
(601
)
 
(1,340
)
Fair value
$
79,505

 
$
73,493

 
$
152,998

The cost basis, gross unrealized holding gains and losses, and fair value of available-for-sale securities at December 31, 2016 were as follows:
 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cost basis
$
76,558

 
$
72,381

 
$
148,939

Gross unrealized holding gains
251

 
453

 
704

Gross unrealized holding losses
(1,229
)
 
(1,145
)
 
(2,374
)
Fair value
$
75,580

 
$
71,689

 
$
147,269



11
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
 
September 30, 2017
 
December 31, 2016
 
(In thousands)
8.75% Notes
$
350,000

 
$
350,000

Term Loan
321,417

 
323,883

San Juan Loan
66,230

 
95,000

WMLP Term Loan
311,628

 
306,189

Revolver
10,540

 
—

WMLP Revolver
—

 
—

Capital lease obligations
36,736

 
55,061

Other debt
4,512

 
16,464

Total debt
1,101,063


1,146,597

Less debt discount and issuance costs, net
(29,915
)
 
(37,531
)
Less current installments
(49,712
)
 
(86,272
)
Long-term debt, less current installments
$
1,021,436

 
$
1,022,794


The following table presents remaining aggregate contractual debt maturities of all long-term debt as of September 30, 2017 (in thousands): 
 
Debt Held by WMLP
 
All Other Debt
 
Total Debt Outstanding
2017
$
1,660

 
$
30,572

 
$
32,232

2018
315,804

 
18,852

 
334,656

2019
4,105

 
15,439

 
19,544

2020
1,694

 
338,571

 
340,265

2021
1,586

 
21,164

 
22,750

Thereafter
1,616

 
350,000

 
351,616

Total debt
$
326,465

 
$
774,598

 
$
1,101,063


Covenant Compliance

Our lending arrangements contain, among other terms, events of default and various affirmative and negative covenants, financial covenants and cross-default provisions. Certain affirmative covenants in our WMLP Term Loan provide that an explanatory paragraph expressing substantial doubt about WMLP's ability to continue as a going concern constitutes an event of default. We are in compliance with our covenants for the quarter ending September 30, 2017. Our continuing ability to meet our obligations and comply with our covenants depends on our ability to generate adequate cash flows and refinance debt obligations as they become due. Should we be unable to comply with any future debt-related covenant, we will be required to seek a waiver of such covenant to avoid an event of default. Covenant waivers and modifications may be expensive to obtain or potentially unavailable.
As of September 30, 2017, we are in compliance with the fixed charge ratio under our revolver agreements. Based on current projections, absent management plans, there is substantial doubt as to our ability to comply with this covenant during the next twelve months from this filing. If we were to breach this covenant and were unable to obtain a waiver from the lenders, we could lose access to the Revolver. An uncured breach of the covenants in our Revolver would trigger certain customary cross-default provisions in our $350.0 million 8.75% Notes and our $321.4 million Term Loan which would become immediately due. Our belief, based on historical patterns, is that it is probable we would be able to alleviate or cure any such Revolver covenant default with an amendment or waiver. 


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

8.75% Notes

Pursuant to our senior note indenture, dated as of December 16, 2014, by and among the Company, the guarantors named therein, and U.S. Bank National Association, as trustee and notes collateral agent (the “Indenture”), our 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 (“8.75% Notes”). The 8.75% Notes are a primary obligation of the Company 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, WSJ or any of its subsidiaries, or Westmoreland Resources GP, LLC or WMLP, referred to as the “Non-guarantors.”

Term Loan

Pursuant to our credit agreement, dated as of December 22, 2014, by and among the Company, the lenders from time to time party thereto, and Bank of Montreal, as administrative agent, as amended, our term loan (“Term Loan”) matures on December 16, 2020 and accrues interest on a quarterly basis at a variable interest rate which is set at our election at (i) the 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 three-month LIBOR plus 1.00%) plus 5.50%. As of September 30, 2017, the interest rate was 7.80%. The Term Loan is a primary obligation of WCC and is guaranteed by the Guarantors.

San Juan Loan

Pursuant to the loan agreement, dated as of February 1, 2016, by and among WSJ and the remaining Westmoreland San Juan Entities as guarantors, and NM Capital Utility Corporation (an affiliate of Public Service Company of New Mexico, part owner of SJGS) as lender, we financed the San Juan Acquisition in part with a senior secured $125.0 million term loan (“San Juan Loan”). The San Juan Loan matures on 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 increasing incrementally during each year of the San Juan Loan term. As of September 30, 2017, the cash interest rate is 10.57%. It is a primary obligation of WSJ, 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 the Company of each of (i) WSJ, (ii) WSJ’s direct parent company, Westmoreland San Juan Holdings, Inc., (iii) SJCC and (iv) SJTC (collectively, the “Westmoreland San Juan Entities”). Obligations under the San Juan Loan are recourse only to the Westmoreland San Juan Entities and their assets. Neither the Company 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 the Company other than those of the Westmoreland San Juan Entities.

WMLP Term Loan

Pursuant to the financing agreement, dated as of December 31, 2014, by and among Oxford Mining Company, LLC, WMLP and each of its subsidiaries, lenders from time to time party thereto, and U.S. Bank National Association, as administrative agent, the term loan of WMLP (“WMLP Term Loan”) matures on December 31, 2018 and pays interest on a quarterly basis at a variable rate equal to the 3-month LIBOR rate at each period end (1.30% at September 30, 2017), subject to a floor of 0.75%, plus 8.50% or the reference rate, as defined in the financing agreement. As of September 30, 2017, the cash interest rate was 9.80%. The WMLP Term Loan 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.

The WMLP Term Loan also provides for Paid-In-Kind Interest (“PIK Interest”) at a variable rate between 1.00% and 3.00% based on its consolidated total net leverage ratio as defined in the financing agreement. The rate of PIK Interest is determined on a quarterly basis with the PIK Interest added quarterly to the then-outstanding principal amount of the WMLP Term Loan under the financing agreement. PIK Interest under the financing agreement was $2.3 million and $7.0 million for

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

the three and nine months ended September 30, 2017, respectively. The outstanding WMLP Term Loan amount represents the principal balance of $288.6 million, plus PIK Interest of $23.1 million.

The WMLP Term Loan limits cash distributions to an aggregate amount not to exceed $15.0 million (“Restricted Distributions”), if WMLP has: (i) a consolidated total net leverage ratio of greater than 3.75, or fixed charge coverage ratio of less than 1.00 (as such ratios are defined in the WMLP Term Loan financing agreement), or (ii) liquidity of less than $7.5 million, after giving effect to such cash distribution and applying WMLP's availability under the WMLP Revolver. As of September 30, 2017, WMLP’s consolidated total net leverage ratio is in excess of 3.75.

As of September 30, 2017, WMLP has distributed $14.8 million in cash that counts toward the $15.0 million in aggregate Restricted Distribution payments. On October 27, 2017, WMLP announced a quarterly cash distribution for the quarter ended September 30, 2017, of $0.1155 per limited partner common unit, general partner unit and warrant with distribution rights and a distribution of Series A PIK Units in lieu of a cash distribution for holders of Series A Convertible Units (“Third Quarter Distribution”), which is a per-unit reduction of $0.0178 from the prior quarter distribution of $0.1333 per limited partner common unit, general partner unit, warrant with distribution rights, as well as Series A PIK Unit distribution. The Third Quarter Distribution, totaling cash of approximately $0.2 million, will be paid on November 14, 2017 to all holders of record as of November 7, 2017. Subsequent to payment of this Third Quarter Distribution, WMLP will have utilized the full $15.0 million limit on Restricted Distributions, and WMLP will be restricted from making any further distributions under the terms of the WMLP Term Loan financing agreement.
Revolver
Pursuant to the second amended and restated loan and security agreement, dated as of December 16, 2014, by and among the Company and certain of its subsidiaries, lenders party thereto, and Canadian Imperial Bank of Commerce (formerly known as The PrivateBank and Trust Company), as administrative agent (the “Revolver”), the Company’s Revolver 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 subject to borrowing base calculations as defined in the agreement. The availability of the Revolver 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 Revolver may support an equal amount of letters of credit, with outstanding letter of credit balances reducing availability under the Revolver. At September 30, 2017, availability on the Revolver was $16.7 million which reflects $9.9 million in outstanding letters of credit and $12.8 million in borrowing base restrictions. We had $10.5 million borrowings on the Revolver. The Revolver has a maturity date of December 31, 2018.
On May 9, 2017, the Company executed a tenth amendment to our Revolver (“Tenth Amendment”). The Tenth Amendment adjusted the fixed charge coverage ratio calculation by further modifying the treatment of the accelerated repayment of the loan and lease receivable arrangement at our Genesee mine from March 24, 2017, and removing certain testing periods from the U.S. and Canadian fixed charge coverage ratio calculation so long as the Company meets certain liquidity requirements.

WMLP Revolver

Pursuant to the loan and security agreement, dated as of October 23, 2015, by and among WMLP and its subsidiaries, lenders party thereto, and Canadian Imperial Bank of Commerce (formerly known as The PrivateBank and Trust Company), as administrative agent (the “WMLP Revolver”), the WMLP Revolver permits WMLP to borrow up to the aggregate principal amount of $15.0 million subject to borrowing base restrictions as defined in the agreement. The WMLP Revolver also allows letters of credit in an aggregate outstanding amount of up to $10.0 million, which reduces availability under the WMLP Revolver on a dollar-for-dollar basis. At September 30, 2017, availability under the WMLP Revolver was $14.8 million. The WMLP Revolver has a maturity date of December 31, 2017.
Capital lease obligations

The Company engages in leasing transactions for equipment utilized in its mining operations. During the nine months ended September 30, 2017, the Company entered into $0.7 million of new capital leases.


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 September 30,
 
Nine Months Ended September 30,
2017
 
2016
 
2017
 
2016
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
793

 
$
763

 
$
2,380

 
$
2,507

Interest cost
3,197

 
3,075

 
9,590

 
9,278

Amortization of deferred items
964

 
368

 
2,893

 
891

Total net periodic benefit cost
$
4,954

 
$
4,206

 
$
14,863

 
$
12,676

The following table shows the net periodic postretirement medical benefit costs that relate to current and former mining operations: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Former mining operations
$
2,305

 
$
2,135

 
$
6,916

 
$
6,405

Current operations
2,649

 
2,071

 
7,947

 
6,271

Total net periodic benefit cost
$
4,954

 
$
4,206

 
$
14,863

 
$
12,676

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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
348

 
$
373

 
$
1,133

 
$
1,242

Interest cost
2,596

 
2,564

 
7,855

 
7,926

Expected return on plan assets
(3,643
)
 
(3,349
)
 
(10,918
)
 
(10,390
)
Settlements
—

 
247

 
269

 
247

Amortization of deferred items
588

 
1,294

 
1,765

 
3,639

Total net periodic pension cost
$
(111
)
 
$
1,129

 
$
104

 
$
2,664


These costs are included in Cost of sales and Selling and administrative expenses. The Company made $1.1 million and $0.6 million of contributions to its pension plans in the nine months ended September 30, 2017 and 2016, respectively. The Company expects to make $0.1 million of contributions to its pension plans during the remainder of 2017.

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

8. DERIVATIVE INSTRUMENTS
Derivative Assets and Liabilities
The Company evaluates all of its financial instruments to determine if such instruments are derivatives, derivatives that qualify for the normal purchase normal sale exception, or contain features that qualify as embedded derivatives. All derivative financial instruments, except for derivatives that qualify for the normal purchase normal sale exception, are recognized on the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting.
The 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 $44.67 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 Statements 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 below, please see Note 9 - Fair Value Measurements to the consolidated financial statements (unaudited).
During the fourth quarter of 2016, the Company entered into a Substitute Energy Purchase Agreement (the “SEP Agreement”) which amends our previous power purchase and operating agreement with our customer. The SEP Agreement, which covers the period from March 1, 2017 to March 31, 2019, enables us to fulfill our obligations under the contract without physically operating the facility. The SEP Agreement calls for fixed payments ranging from $21.33 to $24.32 (representing a weighted average price of $23.79 per megawatt hour) while optional power deliveries are $15.26 per megawatt hour. The SEP Agreement meets the definition of a derivative and it does not qualify for the normal purchases and normal sales scope exception. This contract is not designated as a hedging instrument, therefore, its fair value is recognized on the Consolidated Balance Sheets and changes in fair value recognized in the Consolidated Statements of Operations. As the underlying power deliveries option is significantly in the money, the fair value of this derivative is based on comparing expected contracted cash inflows per the SEP Agreement to expected future outflows based on projected market prices.
During the fourth quarter of 2017, the Company exited our derivative positions as described in Note 16 - Subsequent Events to the consolidated financial statements (unaudited).
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
 
September 30, 2017
 
December 31, 2016
Contracts to purchase power
 
Other current liabilities
 
$
18,097

 
$
13,382

Contracts to purchase power
 
Other liabilities
 
10,100

 
18,384

Contract to sell power
 
Other current assets
 
15,879

 
10,240

Contract to sell power
 
Other assets
 
6,829

 
9,528

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 September 30,
 
Nine Months Ended September 30,
Derivative Instruments
 
Statements of Operations Location
 
2017
 
2016
 
2017
 
2016
Contracts to purchase power
 
Derivative (gain) loss
 
$
(6,812
)
 
$
5,442

 
$
(3,570
)
 
$
2,164

Contract to sell power
 
Derivative (gain) loss
 
2,145

 
—

 
(3,001
)
 
—

 
 
 
 
$
(4,667
)
 
$
5,442

 
$
(6,571
)
 
$
2,164

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 to the consolidated financial statements (unaudited).

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

•
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 September 30, 2017:
 
 
 
Quoted Prices in Active Markets
for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Fair Value
 
Level 1
 
Level 2
(In thousands)
Assets:
 
 
 
 
 
Contract to sell power included in Other current assets and Other assets
$
22,708

 
$
—

 
$
22,708

Available-for-sale investments included in Restricted investments and bond collateral
79,505

 
79,505

 
—

Available-for-sale investments included in Reclamation deposits
73,493

 
73,493

 
—

 
$
175,706

 
$
152,998

 
$
22,708

Liabilities:
 
 
 
 
 
Contracts to purchase power included in Other current liabilities and Other liabilities
$
28,197

 
$
—

 
$
28,197

Warrants issued by WMLP included in Other liabilities
316

 
316

 
—

 
$
28,513

 
$
316

 
$
28,197

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 September 30, 2017, the Company valued the WMLP Term Loan 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)
September 30, 2017
$
380,583

 
$
277,497

 
$
690,565

 
$
482,551

December 31, 2016
409,362

 
395,274

 
699,704

 
658,557


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 nine months ended September 30, 2016, the effective tax rate differed from the statutory rate primarily as a result of the U.S. and Canadian valuation allowances and due to the recognition of changes in the Company's net deferred tax assets due to the San Juan Acquisition. For the nine months ended September 30, 2017 the effective tax rate differed from the statutory rate primarily due to the U.S. and Canadian valuation allowances.
In connection with the January 31, 2016 San Juan Acquisition during the nine months ended September 30, 2016, the Company recognized $47.6 million in deferred tax liabilities. 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 nine months ended September 30, 2016.

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

Tax Benefits Preservation Plan
As of December 31, 2016, WCC had a U.S. federal net operating loss carryforward of $581.4 million, together with certain other tax attributes. WCC's ability to utilize these tax assets to offset future taxable income may be significantly limited if WCC experiences an "ownership change", as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change will occur if the percentage of the stock owned cumulatively by one or more “5 % shareholders” has increased by more than 50 percentage points over the lowest percentage of stock owned by such shareholders at any time over a rolling three-year period.
On September 2, 2017, the board of directors of WCC adopted a tax benefits preservation plan or stockholder rights plan (the "Plan"). The purpose of the Plan is to minimize the likelihood of an ownership change occurring for Section 382 purposes and thus protect WCC's ability to utilize certain net operating loss carryovers and other tax benefits of the Company and its subsidiaries (the “Tax Benefits”) to offset future income. The Plan is intended to act as a deterrent to any person or group acquiring “beneficial ownership” (within the meaning of applicable SEC rules) of 4.75% or more of the outstanding shares of WCC's common stock, par value $0.01 per share without the approval of the board of directors. The description and terms of the Rights (as defined below) applicable to the Plan are set forth in the 382 Rights Agreement, dated as of September 5, 2017 (the “Rights Agreement”), by and between WCC and Broadridge Corporate Issuer Solutions, Inc., as Rights Agent.
As part of the Rights Agreement, the board of directors authorized and declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock to stockholders of record at the close of business on September 18, 2017. Each Right entitles the holder to purchase from WCC a unit consisting of one ten thousandth of a share (a “Unit”) of Series A Participating Preferred Stock, par value $0.01 per share, of WCC at a purchase price of $10.00 per Unit, subject to adjustment. Until a Right is exercised, the holder thereof, as such, will have no separate rights as a stockholder of WCC, including the right to vote or to receive dividends in respect of Rights. 

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, 2016
$
(26,123
)
 
$
(51,893
)
 
$
(1,674
)
 
$
(61,073
)
 
$
(38,309
)
 
$
(179,072
)
Other comprehensive income (loss) before reclassifications
189

 
—

 
1,184

 
17,455

 
(2,503
)
 
16,325

Amounts reclassified from accumulated other comprehensive income (loss)
1,765

 
2,893

 
290

 
—

 
—

 
4,948

Balance at September 30, 2017
$
(24,169
)
 
$
(49,000
)
 
$
(200
)
 
$
(43,618
)
 
$
(40,812
)
 
$
(157,799
)

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

The following table reflects the reclassifications out of accumulated other comprehensive loss for the three and nine months ended September 30, 2017 (in thousands):
Details about accumulated other comprehensive loss components
Amount reclassified from accumulated other comprehensive loss
 
Affected line items in the statements where presented
Three Months Ended September 30, 2017
 
Nine Months Ended September 30, 2017
 
Available-for-sale securities
 
 
 
 
 
Realized (gains) and losses on available-for-sale securities
$
(4
)
 
$
290

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

 
$
6

 
Cost of sales and Selling and administrative
Actuarial losses
581

 
1,759

 
Cost of sales and Selling and administrative
Total
$
583

 
$
1,765

 
 
Amortization of postretirement medical items
 
 
 
 
 
Prior service costs
$
(159
)
 
$
(477
)
 
Cost of sales and Selling and administrative
Actuarial losses
1,123

 
3,370

 
Cost of sales and Selling and administrative
Total
$
964

 
$
2,893

 
 

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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Recognition of value of restricted stock units and cash units over vesting period; and issuance of stock
$
1,366

 
$
1,391

 
$
3,846

 
$
3,733

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

 
—

 
—

 
2,192

Total share-based compensation expense
$
1,366

 
$
1,391

 
$
3,846

 
$
5,925


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

2017 Grant
During the nine months ended September 30, 2017, the Company granted the following stock-based awards under the Amended and Restated 2014 Equity Incentive Plan:
•
713,238 restricted stock units, of which 338,968 vest based on a service condition, 187,135 vest based on a service and market condition, and 187,135 vest based on a service and performance condition.
•
375,658 cash units (“the Cash Units”), which represent the right to cash equal to the closing price of WCC common stock as of the vesting date, of which 157,880 vest based on a service condition, 108,889 vest based on a service and market condition, and 108,889 vest based on a service and performance condition. 
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 September 30, 2017 is as follows:
 
Units
 
Weighted Average Grant-Date Fair Value
 
Unamortized Compensation Expense (In thousands)
Non-vested at December 31, 2016
700,500

 
$
15.91

 

Granted
713,238

 
3.94

 
 
Vested
(246,724
)
 
18.34

 
 
Forfeited
(44,870
)
 
8.31

 
 
Non-vested at September 30, 2017
1,122,144

 
$
8.80

 
$
4,568


Cash Units

The compensation expense related to the Cash Units was $0.3 million and $0.2 million for the nine months ended September 30, 2017 and 2016, respectively. Because the cash units are settled in cash they are accounted for as a liability award. The accrued liability related to the Cash Units was $0.1 million and $0.4 million as of September 30, 2017 and December 31, 2016, respectively.
Other Plans

In May 2016, the Company discontinued matching employees’ 401k contributions with common shares and elected instead to match with cash contributions. During 2016, the Company contributed 342,353 common shares to match employees’ contributions to their 401k plans. 342,353

13. EARNINGS PER SHARE
Basic earnings (loss) per share has been computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Net income (loss) applicable to common stockholders 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 and and restricted stock units. No such items were included in the computations of diluted loss per share in the three and nine months ended September 30, 2017 and in the three and nine months ended September 30, 2016 because the Company incurred a net loss applicable to common stockholders in these periods and the effect of inclusion would have been anti-dilutive.
The table below shows the number of shares that were excluded from the calculation of diluted loss per share because their inclusion would be anti-dilutive to the calculation:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Restricted stock units and stock options
1,201

 
853

 
1,201

 
853


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

14. SEGMENT INFORMATION
Segment information is based on a management approach which requires segmentation based upon the Company’s internal organization, reporting of revenues and operating income (loss). The Company’s operations are classified into six reporting segments: Coal - U.S., Coal - Canada, Coal - WMLP, Power, Heritage, and Corporate. For a detailed description of the Company’s operations segmentation please see our 2016 Form 10-K. Summarized financial information by segment is as follows:
 
Coal -
U.S.(1)
 
Coal - Canada
 
Coal - WMLP(1)
 
Power
 
Heritage
 
Corporate
 
Consolidated
 
(In thousands)
Three Months Ended September 30, 2017


 
 
 
 







Revenues
$
142,040

 
$
115,688

 
$
85,607

 
$
20,070

 
$
—

 
$
(5,394
)

$
358,011

Depreciation, depletion, and amortization
19,826

 
8,590

 
9,691

 
—

 
—

 
(41
)

38,066

Operating income (loss)
7,212

 
1,206

 
9,451

 
5,344

 
(3,599
)
 
(5,359
)

14,255

Total assets
547,053

 
444,058

 
367,348

 
58,788

 
16,726

 
539


1,434,512

Cash paid for capital expenditures
5,348

 
3,386

 
3,527

 
—

 
—

 
—


12,261

Three Months Ended September 30, 2016


 
 
 
 







Revenues
$
170,177


$
96,252

 
$
90,320

 
$
21,554


$
—


$
(6,531
)

$
371,772

Depreciation, depletion, and amortization
22,221


7,133

 
11,555

 
—


—


(49
)

40,860

Operating income (loss)
9,220


5,226

 
5,970

 
(4,696
)

(3,326
)

(3,641
)

8,753

Total assets
657,276


503,460

 
382,098

 
40,760


16,288


6,172


1,606,054

Cash paid for capital expenditures
4,824

 
11,313

 
2,251

 
—

 
—

 
—

 
18,388

Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
420,445

 
$
314,051

 
$
241,464

 
$
61,177

 
$
—

 
$
(16,365
)
 
$
1,020,772

Depreciation, depletion, and amortization
58,469

 
25,627

 
30,152

 
—

 
—

 
(117
)
 
114,131

Operating income (loss)
4,926

 
(17,632
)
 
18,321

 
4,208

 
(11,055
)
 
(16,668
)
 
(17,900
)
Total assets
547,053

 
444,058

 
367,348

 
58,788

 
16,726

 
539

 
1,434,512

Cash paid for capital expenditures
9,204

 
7,436

 
8,725

 
—

 
—

 
—

 
25,365

Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
478,684

 
$
299,336

 
$
263,269

 
$
65,494

 
$
—

 
$
(21,560
)
 
$
1,085,223

Depreciation, depletion, and amortization
51,913

 
19,932

 
41,367

 
—

 
—

 
(115
)
 
113,097

Operating income (loss)
17,474

 
20,919

 
2,497

 
(3,766
)
 
(10,325
)
 
(11,310
)
 
15,489

Total assets
657,276

 
503,460

 
382,098

 
40,760

 
16,288

 
6,172

 
1,606,054

Cash paid for capital expenditures
12,038

 
13,801

 
4,780

 
—

 
—

 
—

 
30,619

____________________
(1)
The Coal - WMLP segment recorded revenues of $5.4 million and $16.4 million for intersegment revenues to the Coal - U.S. segment for the three and nine months ended September 30, 2017, respectively, and $6.5 million and $21.6 million for the three and nine months ended September 30, 2016, respectively. Eliminations for intersegment revenues and cost of sales are presented within the Corporate segment.

15. CONTINGENCIES

Litigation
There have been no material changes in our litigation since December 31, 2016. For additional information, refer to Note 20. Commitments and Contingencies to the consolidated financial statements of our 2016 Form 10-K.
A loss contingency for the 2013 breach of a water containment pond at our Obed mine in Canada remains probable and reasonably estimable. The previous owner, Sherritt International Corporation, continues to fully indemnify us for the actual cost of the remediation as well as the costs of compliance with any regulatory orders, including any fees, fines, or judgments resulting from the water release. As of September 30, 2017, the Company has recorded $2.4 million in Other current liabilities for the estimated costs of remediation work and a corresponding amount in Receivables - Other to reflect the indemnification by the prior owner.


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

16. SUBSEQUENT EVENTS
We executed an Assignment and Assumption Agreement with an effective date of October 1, 2017 with the counterparties to our ROVA power purchase and sale contracts, in which, for a settlement payment of approximately $10.1 million, we were released from our power purchase and sales contracts and the counterparty to the purchase contracts has assumed our position in the power sales contract. As a result of this transaction, we are no longer a party to either of these derivative arrangements. In the fourth quarter of 2017, this transaction will result in a charge of $4.6 million and we will recognize $14.4 million of previously deferred revenue related to the straight line recognition of capacity payments from the power sales agreement. Also, in the fourth quarter of 2017 we have received proceeds net of settlement payments from our posted collateral of $6.2 million and also released $7.5 million in outstanding letters of credit on our Revolver.
On August 2, 2017 we executed a sales agreement to sell all of the assets that comprise ROVA for $5.0 million in cash which closed on October 20, 2017. Pursuant to the transaction, we retained the related $2.7 million reclamation liability. No additional asset impairment was taken as a result of prior year impairments.
On October 30, 2017, we executed a twelfth amendment to our Revolver as described in Item 5. Other Information.
The Company has evaluated subsequent events in accordance with ASC 855, Subsequent Events, through the filing date of this Quarterly Report, and determined that no events have occurred that have not been disclosed elsewhere in the notes to the consolidated financial statements (unaudited) that would require adjustments to disclosures in the consolidated financial statements (unaudited).

22
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

ITEM 2— MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report and materials we have filed or will file with the Securities and Exchange Commission (as well as information included in our other written or oral statements) contain or will contain certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on our expectations and assumptions at the time they are made and are not guarantees of future performance. Because forward looking statements relate to the future, they involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as “expects,” “intends,” “anticipates,” “believes,” “estimates,” “guides,” “provides guidance,” “provides outlook” and other similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” “could,” and “might” are intended to identify such forward-looking statements. Readers of this Quarterly Report should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed in the “Risk Factors” section and throughout the Quarterly Report. The statements are only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement. Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include but are not limited to the following:
•
Our ability to consummate the sale of the Coal Valley facilities on reasonable terms or at all;
•
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;
•
Alberta’s Climate Leadership Plan to phase out coal-fired electricity generation by 2030;
•
Our substantial level of indebtedness and our ability to adhere to financial covenants related to our borrowing     arrangements;
•
Our ability to successfully manage the upcoming maturities of the WMLP Revolver and the WMLP Term Loan;
•
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;
•
The ability or inability of our power hedging arrangements to generate cash.
•
Competition within our industry and with producers of competing energy sources;
•
Our relationships with, and other conditions affecting, our customers, including how power prices affect our customers’ decision to run their plants;
•
Seasonal variations and inclement weather, which may cause fluctuations in our operating results, profitability, cash flow and working capital needs related to our operating segments;
•
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;

23
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

•
Other factors that are described under the heading “Risk Factors” found in our reports filed with the Securities and Exchange Commission, including our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q.
Overview
Westmoreland Coal Company produces and sells thermal coal primarily to investment grade utility customers under long-term, margin-protected contracts. Our focus is primarily on mine locations which allow us to employ dragline surface mining methods and take advantage of close customer proximity through mine-mouth power plants and strategically located rail transportation. 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.
Recent Trends and Activities
One of the major factors affecting the volume of coal that we sell in any given period is the demand for coal-generated
electric power, as well as the specific demand for coal by our customers. Numerous factors affect the demand for electric power
and the specific demands of customers including weather patterns, the presence of hydro- or wind-generated energy in our
particular energy grids, environmental and legal challenges, political influences, energy policies, international and domestic
economic conditions, power plant outages and other factors discussed herein. More specifically, during the three and nine month periods ended September 30, 2017, our financial results were impacted by several trends and activities, which are described below.

•
Weather. During the first half of 2017, we experienced unfavorable weather patterns in the markets in which we operate. In particular, the first half of 2017 was generally marked by mild weather, which depressed demand. In addition, during the first quarter, our Kemmerer mine experienced unusually high amounts of precipitation, which increased our mining costs and restricted our ability to supply coal. These factors lowered our coal tons sold and our revenues during the first nine months of 2017. Some of this decline in revenues, particularly at the Kemmerer mine, have been offset in the second and third quarters by customers seeking to replenish stockpiles, a trend that we believe will continue throughout the year. Weather conditions are inherently unpredictable and could have positive or negative impacts on operating conditions and demand in future periods.
•
Coal Pricing. Our operations in Ohio and at Coal Valley are exposed to changes in the price of coal on the open market. In recent quarters, the price of coal has been volatile and has generally been pressured by reduced demand, political pressures, and the price of competing products, such as natural gas, that are used in energy production. Recent pricing pressure has resulted in depressed revenues, net income and Adjusted EBITDA in recent quarters for those facilities affected by open market pricing. Whether pricing and volume softness persist in future periods is dependent upon fluctuations in market demand in the region.
•
Cost Reduction Initiatives. While we always seek to run our business operations as lean and efficiently as possible, since 2016, we have undertaken specific initiatives aimed at centralizing and streamlining certain administrative functions and reducing costs throughout our organization. Cost reduction activities during 2016 resulted in disciplined capital expenditure decisions, lower inventory costs and reduced headcount, among other things. These factors, in turn, have generally lowered operating costs in the 2017 periods as compared to 2016 periods, although we did incur additional costs, including severance-related costs and additional costs resulting from redundancies created during these changes. Cost reduction activities are ongoing.

24

•
Early Repayment of Loan and Lease Receivables. During the first quarter of 2017, we received $52.5 million from our customer at the Genesee mine, representing an accelerated repayment of all outstanding loan and lease receivables. These loan and lease receivables represented the financed portion of amounts owed to Westmoreland for capital expenditures we had made on behalf of our customer. This payment fully satisfied amounts owed to Westmoreland for loan and lease receivables and Westmoreland is no longer entitled to further payments from these agreements, which generally averaged approximately $3 to $4 million per quarter. We have no further obligation to make capital expenditures at the mine, though we anticipate continuing to provide contract mining services at the Genesee mine through 2030.
•
Significant contract renewals and expirations. In June and December 2016, coal supply agreements at our Beulah and Jewett mines, respectively, terminated, resulting in lower coal tons sold in the subsequent periods. In addition, during the first nine months of 2017, we amended certain contracts with customers, including a U.S. merchant customer and a customer at the Kemmerer mine. The amended contract with the U.S. merchant customer provides for lower pricing, but includes a profit-sharing clause should power prices increase beyond a threshold. In the third quarter, this amendment negatively impacted revenues in the Coal - U.S. segment. The amended contract at Kemmerer provides for the sale of 1 million additional tons through 2018; however, such amendment lowers the expected amount of revenue recognized under the contract in 2017 and, similarly, increases the amount of revenue expected to be recognized in 2018.
Also, during the first nine months of 2017, our customer at the San Juan mine announced their intent to transition away from coal-generated power in 2022. While their plan still requires official approval, we have adjusted, on a prospective basis, the estimated useful lives of certain property, plant, and equipment at the mine as well as the mine’s mineral reserve depletion rates to reflect the shorter useful lives of these assets. This change in estimate resulted in additional depreciation, depletion, and amortization expense in the second and third quarters of 2017 compared to the same quarters in 2016, and will continue to result in increased depreciation, depletion, and amortization expense in future periods.
•
Coal Valley Operating Challenges. During the first nine months of 2017, we were mining in a more challenging area at the Coal Valley mine. This was in part because we have been operating Coal Valley anticipating either a sale or shutdown of the mine during 2017, which drove us to minimize the number of mining pits and delay maintenance on our equipment. During the second quarter, in part as a result of delays in the negotiations for the sale of the mine, we made additional investments to extend the life of the mine, which inflated costs for equipment maintenance and development of the pit. This resulted in lower yields, lower revenues, and increased costs during the second and third quarters and first half of 2017.
•
Equipment Outage. We experienced an unexpected dragline repair at one of our large mines in Canada in the first quarter of 2017, which temporarily lowered our production and increased our costs early in 2017.
•
Capital Structure Review. Although we anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our business obligations, we have proactively engaged financial advisors to assess our capital structure. Management and our board of directors, with the assistance of our advisors, are evaluating options to address the upcoming maturities described in “Liquidity and Capital Resources.” Costs associated with this process were $1.8 million in the third quarter and $2.8 million for the nine months ended September 30, 2017. These costs are estimated to be $19.8 million for the full year 2017.
•
Seasonality. Our financial results are impacted by seasonality caused by weather and customer buying patterns. Customer buying patterns are influenced by many factors, including annual maintenance outages at our customers’ plants, which often occur in the spring, when the demand for power is low. Combined, these factors have historically led to lower Adjusted EBITDA for our mine operations in the second quarter and first half of the year.


25
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Results of Operations
Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
Consolidated Results of Operations
The following table shows the comparative consolidated results and changes between periods:
 
Three Months Ended September 30,
 
Increase / (Decrease)
 
2017
 
2016
 
$
 
%
 
(In thousands, except tons data)
Revenues
$
358,011

 
$
371,772

 
$
(13,761
)
 
(3.7
)%
Operating income
14,255

 
8,753

 
5,502

 
62.9
 %
Net loss applicable to common shareholders
(19,222
)
 
(18,368
)
 
(854
)
 
(4.6
)%
Adjusted EBITDA(1)
62,583

 
73,534

 
(10,951
)
 
(14.9
)%
 
 
 
 
 
 
 
 
Tons sold—millions of equivalent tons
13.6

 
13.9

 
(0.3
)
 
(2.2
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.

Consolidated revenues decreased $13.8 million and tons sold declined 2.2% during the third quarter of 2017 compared with the third quarter of 2016. This decline was driven in part by the Jewett contract termination in 2016, the impact on revenue from certain customer contract amendments, and ongoing demand and pricing softness in Ohio, as described above.

During the third quarter, our operating income increased $5.5 million. Offsetting the revenue decline of $13.8 million were lower costs resulting from fewer tons sold, higher margin reclamation work at Jewett, and the impact of cost reduction initiatives, particularly within the Coal - WMLP segment. We also generated a gain on our power derivatives of $4.7 million in the three months ended September 30, 2017 compared to a loss of $5.4 million for the same period in 2016.

Consolidated Adjusted EBITDA for the third quarter declined $11.0 million from the same period in 2016, driven by changes in operating income discussed above, offset by the change in the gain/loss on our derivative, which increased our operating income but which does not impact Adjusted EBITDA. Adjusted EBITDA also included $2.6 million in loan and lease receivable collections in the third quarter of 2016, with no such collections in 2017.
Coal - U.S. Segment Operating Results
 
Three Months Ended September 30,
 
Increase / (Decrease)
 
2017
 
2016
 
$
 
%
 
(In thousands, except tons data)
Revenues
$
142,040

 
$
170,177

 
$
(28,137
)
 
(16.5
)%
Operating income
7,212

 
9,220

 
(2,008
)
 
(21.8
)%
Adjusted EBITDA(1)
34,294

 
38,020

 
(3,726
)
 
(9.8
)%
Tons sold—millions of equivalent tons
5.6

 
6.9

 
(1.3
)
 
(18.8
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.

Revenues for the Coal - U.S. segment declined by 16.5% during the third quarter of 2017 compared to the same quarter in 2016 primarily as a result of the expiration of coal supply agreements at the Jewett mines and amended contract terms with one of our merchant customers, which resulted in lower pricing.
The segment generated $7.2 million in operating income in the quarter compared to operating income of $9.2 million in the same period in 2016. The decrease in operating income was driven by lower revenues and additional depreciation, depletion, and amortization expense arising from the change in depreciable lives and depletion rates at our San Juan mine. These declines were mostly offset by segment-wide impact of the cost reduction initiatives discussed in the “Recent Trends and Activities” section as well as higher operating income at our Jewett mine due to the high margin nature of the reclamation work performed subsequent to the December 31, 2016 termination of the coal supply agreement.
Adjusted EBITDA declined $3.7 million during the third quarter compared with the same quarter in 2016, driven largely by operating income pressure discussed above.

26
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Coal - Canada Segment Operating Results
 
Three Months Ended September 30,
 
Increase / (Decrease)
 
2017
 
2016
 
$
 
%
 
(In thousands, except tons data)
Revenues
$
115,688

 
$
96,252

 
$
19,436

 
20.2
 %
Operating income
1,206

 
5,226

 
(4,020
)
 
(76.9
)%
Adjusted EBITDA(1)
13,537

 
18,562

 
(5,025
)
 
(27.1
)%
Tons sold—millions of equivalent tons
6.1

 
5.1

 
1.0

 
19.6
 %
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.

Revenues for the Coal - Canada segment increased by $19.4 million compared with the same period in 2016. The increase was driven by a 19.6% increase in tons sold as well as improved pricing at our Coal Valley mine.
The segment generated operating income of $1.2 million compared to operating income of $5.2 million in the prior year, which was driven by increased costs related to equipment maintenance and operational challenges described above at Coal Valley.
Adjusted EBITDA declined $5.0 million during the third quarter of 2017 compared to the same period in 2016, driven by greater operating losses as well as $2.6 million in customer payments received from loan and lease receivables in 2016 which did not recur in 2017 as a result of the early repayment discussed in “Recent Trends and Activities.”
Coal - WMLP Segment Operating Results
 
Three Months Ended September 30,
 
Increase / (Decrease)
 
2017
 
2016
 
$
 
%
 
(In thousands, except tons data)
Revenues
$
85,607

 
$
90,320

 
$
(4,713
)
 
(5.2
)%
Operating income
9,451

 
5,970

 
3,481

 
58.3
 %
Adjusted EBITDA(1)
21,173

 
22,686

 
(1,513
)
 
(6.7
)%
Tons sold—millions of equivalent tons
2.0

 
2.0

 
—

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

Revenues for the Coal - WMLP segment decreased 5.2% driven by ongoing pressure on volumes and pricing in our Ohio market offset by increased sales volume from the Kemmerer mine as customers sought to replenish stockpiles after weather-related delays in coal deliveries during the first quarter of 2017.
Operating income increased to $9.5 million in the third quarter of 2017 compared to operating income of $6.0 million in the third quarter of 2016. This improvement was driven by the impact of cost reduction activities and lower depreciation, depletion and amortization expense resulting from a smaller and aging fleet at our Ohio operations. In addition, during the third quarter of 2016, the Coal - WMLP segment incurred a $3.4 million impairment charge related to the write-down of excess equipment, where no such charge was incurred in the 2017 period.
Adjusted EBITDA decreased to $21.2 million compared to $22.7 million in the three months ended September 30, 2017 and 2016, respectively. This decrease was largely driven by factors impacting operating income described above, however Adjusted EBITDA declined because the figure excludes the positive operating income impact of lower depreciation, depletion and amortization expense and the impairment charges discussed above.

27
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Power Segment Operating Results
 
Three Months Ended September 30,
 
Increase / (Decrease)
 
2017
 
2016
 
$
 
%
 
(In thousands)
Revenues
$
20,070

 
$
21,554

 
$
(1,484
)
 
(6.9
)%
Operating income (loss)
5,344

 
(4,696
)
 
10,040

 
*

Adjusted EBITDA(1)
438

 
507

 
(69
)
 
(13.6
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
* Not meaningful
    
Third quarter revenues for the Power segment declined $1.5 million in 2017 compared with the same period in 2016 due to the amendment to the pricing terms in our Substitute Energy Purchase Agreement, which became effective on March 1, 2017.

During the third quarter of 2017, the Power segment generated operating income of $5.3 million, compared with an operating loss of $4.7 million in the third quarter of 2016. The operating income in 2017 was driven by a $4.7 million gain on our power derivative contracts, compared to a $5.4 million loss in the prior period.

Adjusted EBITDA decreased by $0.1 million due to lower revenues. The gain/loss on our power derivatives described above increased operating income but did not impact Adjusted EBITDA as these gains and losses are excluded from Adjusted EBITDA.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Consolidated Results of Operations
The following table shows the comparative consolidated results and changes between periods:
 
Nine Months Ended September 30,
 
Increase / (Decrease)
 
2017
 
2016
 
$
 
%
 
(In thousands, except tons data)
Revenues
$
1,020,772

 
$
1,085,223

 
$
(64,451
)
 
(5.9
)%
Operating (loss) income
(17,900
)
 
15,489

 
(33,389
)
 
*

Net loss applicable to common shareholders
(106,409
)
 
(19,550
)
 
(86,859
)
 
(444.3
)%
Adjusted EBITDA(1)
183,369

 
182,740

 
629

 
0.3
 %
 
 
 
 
 
 
 
 
Tons sold—millions of equivalent tons
36.9

 
39.7

 
(2.8
)
 
(7.1
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
* Not meaningful

Consolidated revenues declined 5.9% during the first three quarters of 2017 compared with the first three quarters of 2016, driven by a decline in tons sold of 7.1%. The decline in revenue and coal tons sold was driven by contract expirations at Jewett and Beulah, ongoing softness in Ohio, the impact of contract amendments and lower weather-related demand. These declines were partially offset by an increase of 21.8% in coal tons sold from our San Juan mine due to an extra month of ownership in 2017 as well as stronger demand.

We incurred an operating loss of $17.9 million during the first nine months of 2017, representing a decline of $33.4 million from the $15.5 million in operating income generated in the first nine months of 2016. This decline was the result of the $64.5 million year-over-year decline in consolidated revenues, partially offset by the corresponding decrease in costs of sales, a $8.7 million change in derivative gain/loss and company-wide cost reductions, particularly in the Coal - WMLP segment. During the nine months ended September 30, 2017, our Canada segment also incurred higher costs related to mining in a more challenging area at Coal Valley and the unexpected dragline outage.

Net loss applicable to common shareholders declined $86.9 million in the first nine months of 2017 compared to the same period in 2016 partly as a result of $33.4 million in increased operating losses year over year. Net loss applicable to

28
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

common shareholders also reflected a $49.7 million income tax benefit for the nine months ended September 30, 2016 primarily as a result of the release of valuation allowances on deferred tax assets as part of the San Juan acquisition, a benefit that did not recur in the current year.

Adjusted EBITDA increased $0.6 million year over year for the nine months ended September 30, 2017 and 2016. Adjusted EBITDA includes the impact of the $52.5 million early repayment of loan and lease receivables discussed in "Recent Trends and Activities." Excluding the impact of loan and lease receivable payments in both periods, Adjusted EBITDA declined primarily as a result of the larger operating loss in 2017.
Coal - U.S. Segment Operating Results
 
Nine Months Ended September 30,
 
Increase / (Decrease)
 
2017
 
2016
 
$
 
%
 
(In thousands, except tons data)
Revenues
$
420,445

 
$
478,684

 
$
(58,239
)
 
(12.2
)%
Operating income
4,926

 
17,474

 
(12,548
)
 
(71.8
)%
Adjusted EBITDA(1)
85,421

 
89,218

 
(3,797
)
 
(4.3
)%
Tons sold—millions of equivalent tons
14.4

 
17.6

 
(3.2
)
 
(18.2
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.

Revenues for the Coal - U.S. segment declined $58.2 million, or 12.2%, and coal tons sold declined 18.2% during the first nine months of 2017 compared with the same period in 2016. These declines were driven by contract expirations at Jewett and Beulah as well as lower revenues at one of our mines due to the amendment of a merchant customer contract. Offsetting these declines was a 21.8% improvement in coal tons sold from the San Juan mine in the first nine months of 2017 compared with the same period in 2016 due to the additional month of ownership in 2017 as well as stronger demand at San Juan throughout 2017.
During the first nine months of 2017, operating income declined $12.5 million from $17.5 million in the first nine months of 2016 to $4.9 million in the first nine months of 2017. The decrease in operating income was impacted by the previously described Jewett and Beulah contract cancellations, offset somewhat by higher operating income at our Jewett mine due to the high margin nature of the reclamation work performed subsequent to the December 31, 2016 termination of the coal supply agreement. In addition, during the first nine months of 2017, we recorded additional depreciation, depletion, and amortization expense as a result of the change in depreciable lives and depletion rates at our San Juan mine as described earlier.
Adjusted EBITDA for the first nine months of 2017 was $85.4 million compared to $89.2 million during the same period in 2016, decreasing primarily due to the pressures in operating income described above. The decline in Adjusted EBITDA was less pronounced than the decline in operating income as a result of the increase in San Juan depreciation, depletion and amortization expense, which does not impact Adjusted EBITDA.
Coal - Canada Segment Operating Results
 
Nine Months Ended September 30,
 
Increase / (Decrease)
 
2017
 
2016
 
$
 
%
 
(In thousands, except tons data)
Revenues
$
314,051

 
$
299,336

 
$
14,715

 
4.9
%
Operating (loss) income
(17,632
)
 
20,919

 
(38,551
)
 
*

Adjusted EBITDA(1)
71,176

 
56,229

 
14,947

 
26.6
%
Tons sold—millions of equivalent tons
17.2

 
16.5

 
0.7

 
4.2
%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
* Not meaningful

Revenues for the Coal - Canada segment increased 4.9% during the first nine months of 2017 compared with the same period in the prior year primarily as a result of an increase in tons sold of 4.2% as well as improved pricing at our Coal Valley mine.
During the first nine months of 2017, the segment incurred an operating loss of $17.6 million compared to operating income of $20.9 million in the same period of 2016, a $38.6 million decline year over year. The decline was driven by higher

29
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

costs related to mining in more challenging areas at Coal Valley. In addition, we incurred additional expenses due to unexpected dragline maintenance in the first quarter of 2017 that did not occur in the prior year.
Adjusted EBITDA for the Coal - Canada segment increased during the first nine months of 2017 due to the impact of the $52.5 million early payment of loan and lease receivables, offset by the change in operating income discussed previously.
Coal - WMLP Segment Operating Results
 
Nine Months Ended September 30,
 
Increase / (Decrease)
 
2017
 
2016
 
$
 
%
 
(In thousands, except tons data)
Revenues
$
241,464

 
$
263,269

 
$
(21,805
)
 
(8.3
)%
Operating income
18,321

 
2,497

 
15,824

 
633.7
 %
Adjusted EBITDA(1)
52,896

 
58,269

 
(5,373
)
 
(9.2
)%
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 loss at the end of this “Results of Operations” section.

Coal - WMLP segment revenues declined 8.3% during the nine months ended September 30, 2017 compared with the same period in 2016. The revenue decline was driven by ongoing price and volume pressures in our Ohio market offset slightly by increased revenue at Kemmerer driven by higher volumes.
Operating income for the segment increased $15.8 million in the first three quarters of 2017 compared with the first three quarters of 2016. This increase was driven by cost savings measures and lower depreciation expenses resulting from a smaller and aging fleet at our Ohio operations. In addition, during the first nine months of 2016, the Coal - WMLP segment incurred $8.1 million in restructuring and impairment charge related to downsizing and the write-down of excess equipment, where no such charge was incurred in the 2017 period.
Adjusted EBITDA for the Coal - WMLP segment declined $5.4 million in the first three quarters of 2017 compared to the same period in 2016. Adjusted EBITDA excludes the impact of depreciation, depletion and amortization expense and the impairment charges discussed above. As such, the decline in Adjusted EBITDA was driven primarily by the decline in revenues, offset by the impacts of cost savings initiatives described above.
Power Segment Operating Results
 
Nine Months Ended September 30,
 
Increase / (Decrease)
 
2017
 
2016
 
$
 
%
 
(In thousands)
Revenues
$
61,177

 
$
65,494

 
$
(4,317
)
 
(6.6
)%
Operating income (loss)
4,208

 
(3,766
)
 
7,974

 
*

Adjusted EBITDA(1)
(3,076
)
 
(2,227
)
 
(849
)
 
(38.1
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
* Not meaningful
    
Power segment revenues for the nine months ended September 30, 2017 declined $4.3 million compared with the same period in 2016 due to the amendment to the pricing terms in our Substitute Energy Purchase Agreement, which became effective on March 1, 2017.
For the nine months ended September 30, 2017, the Power segment incurred an operating income of $4.2 million, compared with an operating loss of $3.8 million for the nine months ended September 30, 2016. The operating loss in 2016 was driven by a $2.2 million loss on our power derivative contracts, compared to a gain of $6.6 million in the current period. The remaining decrease in operating income arose as a result of the revenue decrease described above.
Adjusted EBITDA decreased by $0.8 million due to lower revenues. The change in the gain/loss on our power derivatives described above impacts operating income but does not impact Adjusted EBITDA.

30
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Non-GAAP Financial Measures
Reconciliation of Net (Loss) Income to Adjusted EBITDA
EBITDA is defined as earnings before interest expense, interest income, income taxes, depreciation, depletion, amortization and accretion expense. Adjusted EBITDA is defined as EBITDA before certain charges to income such as restructuring, impairment, debt extinguishment, foreign exchange and derivative losses and/or gains which are not considered part of earnings from operations for comparison purposes to other companies’ normalized income. EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with GAAP. EBITDA and Adjusted EBITDA are key metrics used by us to assess our operating performance and 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 business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only as supplemental data.

31
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

The tables below show how we calculated EBITDA and Adjusted EBITDA, including a breakdown by segment, and reconcile Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Reconciliation of Net (Loss) Income to Adjusted EBITDA
 
 
 
 
 
 
 
Net loss
$
(19,300
)
 
$
(18,607
)
 
$
(107,124
)
 
$
(21,095
)
 
 
 
 
 
 
 
 
Income tax benefit
(440
)
 
(1,625
)
 
(1,406
)
 
(49,660
)
Interest income
(1,012
)
 
(1,374
)
 
(2,942
)
 
(5,521
)
Interest expense
30,017

 
30,882

 
89,388

 
90,669

Depreciation, depletion and amortization
38,066

 
40,860

 
114,131

 
113,097

Accretion of asset retirement obligation
11,358

 
10,280

 
33,795

 
30,230

Amortization of intangible assets and liabilities
(267
)
 
(225
)
 
(801
)
 
(652
)
EBITDA
58,422

 
60,191

 
125,041

 
157,068

 
 
 
 
 
 
 
 
Advisory fees (1)
1,849

 
—

 
2,774

 
—

Loss (gain) on foreign exchange
1,739

 
(220
)
 
3,391

 
1,531

Acquisition-related costs
—

 
—

 
—

 
568

Customer payments received under loan and lease receivables (2)
—

 
2,582

 
50,489

 
7,969

Derivative (gain) loss
(4,667
)
 
5,442

 
(6,571
)
 
2,164

Loss on sale/disposal of assets and other adjustments
3,874

 
4,148

 
4,399

 
7,515

Share-based compensation
1,366

 
1,391

 
3,846

 
5,925

Adjusted EBITDA
$
62,583

 
$
73,534

 
$
183,369

 
$
182,740

____________________
(1)
Amount represents fees paid to financial and legal advisors related to the assessment of Westmoreland’s capital structure. These advisors, together with Westmoreland's management and board of directors, are developing and evaluating options to optimize Westmoreland’s overall capital structure.
(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. During the first quarter of 2017, the Company received $52.5 million from its customer at the Genesee mine, representing an accelerated repayment of all outstanding loan and lease receivables. We will continue to provide contract mining services at the Genesee mine. We have no further obligation to make any capital expenditures. All future capital expenditures at the Genesee mine will be funded by the customer pursuant to the Company’s contractual arrangement with the customer. Accordingly, there will be no additional payments from the customer at the Genesee mine in the form of loan and lease repayments, however, the Company will continue to manage the Genesee mine and earn a management fee pursuant the contract mining arrangement.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Adjusted EBITDA by Segment
 
 
 
 
 
 
 
Coal - U.S.
$
34,294

 
$
38,020

 
$
85,421

 
$
89,218

Coal - Canada
13,537

 
18,562

 
71,176

 
56,229

Coal - WMLP
21,173

 
22,686

 
52,896

 
58,269

Power
438

 
507

 
(3,076
)
 
(2,227
)
Heritage
(3,599
)
 
(3,326
)
 
(11,055
)
 
(10,325
)
Corporate
(3,260
)
 
(2,915
)
 
(11,993
)
 
(8,424
)
Total
$
62,583

 
$
73,534

 
$
183,369

 
$
182,740


32
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)


Liquidity and Capital Resources
Liquidity
We had the following liquidity at September 30, 2017 and December 31, 2016: 
 
September 30, 2017
 
December 31, 2016
 
(In millions)
Cash and cash equivalents
$
44.1

 
$
60.1

Availability under Revolver
16.7

 
36.3

Availability under WMLP Revolver
14.8

 
15.0

Total
$
75.6


$
111.4

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 WCC 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 to the consolidated financial statements (unaudited), and the cash at WMLP is unlikely to be available for distribution to us subsequent to the Third Quarter Distribution.
Availability under the Revolver and WMLP Revolver is subject to their respective borrowing base calculations as defined in the underlying debts agreement for each. At September 30, 2017, availability on the Revolver was $16.7 million which reflects $9.9 million in outstanding letters of credit and $12.8 million in borrowing base restrictions. We had $10.5 million borrowings on the Revolver. 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.
As of September 30, 2017, we are in compliance with the fixed charge ratio under our revolver agreement. Based on current projections, absent management plans, there is substantial doubt as to our ability to comply with this covenant during the next twelve months from this filing. If we were to breach this covenant and were unable to obtain a waiver from the lenders, we could lose access to the Revolver. An uncured breach of the covenants in our Revolver would trigger certain customary cross-default provisions in our $350.0 million 8.75% Notes and our $321.4 million Term Loan which would become immediately due. Our belief, based on historical patterns, is that it is probable we would be able to alleviate or cure any such Revolver covenant default with an amendment or waiver. 
Certain affirmative covenants in our WMLP Term Loan provide that, among other things, an audit opinion on WMLP's consolidated financial statements that includes an explanatory paragraph expressing substantial doubt about WMLP's ability to continue as a going concern constitutes an event of default, which would cause the WMLP Term Loan to become immediately due and payable. If the pending December 31, 2018 maturity of the WMLP Term Loan is not addressed by the time WMLP’s Annual Report on Form 10-K for the year ended December 31, 2017 ("WMLP's 2017 Form 10-K") is filed, management is likely to conclude in WMLP's 2017 Form 10-K that absent successfully executing management's plans to refinance its debt, WMLP would be unable to meet its obligations as they become due. WMLP may be unable to conclude it is probable that management's plans will be successful. Such a conclusion would likely lead to an explanatory paragraph expressing substantial doubt about WMLP's ability to continue as a going concern in the auditor's opinion.
Although we anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our business obligations, we have proactively engaged financial advisors to assess our capital structure. Management and our board of directors, with the assistance of our advisors, are evaluating options to address the upcoming maturities of the WMLP Revolver (December 31, 2017) and the WMLP Term Loan (December 31, 2018). There can be no assurances that we can reach a resolution to these upcoming maturities to the satisfaction of all parties, if at all.

33
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Debt Obligations
See Note 6 - Debt And Lines Of Credit to the consolidated financial statements (unaudited) for a description of our different debt facilities.
Restricted Group and Unrestricted Group Results
Under each of the Indenture, the Term Loan and the Revolver, the following entities are designated as unrestricted subsidiaries: the Westmoreland San Juan Entities, Westmoreland Resources GP, LLC, WMLP and all of WMLP’s subsidiaries (collectively, the “Unrestricted Group”). Each of our other subsidiaries are restricted by the Indenture, the Term Loan and the Revolver (the “Restricted Group”). Within the Restricted Group, pursuant to the Indenture and the Term Loan, each of Absaloka Coal, LLC, WRMI, Westmoreland Canada LLC, the Canadian subsidiaries and our Netherlands subsidiary, are considered non-guarantors (collectively, the “Non-Guarantor Restricted Subsidiaries”), and accordingly, our remaining subsidiaries that are in neither the Unrestricted Group, nor are Non-Guarantor Restricted Subsidiaries, are both restricted subsidiaries and guarantors under the Indenture and Term Loan (the “Guarantor Restricted Subsidiaries”). For financial statements pertaining to the Guarantor Restricted Subsidiaries only, see Schedule I to this Quarterly Report.
The Indenture requires summary information for the Restricted Group and Unrestricted Group provided as follows:
 
Restricted Group
 
Unrestricted Group
 
Total
 
(In thousands)
Balance sheet as of September 30, 2017:
 
 
 
 
 
Cash and cash equivalents
$
5,297

 
$
38,846

 
$
44,143

Total current assets
217,648

 
125,393

 
343,041

Total assets
851,934

 
582,578

 
1,434,512

Total current liabilities
242,701

 
87,457

 
330,158

Total debt
686,156

 
384,992

 
1,071,148

Total liabilities
1,618,518

 
590,141

 
2,208,659

 
 
 
 
 
 
Statement of operations for the nine months ended September 30, 2017:
 
 
 
 
 
Revenues
$
627,524

 
$
393,248

 
$
1,020,772

Operating costs and expenses
671,827

 
366,845

 
1,038,672

Operating income (loss)
(44,303
)
 
26,403

 
(17,900
)
Other income and expenses
(50,293
)
 
(40,337
)
 
(90,630
)
Loss before income taxes
(94,596
)
 
(13,934
)
 
(108,530
)
Income tax benefit
(1,406
)
 
—

 
(1,406
)
Net loss
(93,190
)
 
(13,934
)
 
(107,124
)
Less net loss attributable to noncontrolling interest
(715
)
 
—

 
(715
)
Net loss attributable to the Company
$
(92,475
)
 
$
(13,934
)
 
$
(106,409
)
For the nine months ended September 30, 2017, Adjusted EBITDA associated with the Restricted Group and Unrestricted Group was $81.9 million and $101.4 million, respectively.
Non-guarantor Restricted Subsidiaries Results
The Indenture requires summary information for Absaloka Coal, LLC, WRMI, Westmoreland Canada LLC, the Canadian Subsidiaries and our Netherlands subsidiary (collectively, the “Non-Guarantor Restricted Subsidiaries”) which is

34
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

provided as follows (in thousands):
 
September 30, 2017
 
Percent of Consolidated Total
 Total assets
$
671,893

 
46.8
%
 Total debt
21,675

 
2.0
%
 Total liabilities
223,613

 
10.1
%
 
 
 
 
 
Nine Months Ended September 30, 2017
 
Percent of Consolidated Total
 Revenues
$
469,039

 
45.9
%
 Adjusted EBITDA
71,210

 
38.8
%
Our non-guarantor Canadian Subsidiaries had availability of up to $9.5 million under the Canadian tranche of the Revolver as of September 30, 2017.

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 nine months ended September 30, 2017 and 2016: 
 
Nine Months Ended September 30,
 
2017
 
2016
Cash provided by (used in):
(In thousands)
Operating activities
$
21,154

 
$
85,103

Investing activities
16,674

 
(147,364
)
Financing activities
(54,088
)
 
68,330

For the first nine months of 2017, our operating activities provided $21.2 million in cash, down from $85.1 million in the prior year primarily as a result of lower operating income, described further in "Results of Operations." Investing activities brought in $16.7 million in cash due to the $52.5 million cash receipt from our customer at our Genesee mine to pay off the loan and lease receivable in its entirety. This compares to a use of cash of $147.4 million primarily comprised of $125 million in use of cash to acquire our San Juan mine. Financing activities consumed $54.1 million in cash as we continued to pay down debt. This compares to $68.3 million provided by financing activities in the prior year, primarily comprised of $122 million in borrowings to acquire our San Juan mine.
Asset Retirement Obligations and Related Assets Available to Fund Obligations
The asset retirement obligations and related reclamation deposits and reclamation bond collateral for each of the Company’s operating segments at September 30, 2017 are summarized below:
 
Asset Retirement Obligations
 
Reclamation Deposits
 
Restricted Investments and Bond Collateral
 
(In thousands)
Coal - U.S.
$
315,775

 
$
76,936

 
$
16,857

Coal - Canada
134,856

 
—

 
52,729

Coal - WMLP
44,892

 
—

 
39,208

Power
1,180

 
—

 
22,200

Other restricted investments:
 
 
 
 
 
Power derivative collateral (ROVA)
—

 
—

 
16,419

Other
—

 
—

 
—

Total
$
496,703


$
76,936


$
147,413



35
WESTMORELAND COAL COMPANY AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Other restricted investments include various investments not associated with reclamation obligations. Reclamation spend, net of customer receipts for reclamation, was $26.1 million for the nine months ended September 30, 2017. As of September 30, 2017, we estimate approximately $173.7 million will be reimbursed to us by our customers for performance of final reclamation.
 
Critical Accounting Policies and Estimates
Please refer to the corresponding section in Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2016 Form 10-K for a discussion of our accounting policies and estimates.
Recent Accounting Pronouncements
See Note 1 - Basis Of Presentation to the consolidated financial statements (unaudited).
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.
There have been no material changes to our off-balance sheet arrangements since December 31, 2016. Our off-balance sheet arrangements are discussed in Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2016 Form 10-K.
ITEM 3
— QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk since December 31, 2016. For additional information, refer to Part II - Item 7A - Quantitative and Qualitative Disclosures about Market Risk in our 2016 Form 10-K.

ITEM 4
— CONTROLS AND PROCEDURES

As previously disclosed in our 2016 Form 10-K, we identified a material weakness related to accounting policy review for asset retirement obligations. The controls over the review of accounting policies were ineffective as they did not identify an inappropriate accounting policy for the treatment of asset retirement obligations that were subject to reimbursements by customers. The Company has assigned personnel with the appropriate level of asset retirement obligation and technical accounting experience to review the accounting for asset retirement obligations in accordance with GAAP.
We are in the process of remediating this material weakness by executing upon the above actions. The actions that we are taking are subject to ongoing senior management review, as well as Audit Committee oversight. Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take and our initiatives may not prove to be successful in remediating this material weakness. Management believes the foregoing efforts will effectively remediate the material weakness. As we continue to evaluate and work to improve our internal control over financial reporting, management may execute additional measures to address potential control deficiencies or modify the remediation plan described above. Management will continue to review and make necessary changes to the overall design of our internal controls.
Disclosure Controls and Procedures
As required by Rules 13a-15(b) and 15d-15(b) 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 September 30, 2017. 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

36

financial officer, as appropriate to allow timely decisions regarding our required disclosure. Based on that evaluation, which includes the material weakness identified at December 31, 2016 discussed above, our management, including our chief executive officer and chief financial officer, concluded that the disclosure controls and procedures were not effective as of September 30, 2017.
Changes in Internal Control over Financial Reporting
Beginning January 1, 2017, the Company integrated our enterprise resource planning (“ERP”) system to a single instance of our ERP system across all locations and segments which will improve the timeliness and quality of information (including financial information) to all appropriate levels of Company personnel. The integration was not in response to any identified deficiency or material weakness in the Company’s internal control over financial reporting. The integration of the ERP system will likely affect the processes included in our internal controls over financial reporting and will require testing for operating effectiveness.
Also beginning January 1, 2017 and in connection with the integration discussed immediately above, the Company initiated the centralization of controls from our corporate offices in Edmonton, Canada and Coshocton, Ohio resulting in a centralized control environment. The centralization was not in response to any identified deficiency or material weakness in the Company’s internal controls over financial reporting. The centralization will be completed throughout 2017 and will affect the processes that constitute our internal controls over financial reporting. The centralized control framework will require testing for operating effectiveness.

37

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. See Note 15 - Contingencies to the consolidated financial statements (unaudited) for a description of any pending legal proceedings, which information is incorporated herein by reference.

ITEM 1A
— RISK FACTORS
We have disclosed under the heading “Risk Factors” in our 2016 Form 10-K, the risk factors that we believe materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed, except for the additional risk factor identified below. You should carefully consider the risk factors set forth in the 2016 Form 10-K and the other information set forth elsewhere in this Quarterly Report. 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.
If we fail to comply with certain covenants in our various debt arrangements, it could negatively affect our liquidity and ability to finance our operations.

Our lending arrangements contain, among other terms, events of default and various affirmative and negative covenants, financial covenants and cross-default provisions. Should we be unable to comply with any future debt-related covenant, we will be required to seek a waiver of such covenant to avoid an event of default. Covenant waivers and modifications may be expensive to obtain, or, potentially, unavailable. If we are in breach of any covenant and are unable to obtain covenant waivers and our lenders accelerate our debt, we could attempt to refinance the debt or repay the debt by selling assets and applying the proceeds from such sales to the debt. Sales of assets undertaken in response to such immediate needs may be prohibited under our lending arrangements without the consent of our lenders, may be made at potentially unfavorable prices, or asset sales may not be sufficient to refinance or repay the debt, and we may be unable to complete such transactions in a timely manner, on favorable terms, or at all.

Access to our Revolver is dependent upon our compliance with certain financial ratio covenants. This includes a minimum fixed charge coverage ratio of 0.90 in certain quarters for both the US and Canada components of the Restricted Group and 1.10 for the Restricted Group on a consolidated basis. The fixed charge coverage ratio is generally calculated based on Adjusted EBITDA (as defined in the debt agreement) divided by scheduled principal and interest payments for the most recently completed four quarters. Additionally, the San Juan Loan requires a minimum debt service coverage ratio of 1.05. The debt service coverage ratio is generally calculated as cash generated by the borrower and its subsidiaries divided by required debt service payments, including scheduled principal and interest payments. Breaches of the Revolver financial covenants would cause a cross-default of the Term Loan, and in turn the 8.75% Notes. Based on our quarterly projections, including the impact of lost or diminished coal sales at certain of our mines and management’s plans, which may include but are not limited to seeking an amendment or waiver from lenders under any of the lending arrangements discussed herein as necessary, we anticipate that we will maintain compliance with the financial covenants and have sufficient liquidity to meet our obligations as they become due within one year after the date of the filing of our Annual Report.

ITEM 2
— UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company’s purchases of its common stock during the three months ended September 30, 2017 were as follows:
Period
Total Number of Shares Purchased(1)
 
Average Price Paid per Share
September 22, 2017
670

 
$
2.34

____________________

38

(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.

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 Act and Item 104 of Regulation S-K, are included as Exhibit 95.1 to this Quarterly Report.
ITEM 5 — OTHER INFORMATION
Twelfth Amendment to Second Amended and Restated Loan and Security Agreement

On October 30, 2017, Westmoreland Coal Company executed an amendment to our existing Revolver with Canadian Imperial Bank of Commerce (f/k/a The PrivateBank and Trust Company), as agent and as a lender, and East West Bank, as a lender ("Twelfth Amendment"). The Twelfth Amendment amended: (a) financial statement reporting to include monthly reconciliations of U.S., Canadian and Consolidated EBITDA to corresponding Net Income figures and a monthly forecast of financial covenants for the next occurring quarter; (b) the calculation under the term “US EBITDA” to remove certain fees paid to legal and financial advisors in connection with the assessment of Westmoreland’s consolidated debt structure; and (c) calculations under the terms “Canadian EBITDA” and “Canadian Fixed Charges” to remove certain financial results attributable to the Coal Valley Mine, as well as permitted netting of certain Returned Collateral against unfinanced Canadian Capital Expenditures, in connection with any sale or discontinuance of operations of the Coal Valley Mine; as such capitalized terms are defined in our Second Amended and Restated Loan and Security Agreement, as amended, governing the Revolver.

The foregoing description of the Twelfth Amendment is qualified in its entirety by reference to the terms of the Twelfth Amendment, which will be filed with the Securities and Exchange Commission as required.

Annual Incentive Plan Amendment and Restatement
On October 27, 2017, the board of directors of Westmoreland adopted an amendment and restatement to the Company’s Annual Incentive Program (the “AIP”) to replace language prohibiting the payment of any yearly bonus in the event of a fatality with the following language intended to incentivize correct behaviors and encourage mines to participate in activities that lead to safe production:
“In the event of a reportable fatality due to safety, the following rules shall apply:
•
No yearly safety bonus will be paid to the facility incurring the fatality;
•
Whether or not a safety bonus will be paid to a corporate employee will be at the discretion of the CEO for employees Grade Level 9 through 13, at the discretion of the Compensation & Benefits Committee for the Named Executive Officers and at the discretion of the Board of Directors for the CEO; and
•
All other locations will receive pay out based upon their facility’s leading and lagging indicators.”

The foregoing summary is qualified in its entirety by the full text of the AIP, which will be filed with the Securities and Exchange Commission as required.

39


ITEM 6
— EXHIBITS

EXHIBIT INDEX
 
 
Incorporated by Reference
 
Exhibit
Number
Exhibit Description
Form
File
Number
Exhibit
Filing
Date
Filed
Herewith
Purchase and Sale Agreement dated August 2, 2017, by and between Westmoreland Partners and ROVA Venture, LLC
 
 
 
 
X
Amended and Restated Certificate of Incorporation
 
 
 
 
X
Certificate of Designations of Series A Participating Preferred Stock of Westmoreland Coal Company
 
 
 
 
X
Rights Agreement, dated as of September 5, 2017, by and between Westmoreland Coal Company and Broadridge Corporate Issuer Solutions, Inc., as Rights Agent
8-K
001-11155
4.1
9/05/2017
 
Amended and Restated Substitute Energy Purchase Agreement dated September 25, 2017, by and between Westmoreland Partners and Virginia Electric and Power Company
 
 
 
 
X
Assignment and Assumption Agreement dated September 29, 2017, by and among Westmoreland Partners, Westmoreland Energy, LLC, BP Energy Company and Virginia Electric and Power Company
 
 
 
 
X
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
 
 
 
 
X
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
 
 
 
 
X
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
 
 
 
 
X
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.”



40

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:
October 31, 2017
/s/ Gary A. Kohn
 
 
Gary A. Kohn
 
 
Chief Financial Officer
(Principal Financial Officer and A Duly Authorized Officer)


41

WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED BALANCE SHEETS
Guarantor Restricted Subsidiary Information
See Notes to Schedule I Condensed Financial Statements

 
September 30, 2017
 
December 31, 2016
Assets
(In thousands)
Current assets:
 
 
 
Cash and cash equivalents
$
—

 
$
10,256

Receivables:
 
 
 
Intercompany receivable
36,923

 
40,797

Other
4,090

 
5,422

 Total receivables
41,013

 
46,219

Other current assets
858

 
1,235

Total current assets
41,871

 
57,710

Property, plant and equipment:
 
 
 
Plant and equipment
3,590

 
1,949

Less accumulated depreciation and amortization
1,388

 
1,135

Net property, plant and equipment
2,202

 
814

Restricted investments
16,419

 
16,004

Investment in subsidiaries
27,836

 
31,158

Intercompany receivable
156,204

 
226,225

Other assets
1,724

 
2,037

Total Assets
$
246,256

 
$
333,948

Liabilities and Shareholders’ Deficit
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
7,828

 
$
3,288

Accounts payable and accrued expenses:
 
 
 
Trade and other accrued liabilities
16,395

 
16,714

Interest payable
7,838

 
15,469

Postretirement medical benefits
12,573

 
12,573

Other current liabilities
1,917

 
1,386

Total current liabilities
46,551

 
49,430

Long-term debt, less current installments
647,958

 
646,885

Postretirement medical benefits, less current portion
251,985

 
251,093

Pension and SERP obligations, less current portion
39,317

 
40,639

Intercompany payable
10,209

 
11,915

Other liabilities
24,383

 
24,103

Total liabilities
1,020,403

 
1,024,065

Shareholders’ deficit:
 
 
 
Common stock
187

 
186

Other paid-in capital
250,729

 
248,143

Accumulated other comprehensive loss
(157,799
)
 
(179,072
)
Accumulated deficit
(864,012
)
 
(757,367
)
Total shareholders’ deficit
(770,895
)
 
(688,110
)
Noncontrolling interests in consolidated subsidiaries
(3,252
)
 
(2,007
)
Total deficit
(774,147
)
 
(690,117
)
Total Liabilities and Deficit
$
246,256

 
$
333,948



42

WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED STATEMENTS OF OPERATIONS
Guarantor Restricted Subsidiary Information
See Notes to Schedule I Condensed Financial Statements

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Revenues
$
—

 
$
—

 
$
—

 
$
—

Cost, expenses and other:
 
 
 
 
 
 
 
Cost of sales
(255
)
 
(498
)
 
(994
)
 
(1,473
)
Depreciation, depletion and amortization
118

 
70

 
350

 
246

Selling and administrative
7,310

 
4,533

 
23,797

 
15,043

Heritage health benefit expenses
3,132

 
3,075

 
9,300

 
8,919

 
10,305

 
7,180

 
32,453

 
22,735

Operating loss
(10,305
)
 
(7,180
)
 
(32,453
)
 
(22,735
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(15,571
)
 
(15,190
)
 
(45,926
)
 
(45,457
)
Interest income
3,402

 
4,258

 
10,260

 
12,960

Gain (loss) on foreign exchange
(7
)
 
(1
)
 
1

 
11

Other income (expense)
(9
)
 
5

 
(192
)
 
29

 
(12,185
)
 
(10,928
)
 
(35,857
)
 
(32,457
)
Loss before income taxes and loss of consolidated subsidiaries
(22,490
)
 
(18,108
)
 
(68,310
)
 
(55,192
)
Equity in loss of consolidated subsidiaries
2,716

 
(2,310
)
 
(40,411
)
 
(15,996
)
Loss before income taxes
(19,774
)
 
(20,418
)
 
(108,721
)
 
(71,188
)
Income tax benefit
(474
)
 
(1,811
)
 
(1,597
)
 
(50,093
)
Net loss
(19,300
)
 
(18,607
)
 
(107,124
)
 
(21,095
)
Less net loss attributable to noncontrolling interest
(78
)
 
(239
)
 
(715
)
 
(1,545
)
Net loss attributable to the Guarantor Restricted Subsidiaries
$
(19,222
)
 
$
(18,368
)
 
$
(106,409
)
 
$
(19,550
)


43

WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
Guarantor Restricted Subsidiary Information
See Notes to Schedule I Condensed Financial Statements

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017

2016
 
(In thousands)
Net loss
$
(19,300
)
 
$
(18,607
)
 
$
(107,124
)
 
$
(21,095
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
Pension and other postretirement plans:
 
 
 
 
 
 
 
Amortization of accumulated actuarial losses, pension
588

 
1,294

 
1,765

 
3,639

Adjustments to accumulated actuarial gains (losses) and transition obligations, pension
(112
)
 
813

 
189

 
786

Amortization of accumulated actuarial losses, transition obligations, and prior service costs, postretirement medical benefit
964

 
368

 
2,893

 
891

Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefit
—

 
—

 
—

 
984

Tax effect of other comprehensive income losses
(684
)
 
(1,039
)
 
(2,503
)
 
(2,410
)
Change in foreign currency translation adjustment
9,426

 
(2,432
)
 
17,455

 
16,128

Unrealized and realized gains and losses on available-for-sale securities
278

 
535

 
1,474

 
255

Other comprehensive income (loss), net of income taxes
10,460

 
(461
)
 
21,273

 
20,273

Comprehensive loss
(8,840
)
 
(19,068
)
 
(85,851
)
 
(822
)
Less: Comprehensive loss attributable to noncontrolling interest
(78
)
 
(240
)
 
(715
)
 
(1,532
)
Comprehensive (loss) income attributable to Guarantor Restricted Subsidiaries
$
(8,762
)
 
$
(18,828
)
 
$
(85,136
)
 
$
710


44

WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED STATEMENTS OF CASH FLOWS
Guarantor Restricted Subsidiary Information
See Notes to Schedule I Condensed Financial Statements

 
Nine Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(107,124
)
 
$
(21,095
)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
 
 
Depreciation and amortization
350

 
246

Share-based compensation
2,970

 
3,340

Amortization of deferred financing costs
3,944

 
3,588

Gain on foreign exchange
(1
)
 
(11
)
Equity in loss of subsidiaries
40,411

 
15,996

Deferred income tax benefit
—

 
(48,565
)
Distributions received from subsidiaries
36

 
9,025

Other
192

 
(2,442
)
Changes in operating assets and liabilities:
 
 
 
Receivables
1,332

 
1,297

Accounts payable and accrued expenses
(8,552
)
 
(6,005
)
Other assets and liabilities
(1,298
)
 
1,826

Net cash used in operating activities
(67,740
)
 
(42,800
)
Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(1,156
)
 
(162
)
Proceeds from sales of restricted investments
4,154

 
3,859

Purchases of and change in restricted investments
(4,442
)
 
(4,144
)
Net cash used in investing activities
(1,444
)
 
(447
)
Cash flows from financing activities:
 
 
 
Repayments of long-term debt
(2,466
)
 
(2,466
)
Borrowings on revolving lines of credit
217,100

 
248,900

Repayments on revolving lines of credit
(212,560
)
 
(248,900
)
Transactions with WCC/affiliates
56,854

 
32,892

Other
—

 
(93
)
Net cash provided by financing activities
58,928


30,333

Net decrease in cash and cash equivalents
(10,256
)
 
(12,914
)
Cash and cash equivalents, beginning of period
10,256

 
14,245

Cash and cash equivalents, end of period
$
—

 
$
1,331


45
WESTMORELAND COAL COMPANY
NOTES TO SCHEDULE I CONDENSED FINANCIAL STATEMENTS
Guarantor Restricted Subsidiaries Information



1.LONG-TERM DEBT AND LINES OF CREDIT
The amounts outstanding under the Company’s long-term debt, guaranteed by each of the Company and the Guarantor Restricted Subsidiaries, consisted of the following as of the dates indicated: 
 
Total Debt Outstanding
 
September 30, 2017
 
December 31, 2016
 
(In thousands)
8.75% Notes
$
350,000

 
$
350,000

Term Loan
321,417

 
323,883

Revolver
4,540

 
—

Other debt
500

 
500

Total debt
676,457

 
674,383

Less debt discount and issuance costs, net
(20,671
)
 
(24,210
)
Less current installments
(7,828
)
 
(3,288
)
Long-term debt, less current installments
$
647,958

 
$
646,885

The following table presents remaining aggregate contractual debt maturities of long-term debt guaranteed by the Company and the Guarantor Restricted Subsidiaries: 
 
September 30, 2017
 
(In thousands)
2017
$
5,362

2018
3,788

2019
3,288

2020
314,019

2021
—

Thereafter
350,000

Total debt
$
676,457

For details on the 8.75% Notes, Term Loan and Revolver debt facilities, see Note 6 - Debt And Lines Of Credit to the consolidated financial statements (unaudited).

46

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