EX-99.1 5 exh99-1_073114.htm EXHIBIT 99.1 exh99-1_073114
Exhibit 99.1

INDEX TO FINANCIAL STATEMENTS

WESTMORELAND COAL COMPANY

1

Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Westmoreland Coal Company
        We have audited the accompanying consolidated balance sheets of Westmoreland Coal Company and subsidiaries (the "Company") as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ deficit, and cash flows for the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Westmoreland Coal Company and subsidiaries at December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February 28, 2014 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP
Denver, Colorado
February 28, 2014 (except for Note 18, as to which the date is August 6, 2014)


2

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
 
December 31,
2013
 
December 31,
2012
 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
61,110

 
$
31,610

Receivables:
 
 
 
Trade
66,196

 
60,037

Contractual third-party reclamation receivables
8,487

 
10,207

Other
5,086

 
3,220

 
79,769

 
73,464

Inventories
39,972

 
37,734

Restricted investments and bond collateral
5,998

 
—

Other current assets
18,190

 
16,504

Total current assets
205,039

 
159,312

Property, plant and equipment:
 
 
 
Land and mineral rights
278,188

 
261,741

Plant and equipment
657,696

 
635,720

 
935,884

 
897,461

Less accumulated depreciation, depletion and amortization
445,848

 
384,621

Net property, plant and equipment
490,036

 
512,840

Advanced coal royalties
7,311

 
4,316

Reclamation deposits
74,921

 
72,718

Restricted investments and bond collateral
69,235

 
87,209

Contractual third-party reclamation receivables, less current portion
88,303

 
84,158

Intangible assets, net of accumulated amortization of $14.1 million and $12.4 million at December 31, 2013 and December 31, 2012, respectively
1,520

 
3,203

Other assets
10,320

 
12,359

Total Assets
$
946,685

 
$
936,115

See accompanying Notes to Consolidated Financial Statements.

3

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
 
December 31,
2013
 
December 31,
2012
 
(In thousands)
Liabilities and Shareholders’ Deficit
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
44,343

 
$
23,791

Accounts payable and accrued expenses:
 
 
 
Trade
57,507

 
52,093

Production taxes
41,905

 
33,228

Workers’ compensation
717

 
820

Postretirement medical benefits
13,955

 
14,068

SERP
390

 
390

Deferred revenue
14,068

 
12,822

Asset retirement obligations
23,353

 
22,238

Other current liabilities
16,790

 
11,462

Total current liabilities
213,028

 
170,912

Long-term debt, less current installments
295,494

 
337,198

Workers’ compensation, less current portion
6,744

 
8,710

Excess of black lung benefit obligation over trust assets
8,675

 
8,356

Postretirement medical benefits, less current portion
270,374

 
319,775

Pension and SERP obligations, less current portion
24,176

 
54,250

Deferred revenue, less current portion
46,567

 
56,891

Asset retirement obligations, less current portion
256,511

 
241,609

Intangible liabilities, net of accumulated amortization of $12.4 million at December 31, 2013 and $11.4 million at December 31, 2012, respectively
5,606

 
6,625

Other liabilities
7,389

 
18,020

Total liabilities
1,134,564

 
1,222,346

Shareholders’ deficit:
 
 
 
Preferred stock of $1.00 par value
 
 
 
Authorized 5,000,000 shares; Issued and outstanding 159,960 shares at December 31, 2013 and 2012
160

 
160

Common stock of $2.50 par value
 
 
 
Authorized 30,000,000 shares; Issued and outstanding 14,592,231 shares at December 31, 2013 and 14,201,411 shares at December 31, 2012, respectively
36,479

 
35,502

Other paid-in capital
134,861

 
130,852

Accumulated other comprehensive loss
(63,595
)
 
(148,345
)
Accumulated deficit
(295,784
)
 
(289,727
)
Total Westmoreland Coal Company shareholders’ deficit
(187,879
)
 
(271,558
)
Noncontrolling interest
—

 
(14,673
)
Total deficit
(187,879
)
 
(286,231
)
Total Liabilities and Shareholders’ Deficit
$
946,685

 
$
936,115

See accompanying Notes to Consolidated Financial Statements.

4

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
 
 
Years Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands, except per share data)
Revenues
$
674,686

 
$
600,437

 
$
501,713

Cost, expenses and other:
 
 
 
 
 
Cost of sales
535,320

 
466,521

 
392,787

Depreciation, depletion and amortization
67,231

 
57,145

 
45,594

Selling and administrative
50,721

 
49,908

 
40,276

Heritage health benefit expenses
13,418

 
13,388

 
18,575

Loss (gain) on sales of assets
(74
)
 
528

 
640

Restructuring charges
5,078

 
—

 
—

Other operating income
(22,370
)
 
(15,925
)
 
(6,785
)
 
649,324

 
571,565

 
491,087

Operating income
25,362

 
28,872

 
10,626

Other income (expense):
 
 
 
 
 
Interest expense
(39,937
)
 
(42,677
)
 
(29,769
)
Loss on extinguishment of debt
(64
)
 
(1,986
)
 
(17,030
)
Interest income
1,366

 
1,496

 
1,444

Other income (loss)
364

 
723

 
(2,572
)
 
(38,271
)
 
(42,444
)
 
(47,927
)
Loss before income taxes
(12,909
)
 
(13,572
)
 
(37,301
)
Income tax expense (benefit)
(4,782
)
 
90

 
(426
)
Net loss
(8,127
)
 
(13,662
)
 
(36,875
)
Less net loss attributable to noncontrolling interest
(3,430
)
 
(6,436
)
 
(3,775
)
Net loss attributable to the Parent company
(4,697
)
 
(7,226
)
 
(33,100
)
Less preferred stock dividend requirements
1,360

 
1,360

 
1,360

Net loss applicable to common shareholders
$
(6,057
)
 
$
(8,586
)
 
$
(34,460
)
Net loss per share applicable to common shareholders:
 
 
 
 
 
Basic and diluted
$
(0.42
)
 
$
(0.61
)
 
$
(2.61
)
Weighted average number of common shares outstanding:
 
 
 
 
 
Basic and diluted
14,491

 
14,033

 
13,192

See accompanying Notes to Consolidated Financial Statements.

5

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
 
 
Years Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands)
Net loss
$
(8,127
)
 
$
(13,662
)
 
$
(36,875
)
Other comprehensive income (loss)
 
 
 
 
 
Pension and other postretirement plans:
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
3,490

 
2,960

 
1,647

Adjustments to accumulated actuarial losses, pension
28,974

 
(9,812
)
 
(15,798
)
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
4,005

 
2,572

 
(288
)
Adjustments to accumulated actuarial gains, postretirement medical benefits
53,230

 
(22,342
)
 
(49,136
)
Tax effect of other comprehensive income gains
(4,892
)
 
—

 
—

Unrealized and realized gains and losses on available-for-sale securities
(57
)
 
(268
)
 
(200
)
Other comprehensive income (loss)
84,750

 
(26,890
)
 
(63,775
)
Comprehensive income (loss) attributable to Westmoreland Coal Company
$
76,623

 
$
(40,552
)
 
$
(100,650
)
See accompanying Notes to Consolidated Financial Statements.

6

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Deficit
Years Ended December 31, 2011, 2012 and 2013
 
 
Preferred Stock
 
Common Stock
 
Other
Paid-In
Capital
 
Accumulated
Other
Comprehensive Loss
 
Accumulated
Deficit
 
Non-controlling
Interest
 
Total
Shareholders’
Equity
(Deficit)
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
(In thousands, except shares data)
Balance at December 31, 2010
160,129

 
$
160

 
11,160,798

 
$
27,901

 
$
98,466

 
$
(57,680
)
 
$
(226,740
)
 
$
(4,462
)
 
$
(162,355
)
Preferred dividends declared
—

 
—

 
—

 
—

 
—

 
—

 
(21,301
)
 
—

 
(21,301
)
Common stock issued as compensation
—

 
—

 
240,118

 
600

 
4,121

 
—

 
—

 
—

 
4,721

Common stock options exercised
—

 
—

 
31,200

 
78

 
344

 
—

 
—

 
—

 
422

Conversion of convertible notes and securities
(169
)
 
—

 
1,879,098

 
4,698

 
20,787

 
—

 
—

 
—

 
25,485

Common stock issued to pension plan assets
—

 
—

 
450,000

 
1,125

 
3,132

 
—

 
—

 
—

 
4,257

Issuance of restricted stock
—

 
—

 
50,165

 
125

 
(562
)
 
—

 
—

 
—

 
(437
)
Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(33,100
)
 
(3,775
)
 
(36,875
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
(63,775
)
 
—

 
—

 
(63,775
)
Balance at December 31, 2011
159,960

 
160

 
13,811,379

 
34,527

 
126,288

 
(121,455
)
 
(281,141
)
 
(8,237
)
 
(249,858
)
Preferred dividends declared
—

 
—

 
—

 
—

 
—

 
—

 
(1,360
)
 
—

 
(1,360
)
Common stock issued as compensation
—

 
—

 
323,432

 
808

 
5,232

 
—

 
—

 
—

 
6,040

Issuance of restricted stock
—

 
—

 
66,600

 
167

 
(668
)
 
—

 
—

 
—

 
(501
)
Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(7,226
)
 
(6,436
)
 
(13,662
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
(26,890
)
 
—

 
—

 
(26,890
)
Balance at December 31, 2012
159,960

 
160

 
14,201,411

 
35,502

 
130,852

 
(148,345
)
 
(289,727
)
 
(14,673
)
 
(286,231
)
Preferred dividends declared
—

 
—

 
—

 
—

 
—

 
—

 
(1,360
)
 
—

 
(1,360
)
Common stock issued as compensation
—

 
—

 
224,129

 
560

 
4,762

 
—

 
—

 
—

 
5,322

Assumption of noncontrolling interest of subsidiary
—

 
—

 
—

 
—

 
—

 
—

 
—

 
18,103

 
18,103

Issuance of restricted stock
—

 
—

 
166,691

 
417

 
(753
)
 
—

 
—

 
—

 
(336
)
Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(4,697
)
 
(3,430
)
 
(8,127
)
Other comprehensive income
—

 
—

 
—

 
—

 
—

 
84,750

 
—

 
—

 
84,750

Balance at December 31, 2013
159,960

 
$
160

 
14,592,231

 
$
36,479

 
$
134,861

 
$
(63,595
)
 
$
(295,784
)
 
$
—

 
$
(187,879
)
See accompanying Notes to Consolidated Financial Statements.

7

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 
 
Years Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands)
Cash flows from operating activities:
 
 
 
 
 
Net loss
$
(8,127
)
 
$
(13,662
)
 
$
(36,875
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
Depreciation, depletion and amortization
67,231

 
57,145

 
45,594

Accretion of asset retirement obligation and receivable
12,681

 
12,189

 
10,878

Non-cash tax benefits
(4,892
)
 
—

 
—

Amortization of intangible assets and liabilities, net
665

 
658

 
657

Share-based compensation
5,322

 
6,040

 
4,721

Loss (gain) on sales of assets
(74
)
 
528

 
640

Amortization of deferred financing costs
3,731

 
4,358

 
2,515

Other
(1,001
)
 
—

 
—

Loss on extinguishment of debt
64

 
1,986

 
17,030

Gain on sales of investment securities
(3
)
 
(165
)
 
(150
)
Loss on derivative instruments
—

 
—

 
3,079

Changes in operating assets and liabilities:
 
 
 
 
 
Receivables, net
(7,636
)
 
(12,855
)
 
5,491

Inventories
(2,512
)
 
(2,164
)
 
(2,125
)
Excess of black lung benefit obligation over trust assets
319

 
1,791

 
4,319

Accounts payable and accrued expenses
13,579

 
17,399

 
4,128

Deferred revenue
(9,078
)
 
(8,198
)
 
(9,918
)
Income tax payable
(1
)
 
—

 
—

Accrual for workers’ compensation
(2,069
)
 
(2,096
)
 
1,248

Asset retirement obligations
(9,410
)
 
(6,943
)
 
(6,510
)
Accrual for postretirement medical benefits
7,721

 
6,191

 
(1,643
)
Pension and SERP obligations
2,388

 
2,802

 
(1,278
)
Other assets and liabilities
11,819

 
(7,860
)
 
2,934

Net cash provided by operating activities
80,717

 
57,144

 
44,735

Cash flows from investing activities:
 
 
 
 
 
Additions to property, plant and equipment
(28,591
)
 
(21,032
)
 
(27,594
)
Change in restricted investments and bond collateral and reclamation deposits
1,434

 
(33,892
)
 
(5,986
)
Cash payments related to acquisitions
—

 
(72,522
)
 
(4,000
)
Net proceeds from sales of assets
902

 
480

 
687

Proceeds from the sale of restricted investments
8,287

 
4,106

 
3,350

Receivable from customer for property and equipment purchases
(389
)
 
(674
)
 
(96
)
Other
(3,540
)
 
—

 
—

Net cash used in investing activities
(21,897
)
 
(123,534
)
 
(33,639
)
Cash flows from financing activities:
 
 
 
 
 
Change in book overdrafts
310

 
(253
)
 
(724
)
Borrowings from long-term debt, net of debt discount
—

 
119,364

 
142,500

Repayments of long-term debt
(28,088
)
 
(44,846
)
 
(73,566
)

8

Borrowings on revolving lines of credit
7,000

 
16,500

 
87,200

Repayments on revolving lines of credit
(7,000
)
 
(16,500
)
 
(105,600
)
Debt issuance costs and other refinancing costs
(182
)
 
(5,688
)
 
(15,019
)
Preferred dividends paid
(1,360
)
 
(1,360
)
 
(21,301
)
Exercise of stock options
—

 
—

 
422

Net cash provided by (used in) financing activities
(29,320
)
 
67,217

 
13,912

Net increase in cash and cash equivalents
29,500

 
827

 
25,008

Cash and cash equivalents, beginning of year
31,610

 
30,783

 
5,775

Cash and cash equivalents, end of year
$
61,110

 
$
31,610

 
$
30,783

Supplemental disclosures of cash flow information:
 
 
 
 
 
Cash paid for interest
$
36,252

 
$
34,380

 
$
21,199

Cash paid (received) for income taxes
111

 
(73
)
 
(250
)
Non-cash transactions:
 
 
 
 
 
Accrued purchases of property and equipment
1,112

 
634

 
570

Capital leases and other financing sources
5,371

 
1,828

 
531

See accompanying Notes to Consolidated Financial Statements.

9

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Westmoreland Coal Company, or the Company, Westmoreland, WCC, or the Parent, is an energy company. The Company’s current principal activities, all conducted within the United States, are the production and sale of coal from its mines in Montana, Wyoming, North Dakota and Texas; and the ownership of power plants in North Carolina. The Company’s activities are primarily conducted through wholly owned subsidiaries.
The Company's Kemmerer Mine is owned by its subsidiary Westmoreland Kemmerer, Inc., or Kemmerer. The Company’s Absaloka Mine is owned by its wholly owned subsidiary Westmoreland Resources, Inc., or WRI. The right to mine coal at the Absaloka Mine had been subleased to an affiliated entity whose operations the Company controls, under which the sublease expired December 31, 2013; and as a result the right to mine coal at the Absaloka Mine reverts to WRI beginning in 2014. The Rosebud, Jewett, Beulah and Savage Mines are owned through the Company’s wholly owned subsidiary Westmoreland Mining LLC, or WML.
Sherritt Acquisition
On December 24, 2013, the Company entered into an agreement to acquire the coal operations of Sherritt International Corporation, or Sherritt, which consist of its Prairie and Mountain coal mining operations. These operations included seven producing thermal coal mines in the Canadian provinces of Alberta and Saskatchewan, a 50% interest in an activated carbon plant and a Char production facility. The purchase price of $435.0 million will be made up of $293.0 million of cash consideration and the assumption of an estimated $142 million of capital lease liabilities, subject to certain adjustments provided for in the agreement, relating to, among other things, working capital, indebtedness, pension plan funding and coal inventory. Acquisition-related costs of $2.9 million have been expensed for the year ended December 31, 2013, and are included in Selling and administrative costs. The Company expects this acquisition to be completed by the end of the first quarter of 2014.
On February 7, 2014, the Company closed on a private offering of $425.0 million in aggregate principal amount of 10.75% Senior Secured Notes due 2018 at a price of 106.875% plus accrued interest from February 1, 2014; referred to as the New Notes. The net proceeds of the offering of the new notes will finance the approximately $293 million cash portion of the purchase price, an estimated $58 million to satisfy the cash bonding obligations for the Sherritt mines and cash transaction costs associated with the acquisition and this offering of new notes of approximately $26.0 million. The remaining balance of the proceeds will be used to fund the prepayment of the WML Notes and for other general corporate purposes. The proceeds will be held in escrow pending the completion of the acquisition.
In connection with the acquisition, the Company intends to amend the existing corporate revolving credit agreement to increase the maximum available borrowing amount to approximately $60 - $70 million (which the Company may increase to $100 million at their discretion), with a subfacility for letters of credit in an amount of up to $30 million. The acquisition is not contingent on the Company increasing such available borrowing capacity and it is possible that such increase will not be implemented until after the consummation of the acquisition.
Consolidation Policy
The Consolidated Financial Statements of Westmoreland Coal Company include the accounts of the Company and its controlled subsidiaries. The Company consolidates any variable interest entity, or VIE, for which the Company is considered the primary beneficiary. The Company provides for noncontrolling interests in consolidated subsidiaries, in which the Company’s ownership is less than 100 percent. All intercompany accounts and transactions have been eliminated.
A VIE is an entity that is unable to make significant decisions about its activities or does not have the obligation to absorb losses or the right to receive returns generated by its operations. If the entity meets one of these characteristics, then the Company must determine if it is the primary beneficiary of the VIE. The party exposed to the majority of the risks and rewards with the VIE is the primary beneficiary and must consolidate the entity.
The Company has determined for all periods presented, it was the primary beneficiary in Absaloka Coal LLC, a VIE, in which it held less than a 50% ownership through December 31, 2013. As a result, the Company has consolidated this entity within the coal segment. The investment in Absaloka Coal LLC by its outside partner did not continue after December 31, 2013, and beginning in 2014, Absaloka Coal LLC will be 100% owned by the Company, but will cease to have operations. As a result, the Company has unwound the transaction as of December 31, 2013 and concerning our balance sheet have decreased

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

Other liabilities by $19.1 million and decreased Noncontrolling interest by $18.1 million. As a result, as of December 31, 2013, the noncontrolling interest was eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximate fair value. Cash equivalents consist of highly liquid investments with original maturities of three months or less.
Trade Receivables
Trade receivables are recorded at the invoiced amount and do not bear interest. The Company evaluates the need for an allowance for doubtful accounts based on a review of collectability. The Company has determined that no allowance is necessary for trade receivables as of December 31, 2013 and 2012.
Inventories
Inventories, which include materials and supplies as well as raw coal, are stated at the lower of cost or market. Cost is determined using the average cost method. Coal inventory costs include labor, supplies, equipment, operating overhead and other related costs.
Exploration and Mine Development
Exploration expenditures are charged to Cost of sales as incurred, including costs related to drilling and study costs incurred to convert or upgrade mineral resources to reserves. 
At existing surface operations, additional pits may be added to increase production capacity in order to meet customer requirements. These expansions may require significant capital to purchase additional equipment, relocate equipment, build or improve existing haul roads and create the initial pre-production box cut to remove overburden for new pits at existing operations. If these pits operate in a separate and distinct area of the mine, the costs associated with initially uncovering coal for production are capitalized and amortized over the life of the developed pit consistent with coal industry practices. Once production has begun, mining costs are then expensed as incurred.
Where new pits are routinely developed as part of a contiguous mining sequence, the Company expenses such costs as incurred. The development of a contiguous pit typically reflects the planned progression of an existing pit, thus maintaining production levels from the same mining area utilizing the same employee group and equipment.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and includes long-term spare parts inventory. Expenditures that extend the useful lives of existing plant and equipment or increase productivity of the assets are capitalized. Maintenance and repair costs that do not extend the useful life or increase productivity of the asset are expensed as incurred. Coal reserves are recorded at cost, or at fair value originally in the case of acquired businesses.
Coal reserves, mineral rights and mine development costs are depleted based upon estimated recoverable proven and probable reserves. Plant and equipment are depreciated on a straight-line basis over the assets’ estimated useful lives as follows:
 
Years
Buildings and improvements
15 to 30
Machinery and equipment
3 to 36
Long-term spare parts inventory begins depreciation when placed in service.
The Company assesses the carrying value of its property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by

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

comparing estimated undiscounted cash flows expected to be generated from such assets to their net book value. If net book value exceeds estimated cash flows, the asset is written down to fair value. When an asset is retired or sold, its cost and related accumulated depreciation and depletion are removed from the accounts. The difference between the net book value of the asset and proceeds on disposition is recorded as a gain or loss. Fully depreciated plant and equipment still in use is not eliminated from the accounts. Amortization of capital leases is included in Depreciation, depletion and amortization.
Reclamation Deposits and Contractual Third-Party Reclamation Receivables
Certain of the Company’s customers have either agreed to reimburse the Company for reclamation expenditures as they are incurred or have pre-funded a portion of the expected reclamation costs. Amounts received from customers and held on deposit are recorded as reclamation deposits. Amounts that are reimbursable by customers are recorded as third-party reclamation receivables when the related reclamation obligation is recorded.
Financial Instruments
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 instruments that contain features that qualify them as embedded derivatives. Except for derivatives that qualify for the normal purchase normal sale exception, all derivative financial instruments are recognized in the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or Accumulated other comprehensive income (loss) if they qualify for cash flow hedge accounting.
Held-to-maturity financial instruments consist of non-derivative financial assets with fixed or determinable payments and a fixed term, which the Company has the ability and intent to hold until maturity, and, therefore, accounts for them as held-to-maturity securities. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts calculated on the effective interest method. Interest income is recognized when earned.
The Company has securities classified as available-for-sale, which are recorded at fair value. The changes in fair values are recorded as unrealized gains (losses) as a component of Accumulated other comprehensive income (loss) in shareholders’ deficit.
The Company reviews its securities routinely for other-than-temporary impairment. The primary factors used to determine if an impairment charge must be recorded because a decline in value of the security is other than temporary include (i) whether the fair value of the investment is significantly below its cost basis, (ii) the financial condition of the issuer of the security, (iii) the length of time that the cost of the security has exceeded its fair value and (iv) the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. Other-than-temporary impairments are recorded as a component of Other income (expense).
Fair Value
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 a given measurement date. Valuation techniques used must maximize the use of observable inputs and minimize the use of unobservable inputs.
Fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value and is defined as: 
•
Level 1, defined as observable inputs such as quoted prices in active markets for identical assets. Level 1 assets include available-for-sale equity securities generally valued based on independent third-party market prices.
•
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 Company’s non-recurring fair value measurements include asset retirement obligations and the purchase price allocations for the fair value of assets and liabilities acquired through business combinations.

The Company determines the estimated fair value of its asset retirement obligations by calculating the present value of estimated cash flows related to reclamation liabilities using level 3 inputs. The significant inputs used to calculate such liabilities includes estimates of costs to be incurred, the Company’s credit adjusted discount rate, inflation rates and estimated

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

dates of reclamation. The asset retirement liability is accreted to its present value each period and the associated mineral rights are depleted using the units-of-production method.

The fair value of assets and liabilities acquired through business combinations is calculated using a discounted-cash flow approach using level 3 inputs. Cash flow estimates require forecasts and assumptions for many years into the future for a variety of factors.
See Notes 4, 7, 9, 10 and 11 for further disclosures related to the Company’s fair value estimates.
Intangible Assets and Liabilities
Identifiable intangible assets or liabilities acquired in a business combination must be recognized and reported separately from goodwill. The Company has determined that its most significant acquired identifiable intangible assets and liabilities are related to sales and purchase agreements. Intangible assets result from more favorable market prices than contracted prices in sales and purchase agreements as measured during a business combination. Intangible liabilities result from less favorable market prices than contracted prices in sales and purchase agreements as measured during a business combination. The majority of these intangible assets and liabilities are amortized on a straight-line basis over the respective period of the sales and purchase agreements, while the remainder are amortized on a unit-of-production basis.
Amortization of intangible assets recognized in Cost of sales was $1.7 million in 2013, 2012, and 2011. Amortization of intangible liabilities recognized in Revenues was $1.0 million in 2013, 2012, and 2011. 
The estimated aggregate amortization amounts from intangibles assets and liabilities for each of the next five years as of December 31, 2013 are as follows: 
 
Amortization
Expense
(Revenue)
 
(In thousands)
2014
$
17

2015
(791
)
2016
(953
)
2017
(953
)
2018
(953
)
Workers’ Compensation Benefits
The Company is self-insured for workers’ compensation claims incurred prior to 1996. The liabilities for workers’ compensation claims are actuarially determined estimates of the ultimate losses incurred based on the Company’s experience. Adjustments to the probable ultimate liabilities are made annually based on subsequent developments and experience and are included in operations at the time of the revised estimate.
The Company insures its current employees through third-party insurance providers and state arrangements.
Pneumoconiosis (Black Lung) Benefits
The Company is self-insured for federal and state black lung benefits for former heritage employees and has established an independent trust to pay these benefits. The Company accounts for these benefits on the accrual basis. An independent actuary annually calculates the present value of the accumulated black lung obligation. The underfunded status in 2013 and 2012 of the Company’s obligation is included as Excess of black lung benefit obligation over trust assets in the accompanying consolidated balance sheets. Actuarial gains and losses are recognized in the period in which they arise.
The Company insures its current represented employees through arrangements with its unions and its current non-represented employees are insured through third-party insurance providers.
Postretirement Health Care Benefits
The Company accrues the cost to provide the benefits over the employees’ period of active service for postretirement benefits other than pensions. These costs are determined on an actuarial basis. The Company’s consolidated balance sheet reflects the unfunded status of postretirement benefit obligations.

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

Pension and SERP Plans
The Company accrues the cost to provide the benefits over the employees’ period of active service for the non-contributory defined benefit pension and SERP plans it sponsors. These costs are determined on an actuarial basis. The Company’s consolidated balance sheet reflects the unfunded status of the defined benefit pension and SERP plans.
Deferred Revenue
Deferred revenues represent funding received upon the negotiation of long-term contracts. The deferred revenues for coal will be recognized as deliveries of the reserved coal are made in accordance with the long-term coal contracts. Deferred power revenues are recognized on a pro rata basis, based on the payments estimated to be received over the remaining term of the power sales agreements.
Asset Retirement Obligations
The Company’s asset retirement obligation, or ARO, liabilities primarily consist of estimated costs to reclaim surface land and support facilities at its mines and power plants in accordance with federal and state reclamation laws as established by each mining permit.
The Company estimates its ARO liabilities for final reclamation and mine closure based upon detailed engineering calculations of the amount and timing of the future costs for a third party to perform the required work. These estimates are based on projected pit configurations at the end of mining and are escalated for inflation, and then discounted at a credit-adjusted risk-free rate. The Company records mineral rights associated with the initial recorded liability. Mineral rights are amortized based on the units of production method over the estimated recoverable, proven and probable reserves at the related mine, and the ARO liability is accreted to the projected settlement date. Changes in estimates could occur due to revisions of mine plans, changes in estimated costs, and changes in timing of the performance of reclamation activities.
Income Taxes
Deferred income taxes are provided for temporary differences arising from differences between the financial statement amount and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates anticipated to be in effect when the related taxes are expected to be paid or recovered. A valuation allowance is established if it is more likely than not that a deferred tax asset will not be realized. In determining the need for a valuation allowance, the Company considers projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies and its overall deferred tax position.
Accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under this guidance, a company can recognize the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Guidance is also provided on the derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company includes interest and penalties related to income tax matters in Income tax expense.
The tax effect of pretax income or loss from continuing operations is generally determined by a computation that does not consider the tax effects of items that are not included in continuing operations. The exception to that incremental approach is that all items (for example, items recorded in other comprehensive income, extraordinary items, and discontinued operations) be considered in determining the amount of tax benefit that results from a loss from continuing operations and that shall be allocated to continuing operations.
Deferred Financing Costs
The Company capitalizes costs incurred in connection with borrowings or establishment of credit facilities and issuance of debt securities. These costs are amortized as an adjustment to interest expense over the life of the borrowing or term of the credit facility using the effective interest method. These amounts are recorded in Other assets in the accompanying consolidated balance sheets.
Coal Revenues
The Company recognizes coal sales revenue at the time title passes to the customer in accordance with the terms of the underlying sales agreements and after any contingent performance obligations have been satisfied. Coal sales revenue is recognized based on the pricing contained in the contracts in place at the time that title passes.

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

Power Revenues
ROVA supplies power under long-term power sales agreements. Under these agreements, ROVA invoices and collects capacity payments based on kilowatt-hours produced if the units are dispatched or for the kilowatt-hours of available capacity if the units are not fully dispatched.
A portion of the capacity payments under the agreements is considered to be an operating lease. The Company is recognizing amounts invoiced under the power sales agreements as revenue on a pro rata basis, based on the weighted average per kilowatt hour capacity payments estimated to be received over the remaining term of the power sales agreements. Under this method of recognizing revenue, $8.7 million and $8.3 million of previously deferred revenue was recognized during 2013 and 2012, respectively.
On December 23, 2013, the Company entered into an agreement with Dominion Virginia Power, a subsidiary of Dominion, to restructure the remaining five years of the ROVA I and ROVA II contracts. From January 2014 through March 2019, the Company will keep ROVA ready to operate and expects to run the plants during high demand energy periods. The Company will additionally buy power from a power provider at a fixed price, and will supply Dominion that power. The Company can also operate the plant and sell power on the open market if it it chooses.
The Company incurred restructuring charges of $5.1 million for the year ended December 31, 2013 primarily related to legal and consulting fees. The restructuring plan is expected to be complete by March 31, 2014. The Company expects that the aggregate $5.1 million of expenditures will be cash expenditures paid out in the first quarter of 2014.
The table below represents the restructuring provision activity during the year ended December 31, 2013 (in millions):
Beginning Balance
 
Restructuring Charges
 
Restructuring Payments
 
Ending Balance
$
—

 
$
5.1

 
$
—

 
$
5.1

Other Operating Income (Loss)
Other operating income in the accompanying Consolidated Results of Operations reflects income from sources other than coal or power revenues. Income from the Company’s Indian Coal Tax Credit monetization transaction is recorded as Other operating income. The Company recognizes income as business interruption losses are incurred and reimbursement is virtually assured and has recognized $16.2 million and $17.3 million of income during 2013 and 2012, respectively; which is included in Other operating income. Insurance proceeds are included in Net cash provided by operating activities.
Share-Based Compensation
Share-based compensation expense is generally measured at the grant date and recognized as expense over the vesting period of the entire award. These costs are recorded in Cost of sales and Selling and administrative expenses in the accompanying consolidated results of operations.
Earnings (Loss) per Share
Basic earnings (loss) per share have been computed by dividing the net income (loss) applicable to common shareholders by the weighted average number of shares of common stock outstanding during each period. Net income (loss) applicable to common shareholders includes the adjustment for net income or loss attributable to noncontrolling interest. Diluted earnings (loss) per share is computed by including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding convertible notes, stock options, stock appreciation rights, restricted stock and warrants. No such items were included in the computation of diluted loss per share for the years ended 2013, 2012 or 2011 because the Company incurred a loss from operations in each of these periods and the effect of inclusion would have been anti-dilutive.

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

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:
 
Years Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands)
Convertible notes and securities
1,093

 
1,093

 
1,093

Restricted stock units, stock options, and SARs
805

 
978

 
634

Total shares excluded from diluted shares calculation
1,898

 
2,071

 
1,727

Recently Adopted Accounting Pronouncements

Effective January 1, 2013, the Company adopted an accounting standards update which requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies would instead cross reference to the related footnote for additional information. This accounting standards update only affects the Company's disclosures.
Liquidity and Capital Resources
The Parent is a holding company and conducts its operations through subsidiaries. The Parent has significant cash requirements to fund debt obligations, ongoing heritage health benefit costs, pension contributions, and corporate overhead expenses. The principal sources of cash flow to the Parent are distributions from principal operating subsidiaries. The cash at ROVA, Kemmerer, and WRI has no restrictions and is immediately available. The cash at WML is available to the Parent through quarterly distributions. The WML credit agreement requires a debt service account and imposes timing and other restrictions on the ability of WML to distribute funds to the Parent. The cash at WRMI is also available to the Parent through dividends and is subject to maintaining a statutory minimum level of capital, which is two hundred fifty thousand dollars.
The Company anticipates that its cash from operations, cash on hand and available borrowing capacity will be sufficient to meet its investing, financing, and working capital requirements for the foreseeable future.
In March 2013, the Company amended the WML Revolving Credit Agreement by extending the maturity date from June 26, 2013 to December 31, 2017. WML's revolving line of credit has a borrowing limit of $25.0 million. The interest rate under the revolving line of credit at December 31, 2013 was 3.75% per annum. At December 31, 2013, WML had no outstanding balance under the revolving line of credit and the revolving line of credit supports a letter of credit of $1.9 million, leaving it with $23.1 million of borrowing availability. WML's revolving line of credit is only available to fund the operations of its respective subsidiaries.
On June 29, 2012, the Company and certain of its subsidiaries entered into a five-year, $20.0 million revolving line of credit permitted under the indenture governing the 10.75% Senior Notes with an expiration date of June 30, 2017. The revolver may support up to $2.0 million of letters of credit (which was increased to $10.0 million on January 10, 2014), which would reduce the balance available under the revolver. At December 31, 2013, availability on the revolver was $20.0 million with no outstanding balance and no supported letters of credit. All extensions of credit under the revolver are collateralized by a first priority security interest in and lien upon the inventory and accounts receivable of the Parent, WRI, Kemmerer, and ROVA. Pursuant to the Intercreditor Agreement, the holders of the 10.75% Senior Notes now have a subordinate lien on these assets.
2.
ACQUISITION
On December 23, 2011, the Company, through Westmoreland Kemmerer, Inc., entered into a purchase and sale agreement with Chevron Mining Inc., a Missouri corporation (the “Seller”), pursuant to which the Company agreed to purchase from Seller the Kemmerer surface coal mine, associated processing facilities and other related real and personal property assets located in Kemmerer, Wyoming and assumed certain liabilities related to the mine. The Company did not acquire working capital in the acquisition, other than inventory.
On January 31, 2012, the Company closed on the acquisition of the Kemmerer Mine from the Seller. In addition, on January 31, 2012, the Company completed the issuance and sale of $125.0 million aggregate principal amount of 10.75% senior secured notes due 2018 (the “Add-On Notes”) at a price equal to approximately 95.5% of their face value.

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

The purchase consideration for the Kemmerer Mine was $164.5 million, which included $76.5 million paid in cash, plus the assumption of approximately $88.0 million of liabilities. The net proceeds of the Add-On Notes financed the $76.5 million cash portion of the purchase consideration, $24.7 million of cash bonding obligations for the Kemmerer Mine and paid cash transaction costs for the Kemmerer acquisition and the Add-On Notes. Acquisition-related costs of $1.6 million have been expensed and are included in Selling and administrative costs. Issuance costs related to the Add-On Notes of $5.1 million have been capitalized. The balance of the net proceeds of the Add-On Notes was used to fund working capital requirements necessary to integrate the Kemmerer operations with the Company's operations.
The Kemmerer acquisition has been accounted for under the acquisition method of accounting that requires the total purchase consideration to be allocated to the assets acquired and liabilities assumed based on estimates of fair value.
The Company has finalized the purchase price allocation for the Kemmerer acquisition. No significant goodwill or other intangible assets were evident in the acquisition.
A summary of the purchase consideration and allocation of the purchase consideration follow (in millions):
 
Final as of
December 31,
2012
Purchase consideration:
 
Cash paid
$
76.5

 
 
Fair value of liabilities assumed:
 
     Postretirement medical cost obligations
49.2

     Asset retirement obligations
19.4

     Pension obligations
15.6

     Deferred revenue
2.2

     Accrued liabilities
1.6

Total fair value of liabilities assumed
88.0

 
 
Total purchase consideration
$
164.5

 
 
 
 
Allocation of purchase consideration:
 
 
 
     Inventories
$
9.6

     Land and mineral rights
65.5

     Plant and equipment
89.4

 
 
Total
$
164.5

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on January 1, 2011. 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 acquisition occurred on January 1, 2011, or of future results of operations.

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

 
Years Ended
 
December 31, 2012
 
December 31, 2011
 
(In thousands)
Total Revenues
 
 
 
As reported
$
600,437

 
$
501,713

Pro forma
$
614,550

 
$
645,595

 
 
 
 
Operating Income
 
 
 
As reported
$
28,872

 
$
10,626

Pro forma
$
31,146

 
$
13,275

 
 
 
 
Net income (loss) applicable to common shareholders
 
 
 
As reported
$
(8,586
)
 
$
(34,460
)
Pro forma
$
(7,524
)
 
$
(46,260
)
 
 
 
 
Net income (loss) per share applicable to common shareholders
 
 
 
As reported
$
(0.61
)
 
$
(2.61
)
Pro forma
$
(0.54
)
 
$
(3.51
)

3.
INVENTORIES
Inventories consisted of the following:
 
December 31,
 
2013
 
2012
 
(In thousands)
Coal stockpiles
$
543

 
$
989

Coal fuel inventories
6,161

 
3,048

Materials and supplies
34,233

 
34,954

Reserve for obsolete inventory
(965
)
 
(1,257
)
Total
$
39,972

 
$
37,734



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

4.
RESTRICTED INVESTMENTS AND BOND COLLATERAL
The Company’s restricted investments and bond collateral consist of the following: 
 
December 31,
2013
 
2012
 
(In thousands)
Coal Segment:
 
 
 
WML debt reserve account
$
13,067

 
$
13,062

Reclamation bond collateral:
 
 
 
Kemmerer Mine
24,966

 
24,702

Absaloka Mine
11,653

 
14,507

Rosebud Mine
3,145

 
12,495

Beulah Mine
1,270

 
1,270

Power Segment:
 
 
 
Letter of credit account
5,998

 
5,990

Corporate Segment:
 
 
 
Postretirement medical benefit bonds
8,467

 
8,593

Workers’ compensation bonds
6,667

 
6,590

Total restricted investments and bond collateral
75,233

 
87,209

Less current portion
(5,998
)
 
—

Total restricted investments and bond collateral, less current portion
$
69,235

 
$
87,209

The Company’s carrying value and estimated fair value of its restricted investments and bond collateral at December 31, 2013 are as follows:
 
Carrying Value
 
Fair Value
 
(In thousands)
Cash and cash equivalents
$
40,605

 
$
40,605

Time deposits
2,444

 
2,444

Held-to-maturity securities
32,184

 
32,046

 
$
75,233

 
$
75,095

In 2013, 2012, and 2011, the Company recorded a gain of less than $0.1 million, $0.1 million, and $0.1 million, respectively, on the sale of available-for-sale securities held as restricted investments and bond collateral.
In 2013, $3.0 million and $9.4 million of reclamation bond collateral has been released from restriction regarding the Absaloka and Rosebud Mines, respectively.
The $6.0 million letter of credit account in the power segment has been released from restriction in February, 2014 and as a result is included as current portion.
Coal Segment
Pursuant to the terms of the Note Purchase Agreement dated June 26, 2008, WML must maintain a debt service reserve account. The debt service reserve account is required to contain funds sufficient to pay the principal, interest, and collateral agent’s fees scheduled to be paid in the following six months. The debt service reserve account was fully funded at December 31, 2013.
As of December 31, 2013, the Company had reclamation bond collateral in place for its Kemmerer, Absaloka, Rosebud and Beulah Mines. Bond collateral is not required at the Jewett Mine as reclamation bonding is the responsibility of its customer. These government-required bonds assure that coal-mining operations comply with applicable federal and state regulations relating to the performance and completion of final reclamation activities. The amounts deposited in the bond collateral account secure the bonds issued by the bonding company.

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

Power Segment
As of February, 2014, the Company will no longer be required to fund a letter of credit account for its power operations.
Corporate Segment
The Company is required to obtain surety bonds in connection with its self-insured workers’ compensation plan and certain health care plans. The Company’s surety bond underwriters require collateral to issue these bonds.
Held-to-Maturity and Available-for-Sale Restricted Investments and Bond Collateral
The amortized cost, gross unrealized holding gains and losses and fair value of held-to-maturity securities are as follows: 
 
December 31,
2013
 
2012
 
(In thousands)
Amortized cost
$
32,184

 
$
3,983

Gross unrealized holding gains
309

 
356

Gross unrealized holding losses
(447
)
 
—

Fair value
$
32,046

 
$
4,339

Maturities of held-to-maturity securities are as follows at December 31, 2013: 
 
Amortized Cost
 
Fair Value
 
(In thousands)
Due within one year
$
1,111

 
$
1,143

Due in five years or less
17,839

 
17,944

Due after five years to ten years
6,769

 
6,665

Due in more than ten years
6,465

 
6,294

 
$
32,184

 
$
32,046

The cost basis, gross unrealized holding gains and fair value of available-for-sale securities are as follows: 
 
December 31,
 
2013
 
2012
 
(In thousands)
Cost basis
$
—

 
$
175

Gross unrealized holding gains
—

 
16

Fair value
$
—

 
$
191


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

5.
LINES OF CREDIT AND LONG-TERM DEBT
The amounts outstanding under the Company’s long-term debt consisted of the following as of the dates indicated: 
 
Total Debt Outstanding
December 31,
 
2013
 
2012
 
(In thousands)
10.75% senior notes due 2018
$
251,500

 
$
252,000

WML term debt due 2018
85,500

 
103,500

Capital lease obligations
10,153

 
13,926

Other
1,209

 
1,654

Debt discount
(8,525
)
 
(10,091
)
Total debt outstanding
339,837

 
360,989

Less current portion
(44,343
)
 
(23,791
)
Total debt outstanding, less current portion
$
295,494

 
$
337,198

The following table presents aggregate contractual debt maturities of all long-term debt: 
 
As of December 31, 2013
 
(In thousands)
2014
$
23,949

2015
22,662

2016
21,943

2017
22,492

2018
257,316

Thereafter
—

Total
348,362

Less: debt discount
(8,525
)
Total debt
$
339,837


Revolving Lines of Credit
Corporate Revolving Credit Agreement
On June 29, 2012, the Company and certain of its subsidiaries entered into a five-year, $20.0 million revolving line of credit permitted under the indenture governing the 10.75% Senior Notes with an expiration date of June 30, 2017. The revolver may support up to $2.0 million of letters of credit (which was increased to $10.0 million on January 10, 2014), which would reduce the balance available under the revolver. At December 31, 2013, availability on the revolver was $20.0 million with no outstanding balance and no supported letters of credit. All extensions of credit under the revolver are collateralized by a first priority security interest in and lien upon the inventory and accounts receivable of the Parent, WRI, Kemmerer, and ROVA. Pursuant to the Intercreditor Agreement, the holders of the 10.75% Senior Notes now have a subordinate lien on these assets. The Company capitalized debt issuance costs of $0.7 million in 2012 related to the revolver.
Two interest rate options exist under this revolver. The Base Rate option bears interest at the greater of the Federal Funds Rate plus 0.5% or the Prime Rate, as defined in the loan agreement and is payable monthly. The LIBOR Rate option bears interest at the London Interbank Offering Rate, or LIBOR, rate plus 2.25% and is payable monthly. In addition, a commitment fee of 0.75% of the average unused portion of the available revolver is payable monthly.
The loan agreement contains various affirmative, negative and financial covenants. Financial covenants in the agreement include a fixed charge coverage ratio and an EBITDA measure. The fixed charge coverage ratio must meet or exceed a specified minimum. The EBITDA covenant requires a minimum amount of EBITDA to be achieved. We met these covenant requirements as of December 31, 2013.
WML Revolving Credit Agreement

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

At December 31, 2013, WML had a revolving credit agreement with a borrowing limit of $25.0 million and a maturity date of June 26, 2013. WML has two interest rate options to choose from on this revolver. The Base Rate option bears interest at a base rate plus 0.50% and is payable monthly (3.75% per annum at December 31, 2013). The LIBOR Rate option bears interest at the London Interbank Offering Rate, or LIBOR, rate plus 3.0% (3.53% per annum at December 31, 2013). In addition, a commitment fee of 0.50% of the average unused portion of the available revolver is payable quarterly. At December 31, 2013, the revolver had no outstanding balance and supported a $1.9 million letter of credit. The Company had $23.1 million of borrowing availability under this revolver at December 31, 2013.

In March 2013, the Company amended the credit agreement by extending the maturity date from June 26, 2013 to December 31, 2017. Issuance costs related to the amendment of $0.2 million have been capitalized.
The revolver is secured by substantially all assets of WML, Westmoreland Savage Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC; the Company’s membership interest in WML; and the stock of WSC, WECO and DWC. WECO, DWC, and WSC have guaranteed WML’s obligations with respect to the Revolver.
Upon closing of the Sherritt Acquisition, the WML revolving credit agreement will expect to be terminated. See Note 1 for additional information.
10.75% Senior Notes
On February 4, 2011 through a private placement offering, the Company issued $150.0 million of Parent Notes (the “Parent Notes”), which are senior secured notes. The Company’s subsidiary, Westmoreland Partners, was a co-issuer of the notes. The Parent Notes were issued at a 5% discount, mature February 1, 2018, and bear a fixed interest rate of 10.75%, payable semi-annually, in arrears, on February 1 and August 1 of each year, which began August 1, 2011. Proceeds from the Parent Notes were used to retire ROVA's term debt, WRI's term debt and revolving line of credit, and the convertible notes; as well as payment of preferred stock dividend arrearages. On July 29, 2011, the Company commenced an exchange offer for the Parent Notes for an equal principal amount of notes that have been registered under the Securities Act of 1933, which exchange was completed in September, 2011. As a result of this offering, the Company recorded a $17.0 million loss on extinguishment of debt in the year ended December 31, 2011. The loss included a $9.1 million make-whole payment for ROVA’s debt and $7.9 million of non-cash write-offs of unamortized discount on debt and related capitalized debt costs and convertible debt conversion expense.
On January 31, 2012, the Company completed the private placement of $125.0 million of senior secured notes due in 2018 (the “Add-On Notes”), which were additional notes issued pursuant to the existing Parent Notes indenture, collectively referred to as the “10.75% Senior Notes”. The Add-On Notes were issued at a 4.5% original issue discount. On June 22, 2012, the Company commenced an exchange offer for the Add-On Notes for an equal principal amount of notes that have been registered under the Securities Act of 1933, which exchange was completed in July, 2012. At this time, all of the outstanding 10.75% Senior Notes are traded under one CUSIP. In 2011, the Company capitalized $0.2 million of debt issuance costs related to the Add-On Notes offering and has capitalized debt issuance costs of $4.9 million in 2012. The Company funded the Kemmerer Mine acquisition through the net proceeds from the Add-On Notes.
The 10.75% Senior Notes mature February 1, 2018, and bear an annual fixed interest rate of 10.75%, payable semi-annually, in arrears, on February 1 and August 1 of each year. The 10.75% Senior Notes are fully and unconditionally guaranteed by ROVA, Westmoreland Kemmerer, Inc. (“Kemmerer”), WRI and their respective subsidiaries (other than Absaloka Coal, LLC) and by certain other subsidiaries. Substantially all of the assets of the Parent, ROVA, Kemmerer and WRI constitute collateral for the 10.75% Senior Notes as to which the holders of these notes have a lien securing the notes. The lien securing the 10.75% Senior Notes is subordinate to the lien securing our revolving credit agreement.
During the year ended December 31, 2013, the Company paid $0.5 million, excluding accrued interest, to repurchase Senior Notes with a principal amount of $0.5 million. The Company recognized losses of $0.1 million on these repurchases, which were recorded as losses on extinguishment of debt. The losses on the repurchases were measured based on the carrying value of the repurchased portion of the Senior Notes, which included a portion of the unamortized debt issue costs and the debt discount on the dates of repurchase.
Under the indenture governing the 10.75% Senior Notes, the Company is required to offer a portion of our Excess Cash Flow (as defined by the indenture) for each fiscal year to purchase some of these notes at 100% of the principal amount. While the Company did repurchase $23.0 million of 10.75% Senior Notes during 2012, we did not have Excess Cash Flow for the years ended December 31, 2012 or 2011. The Company did have $29.5 million of Excess Cash Flow for the year ended

22
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

December 31, 2013 and will be required to offer $22.1 million for repurchase by April 30, 2014. As a result, the Company has reclassified $22.1 million of the outstanding 10.75% Senior Notes to Current installments of long-term debt.
The indenture governing the 10.75% Senior Notes contains, among other provisions, events of default and various affirmative and negative covenants. As of December 31, 2013, the Company was in compliance with all covenants for these notes.
WML Term Debt
The term debt bears interest at 8.02% per annum, payable quarterly. The principal payments required for the term debt are as follows: 
 
(In millions)
2014
$
18.0

2015
20.0

2016
20.0

2017
22.0

2018
5.5

Thereafter
—

The term debt is payable in full on March 31, 2018. The term debt is secured by substantially all assets of WML, Westmoreland Savage Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC; the Company’s membership interest in WML; and the stock of WSC, WECO and DWC. WECO, DWC, and WSC have guaranteed WML’s obligations with respect to the term debt. The credit agreement requires a debt service account and imposes timing and other restrictions on the ability of WML to distribute funds to the Parent.
WML’s credit agreement contains various affirmative and negative covenants. Operational covenants in the agreements prohibit, among other things, WML from incurring or guaranteeing additional indebtedness, creating liens on its assets, making investments or engaging in asset sales or transactions with affiliates, in each case subject to specified exceptions. Financial covenants in the agreements impose requirements relating to specified debt service coverage and leverage ratios. The debt service coverage ratio must meet or exceed a specified minimum. The leverage ratio covenant requires that WML not permit the ratio of total debt at the end of each quarter to EBITDA (both as defined) for the four quarters then ended to be greater than a specified amount. WML met all of its covenant requirements as of December 31, 2013.
Upon closing of the Sherritt Acquisition, the WML term debt will expect to be prepaid using a portion of the $425.0 million in proceeds from the offering of the New Notes. See Note 1 for additional information.
Capital Leases
The Company engages in leasing transactions for equipment utilized in its mining operations. At December 31, 2013 and 2012, the capital leases outstanding had a weighted average interest rate of 6.40% and 7.57%, respectively and mature at various dates beginning in 2014 through 2018. During the year ended December 31, 2013, the Company paid $2.7 million to purchase equipment under capital leases prior to their maturities with a principal amount of $2.5 million. The difference between the purchase price and the carrying amount of the capital lease obligation was recorded as an adjustment to the carrying amount of the equipment.
6.
POSTRETIREMENT MEDICAL BENEFITS
The Company provides postretirement medical benefits to retired employees and their dependents, mandated by the Coal Industry Retiree Health 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. These benefits are provided through self-insured programs.

23
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

The following table sets forth the actuarial present value of postretirement medical benefit obligations and amounts recognized in the Company’s financial statements: 
 
December 31,
2013
 
2012
 
(In thousands)
Change in benefit obligations:
 
 
 
Net benefit obligation at beginning of year
$
333,842

 
$
258,641

Liability acquired
—

 
49,241

Service cost
4,436

 
3,555

Interest cost
12,139

 
12,363

Plan participant contributions
132

 
129

Actuarial loss (gain)
(53,230
)
 
22,342

Gross benefits paid
(14,220
)
 
(13,544
)
Federal subsidy on benefits paid
1,230

 
1,115

Net benefit obligation at end of year
284,329

 
333,842

Change in plan assets:
 
 
 
Employer contributions
14,088

 
13,415

Plan participant contributions
132

 
129

Gross benefits paid
(14,220
)
 
(13,544
)
Fair value of plan assets at end of year
—

 
—

Unfunded status at end of year
$
(284,329
)
 
$
(333,842
)
Amounts recognized in the balance sheet consist of:
 
 
 
Current liabilities
$
(13,955
)
 
$
(14,068
)
Noncurrent liabilities
(270,374
)
 
(319,775
)
Accumulated other comprehensive loss
20,292

 
77,528

Net amount recognized
$
(264,037
)
 
$
(256,315
)
Amounts recognized in accumulated other comprehensive loss consists of:
 
 
 
Net actuarial loss
$
26,012

 
$
83,884

Prior service credit
(5,720
)
 
(6,356
)
 
$
20,292

 
$
77,528

In 2013, the Company’s postretirement medical benefit liabilities decreased $49.5 million primarily due to increases in discount rates.
The Company has elected to amortize its transition obligations over a 20-year period. Prior service costs and credits and actuarial gains and losses are amortized over the average life expectancy or average future service of the plan’s participants. The following amounts will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2014 (in millions): 
Actuarial loss
$
0.7

Prior service credit
0.6


24
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

The components of net periodic postretirement medical benefit cost are as follows: 
 
Years Ended December 31,
2013
 
2012
 
2011
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
Service cost
$
4,436

 
$
3,555

 
$
493

Interest cost
12,139

 
12,363

 
10,510

Amortization of:
 
 
 
 
 
Transition obligation
—

 
93

 
93

Prior service credit
(636
)
 
(636
)
 
(636
)
Actuarial loss
4,641

 
3,116

 
255

Total net periodic benefit cost
$
20,580

 
$
18,491

 
$
10,715

The following table shows the net periodic postretirement medical benefit costs that relate to current and former mining operations: 
 
Years Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands)
Former mining operations
$
12,475

 
$
11,314

 
$
9,259

Current operations
8,105

 
7,177

 
1,456

Total net periodic benefit cost
$
20,580

 
$
18,491

 
$
10,715

The costs for the former mining operations are included in Heritage health benefit expenses and the costs for current operations are included as operating expenses.
Assumptions
The weighted-average assumptions used to determine the benefit obligations as of the end of each year were as follows: 
 
December 31,
 
2013
 
2012
Discount rate
4.50% - 5.05%
 
3.60% - 4.15%
Measurement date
December 31, 2013
 
December 31, 2012
The discount rate is adjusted annually based on an Aa corporate bond index adjusted for the difference in the duration of the bond index and the duration of the benefit obligations. This rate is calculated using a yield curve, which is developed using the average yield for bonds in the tenth to ninetieth percentiles, which excludes bonds with outlier yields.
The weighted-average assumptions used to determine net periodic benefit cost were as follows: 
 
December 31,
 
2013
 
2012
 
2011
Discount rate
3.60% - 4.15%
 
4.10%
 
5.15%
Measurement date
December 31, 2012
 
December 31, 2011
 
December 31, 2010
The following presents information about the assumed health care trend rate: 
 
December 31,
 
2013
 
2012
Health care cost trend rate assumed for next year
6.75
%
 
7.00
%
Rate to which the cost trend is assumed to decline (ultimate trend rate)
5.00
%
 
5.00
%
Year that the trend rate reaches the ultimate trend rate
2021

 
2021


25
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

The effect of a one percent change on the health care cost trend rate used to calculate periodic postretirement medical benefit costs and the related benefit obligation are summarized in the table below: 
 
Postretirement Medical Benefits
 
1 % Increase
 
1 % Decrease
 
(In thousands)
Effect on service and interest cost components
$
3,148

 
$
(2,442
)
Effect on postretirement medical benefit obligation
$
35,464

 
$
(30,096
)
Cash Flows
The following benefit payments and Medicare D subsidy (which the Company receives as a benefit partially offsetting its prescription drug costs for retirees and their dependents) are expected by the Company:
 
 
Postretirement
Medical  Benefits
 
Medicare D
Subsidy
 
Net 
Postretirement
Medical Benefits
 
(In thousands)
2014
$
13,955

 
$
(1,249
)
 
$
12,706

2015
14,522

 
(1,293
)
 
13,229

2016
14,975

 
(1,336
)
 
13,639

2017
15,408

 
(1,386
)
 
14,022

2018
16,191

 
(1,432
)
 
14,759

Years 2019 - 2023
85,342

 
(7,807
)
 
77,535

Combined Benefit Fund
Additionally, the Company makes payments to the UMWA Combined Benefit Fund, or CBF, which is a multiemployer health plan neither controlled by nor administered by the Company. The CBF is designed to pay health care benefits to UMWA workers (and dependents) who retired prior to 1976. The Company is required by the Coal Act to make monthly premium payments into the CBF. These payments are based on the number of the Company’s UMWA employees who retired prior to 1976, and the Company’s pro-rata assigned share of UMWA retirees whose companies are no longer in business. Contributions to the CBF have decreased over the past three years due to a declining population. The Company expenses payments to the CBF when they are due. The following payments were made to the CBF (in millions): 
2013
$
2.2

2012
2.3

2011
2.6

Workers’ Compensation Benefits
The Company was self-insured for workers’ compensation benefits prior to January 1, 1996. Since 1996, the Company has purchased third-party insurance for workers’ compensation claims. 

26
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

The following table shows the changes in the Company’s workers’ compensation obligation:
 
December 31,
2013
 
2012
(In thousands)
Workers’ compensation, beginning of year (including current portion)
$
9,530

 
$
11,626

Accretion
166

 
204

Claims paid
(581
)
 
(475
)
Actuarial changes
(1,654
)
 
(1,825
)
Workers’ compensation, end of year
7,461

 
9,530

Less current portion
(717
)
 
(820
)
Workers’ compensation, less current portion
$
6,744

 
$
8,710

The discount rates used in determining the workers’ compensation benefit accruals are adjusted annually based on ten-year Treasury bond rates. At December 31, 2013 and 2012, the rates were 3.0% and 2.0%, respectively.
Black Lung Benefits
The Company is self-insured for federal and state black lung benefits for former heritage employees and has established an independent trust to pay these benefits.
The PPACA amended previous legislation related to black lung disease, providing automatic extension of awarded lifetime benefits to surviving spouses and providing changes to the legal criteria used to assess and award claims. Since the legislation passed in March 2010, the Company has experienced a significant increase in claims filed compared to the corresponding period in prior years. However, the Company has not been able to determine what, if any, additional impact may result from these claims due to lack of claims experience under the new legislation and court rulings interpreting the new provisions. The Company has not noted an increase in cash disbursements resulting from these new claims. The Company will continue to evaluate the impact of the PPACA in future periods as additional information, interpretations, guidance and claims experience becomes available.
The following table sets forth the funded status of the Company’s black lung obligation: 
 
December 31,
2013
 
2012
(In thousands)
Actuarial present value of benefit obligation:
 
 
 
Expected claims from terminated employees
$
876

 
$
1,139

Amounts owed to existing claimants
13,267

 
15,061

Total present value of benefit obligation
14,143

 
16,200

Plan assets at fair value, primarily government-backed securities
5,468

 
7,844

Excess of the black lung benefit obligation over trust assets
$
8,675

 
$
8,356

The discount rates used in determining the actuarial present value of the black lung benefit obligation are based on corporate bond yields and are adjusted annually. At December 31, 2013 and 2012, the rates used were 4.00% and 3.25%, respectively. 

27
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Plan Assets
The fair value of the Company’s Black Lung trust assets by asset category is as follows: 
 
December 31, 2013
 
 
 
Quoted Prices
in Active
Markets for
Identical Assets
 
Significant
Other
Observable
Inputs
 
Fair Value
 
Level 1
 
Level 2
 
(In thousands)
U.S. treasury securities
$
5,280

 
$
—

 
$
5,280

Mortgage-backed securities
185

 
—

 
185

Cash and cash equivalents
3

 
3

 
—

 
$
5,468

 
$
3

 
$
5,465

 
 
December 31, 2012
 
 
 
Quoted Prices
in Active
Markets for
Identical Assets
 
Significant
Other
Observable
Inputs
 
Fair Value
 
Level 1
 
Level 2
 
(In thousands)
U.S. treasury securities
$
7,548

 
$
—

 
$
7,548

Mortgage-backed securities
269

 
—

 
269

Cash and cash equivalents
27

 
27

 
—

 
$
7,844

 
$
27

 
$
7,817

The Black Lung Level 1 trust assets include cash and cash equivalents.
The Black Lung Level 2 trust assets include U.S. treasury bonds and notes where evaluators gather information from market sources and integrate relative credit information, observed market movements, and sector news into the evaluated pricing applications and models to value these assets. Level 2 trust assets also include mortgage-backed securities which are valued via model using various inputs such as daily cash flow, snapshots of US Treasury market, floating rate indices as a benchmark yield, spread over index, periodic and life caps, next coupon adjustment date, and convertibility of the bond.
7.
PENSION AND OTHER SAVING PLANS
Defined Benefit Pension Plans
The Company provides defined benefit pension plans to qualified full-time employees pursuant to collective bargaining agreements. Benefits are generally based on years of service and the employee’s average annual compensation for the highest five continuous years of employment as specified in the plan agreement. The Company’s funding policy is to contribute annually the minimum amount prescribed, as specified by applicable regulations or loan covenants. The Company may make additional discretionary contributions. In 2009, the Company froze its pension plan for non-represented employees.
Supplemental Executive Retirement Plan
The Company maintains a Supplemental Executive Retirement Plan or SERP for former executives as a result of employment or severance agreements. The SERP is an unfunded non-qualified deferred compensation plan, which provides benefits to certain employees beyond the maximum limits imposed by the Employee Retirement Income Security Act and the Internal Revenue Code. The Company does not expect to add new participants to its SERP plan.

28
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

The following table provides a reconciliation of the changes in the benefit obligations of the plans and the fair value of assets of the qualified plans and the amounts recognized in the Company’s financial statements for both the defined benefit pension and SERP plans:
 
Defined Benefit Pension
December 31,
 
SERP
December 31,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Change in benefit obligation:
 
 
 
 
 
 
 
Net benefit obligation at beginning of year
$
172,289

 
$
100,582

 
$
4,241

 
$
4,511

Liability acquired
—

 
57,307

 
—

 
—

Service cost
2,346

 
2,139

 
—

 
—

Interest cost
6,209

 
6,330

 
152

 
172

Actuarial loss (gain)
(18,972
)
 
13,121

 
(359
)
 
(48
)
Benefits and expenses paid
(6,797
)
 
(7,190
)
 
(394
)
 
(394
)
Net benefit obligation at end of year
155,075

 
172,289

 
3,640

 
4,241

Change in plan assets:
 
 
 
 
 
 
 
Fair value of plan assets at the beginning of year
121,887

 
75,710

 
—

 
—

Assets acquired
—

 
41,704

 
—

 
—

Actual return on plan assets
18,414

 
11,502

 
—

 
—

Employer contributions
645

 
161

 
394

 
394

Benefits and expenses paid
(6,797
)
 
(7,190
)
 
(394
)
 
(394
)
Fair value of plan assets at end of year
134,149

 
121,887

 
—

 
—

Unfunded status at end of year
$
(20,926
)
 
$
(50,402
)
 
$
(3,640
)
 
$
(4,241
)
Amounts recognized in the accompanying balance sheet consist of:
 
 
 
 
 
 
 
Current liability
$
—

 
$
—

 
$
(390
)
 
$
(390
)
Noncurrent liability
(20,926
)
 
(50,401
)
 
(3,250
)
 
(3,850
)
Accumulated other comprehensive loss
11,045

 
43,037

 
1,209

 
1,679

Net amount recognized at end of year
$
(9,881
)
 
$
(7,364
)
 
$
(2,431
)
 
$
(2,561
)
Amounts recognized in accumulated other comprehensive loss consist of:
 
 
 
 
 
 
 
Net actuarial loss
$
11,045

 
$
43,037

 
$
1,209

 
$
1,679

 
$
11,045

 
$
43,037

 
$
1,209

 
$
1,679

The accumulated benefit obligation for all plans was $158.7 million and $176.5 million at December 31, 2013 and 2012, respectively. The Company’s pension and SERP liabilities decreased $30.1 million in 2013 primarily from increases in discount rates.
Prior service costs and actuarial gains and losses are amortized over the expected future period of service of the plan’s participants. The following amounts will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2014 (in millions): 
 
Pension
 
SERP
Net actuarial loss
$
0.8

 
$
0.1


29
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

The components of net periodic benefit cost are as follows: 
 
Defined Benefit Pension
Years Ended December 31,
 
SERP
Years Ended December 31,
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
2,346

 
$
2,139

 
$
784

 
$
—

 
$
—

 
$
—

Interest cost
6,209

 
6,330

 
4,568

 
152

 
172

 
215

Expected return on plan assets
(8,770
)
 
(8,241
)
 
(5,218
)
 
—

 
—

 
—

Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
—

 
—

 
—

 
—

 
—

 
5

Actuarial loss
3,377

 
2,867

 
1,578

 
112

 
95

 
64

Total net periodic pension cost
$
3,162

 
$
3,095

 
$
1,712

 
$
264

 
$
267

 
$
284

These costs are included in the accompanying statements of operations in Cost of sales and Selling and administrative expenses.
Assumptions
The weighted-average assumptions used to determine the benefit obligations as of the end of each year were as follows: 
 
Defined Benefit Pension
December 31,
 
SERP
December 31,
 
2013
 
2012
 
2013
 
2012
Discount rate
4.25% - 4.65%
 
3.35% - 3.75%
 
4.65%
 
3.75%
Measurement date
December 31, 2013
 
December 31, 2012
 
December 31, 2013
 
December 31, 2012
The discount rate is adjusted annually based on an Aa corporate bond index adjusted for the difference in the duration of the bond index and the duration of the benefit obligations. This rate is calculated using a yield curve, which is developed using the average yield for bonds in the tenth to ninetieth percentiles, which excludes bonds with outlier yields.
The following table provides the assumptions used to determine net periodic benefit cost: 
 
Defined Benefit Pension
Years Ended December 31,
 
SERP
Years Ended December 31,
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Discount rate
3.35% - 3.75%
 
4.05% - 4.25%
 
5.15% - 5.40%
 
3.75%
 
4.25%
 
5.40%
Expected return on plan assets
7.40%
 
7.40%
 
7.40%
 
N/A
 
N/A
 
N/A
Rate of compensation increase
N/A
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A
Measurement date
December 31, 2012
 
December 31,
2011
 
December 31,
2010
 
December 31, 2012
 
December 31,
2011
 
December 31,
2010
Plan Assets
The Company’s investment goals are to maximize returns subject to specific risk management policies. The Company sets the expected return on plan assets based on historical trends and forecasts provided by its third-party fund managers. Its risk management policies permit investments in mutual funds, and prohibit direct investments in debt and equity securities and derivative financial instruments. The Company invested in its common stock in 2011 in order to meet plan funding requirements. The Company addresses diversification by the use of mutual fund investments whose underlying investments are in fixed income and equity securities, both domestic and international. These mutual funds are readily marketable and can be sold to fund benefit payment obligations as they become payable.

30
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

The weighted-average target asset allocation of the Company’s pension trusts were as follows at December 31, 2013: 
 
Target Allocation
Asset category

Cash and equivalents
0% - 10%
Equity securities funds
20% - 60%
Debt securities funds
40% - 80%
Other
0% - 10%
The fair value of the Company’s pension plan assets by asset category is as follows:
 
December 31, 2013
 
 
 
Quoted
Prices in
Active
Markets for
Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Pooled separate accounts:
 
 
 
 
 
 
 
Large-cap
$
48,983

 
$
—

 
$
48,983

 
$
—

International blend
18,191

 
—

 
18,191

 
—

Fixed income domestic
40,944

 
—

 
40,944

 
—

Fixed income long term
17,797

 
—

 
17,797

 
—

Stable Value
5,267

 
—

 
5,267

 
—

Registered investment companies – growth fund
—

 
—

 
—

 
—

Limited partnerships and limited liability companies
250

 
—

 
—

 
250

Westmoreland Coal common stock
2,255

 
2,255

 
—

 
—

Cash and cash equivalents
462

 
462

 
—

 
—

 
$
134,149

 
$
2,717

 
$
131,182

 
$
250

 
December 31, 2012
 
 
 
Quoted
Prices in
Active
Markets for
Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Pooled separate accounts:
 
 
 
 
 
 
 
Large-cap
$
50,589

 
$
—

 
$
50,589

 
$
—

International blend
10,294

 
—

 
10,294

 
—

Fixed income domestic
42,744

 
—

 
42,744

 
—

Stable value
3,850

 
—

 
3,850

 
—

Registered investment companies – growth fund
10,295

 
10,295

 
—

 
—

Limited partnerships and limited liability companies
614

 
—

 
—

 
614

Westmoreland Coal common stock
3,500

 
3,500

 
—

 
—

Cash and cash equivalents
1

 
1

 
—

 
—

 
$
121,887

 
$
13,796

 
$
107,477

 
$
614


31
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

The Company’s Level 1 assets include securities held by registered investment companies and its common stock, which are both typically valued using quoted market prices of an active market. Cash and cash equivalents and short-term investments are predominantly held in money market accounts.
The Company’s Level 2 assets include pooled separate accounts, which are valued based on the quoted market prices of the securities underlying the investments.
The Company’s Level 3 assets include interest in limited partnerships and limited liability companies that invest in privately held companies or privately held real estate assets. These assets are valued by the respective partnership or company manager using market and income approaches. The market approach consists of using comparable market transactions or values. The income approach consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and other risk factors. The inputs considered in the valuations include original transaction prices, recent transactions in the same or similar instruments, changes in financial ratios or cash flows, discounted cash flow valuations, and general economic and market conditions.
A summary of changes in the fair value of the Plan’s Level 3 assets is shown below: 
 
Limited partnerships and limited
liability companies
 
Year Ended December 31,
 
2013
 
2012
 
(In thousands)
Beginning balance
$
614

 
$
1,050

Unrealized gain
5

 
96

Settlements, net
(369
)
 
(532
)
Ending balance
$
250

 
$
614

Contributions
Previously, the Company was required by WML loan covenants to ensure that by 8.5 months after the end of the plan year, the value of its pension assets are at least 90% of each of the plan’s year end actuarially determined pension liability.  On June 28, 2012, the loan covenant was amended to lower the requirement to 80%.
The Company contributed $0.6 million in cash to its retirement plans during 2013, in order to achieve the required 80% funding status. In 2014, the Company expects to make approximately $4.3 million of pension plan contributions.
Cash Flows
The following benefit payments are expected to be paid from its pension plan assets: 
 
Pension Benefits
 
(In thousands)
2014
$
7,324

2015
7,772

2016
8,238

2017
9,066

2018
9,321

Years 2019 - 2023
50,340

The benefits expected to be paid are based on the same assumptions used to measure the Company’s pension benefit obligation at December 31, 2013 and include estimated future employee service.
Multi-Employer Pension
The Company contributes to the Central Pension Fund, or the Plan, a multiemployer defined benefit pension plan for its WECO, WRI and WSC entities pursuant to collective bargaining agreements. The Plan’s Employer Identification Number is 36-6052390. These employers contribute to the Plan based on a negotiated rate per hour worked per participating employee. For

32
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

the Plan’s year-end dates of January 31, 2013 and 2012, no single employer contributed more than 5% of total contributions to the Plan. As of the Plan’s year-end date January 31, 2013, it had a healthy or greater than 80% funding status.
The following table shows required information for each employer contributing to the Central Pension Fund:
 
 
WECO
 
WRI
 
WSC
Employer plan number
9313

 
9243

 
4990

Minimum contributions per hour worked
$
5.75

 
$
5.70

 
$2.95 - $3.20

Expiration date of collective bargaining agreements
2/28/2019

 
5/31/2015

 
4/1/2016

Employer contributions (in millions):
 
 
 
 
 
2013
$
3.4

 
$
0.9

 
$
0.1

2012
3.2

 
0.5

 
0.1

2011
3.2

 
0.9

 
0.1

Other Plans
The Company sponsors 401(k) saving plans, which were established to assist eligible employees provide for their future retirement needs. The Company’s expense was $3.6 million, $2.9 million and $2.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. During 2013, the Company's expense of $3.6 million consisted of $1.2 million in cash contributions and $2.4 million in contributions of Company stock to the plans. During 2012 and 2011, the Company's expense were all from contributions of Company stock to the plans.

8.
HERITAGE HEALTH BENEFIT EXPENSES
The caption Heritage health benefit expenses used in the consolidated statements of operations refers to costs of benefits the Company provides to its former mining operation employees. The components of these expenses are as follows:
 
 
Years Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands)
Health care benefits
$
12,579

 
$
11,367

 
$
9,507

Combined benefit fund payments
2,240

 
2,258

 
2,617

Workers’ compensation benefits (credit)
(1,212
)
 
(1,322
)
 
2,132

Black lung benefits (credit)
(189
)
 
1,085

 
4,319

Total
$
13,418

 
$
13,388

 
$
18,575



33
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

9.
ASSET RETIREMENT OBLIGATIONS, CONTRACTUAL THIRD-PARTY RECLAMATION RECEIVABLE, AND RECLAMATION DEPOSITS
The asset retirement obligation, contractual third-party reclamation receivable, and reclamation deposits for each of the Company’s mines and ROVA at December 31, 2013 are summarized below: 
 
Asset
Retirement
Obligation
 
Contractual
Third-Party
Reclamation
Receivable
 
Reclamation
Deposits
 
(In thousands)
Rosebud
$
126,965

 
$
21,186

 
$
74,921

Jewett
75,267

 
75,267

 
—

Absaloka
36,401

 
337

 
—

Beulah
17,785

 
—

 
—

Kemmerer
17,174

 
—

 
—

Savage
5,380

 
—

 
—

ROVA
892

 
—

 
—

Total
$
279,864

 
$
96,790

 
$
74,921

Asset Retirement Obligations
Changes in the Company’s asset retirement obligations were as follows: 
 
Years Ended December 31,
 
2013
 
2012
 
(In thousands)
Asset retirement obligations, beginning of year (including current portion)
$
263,847

 
$
247,478

Accretion
21,905

 
21,909

Liabilities settled
(21,630
)
 
(17,342
)
Changes due to amount and timing of reclamation
15,742

 
(7,575
)
ARO acquired
—

 
19,377

Asset retirement obligations, end of year
279,864

 
263,847

Less current portion
(23,353
)
 
(22,238
)
Asset retirement obligations, less current portion
$
256,511

 
$
241,609

As permittee, the Company or its subsidiaries are responsible for the total amount of final reclamation costs for its mines and ROVA. The financial responsibility for a portion of final reclamation of the mines when they are closed has been transferred by contract to certain customers, while other customers have provided guarantees or funded escrow accounts to cover final reclamation costs. Costs of reclamation of mining pits prior to mine closure are recovered in the price of coal shipped.
As of December 31, 2013, the Company had $298.6 million in surety bonds outstanding to secure reclamation obligations.
Contractual Third-Party Reclamation Receivables
The Company has recognized as an asset $96.8 million as contractual third-party reclamation receivables, representing the present value of customer obligations to reimburse the Company for reclamation expenditures at the Company’s Rosebud, Jewett and Absaloka Mines.

34
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Reclamation Deposits
The Company’s reclamation deposits will be used to fund final reclamation activities. The Company’s carrying value and estimated fair value of its reclamation deposits at December 31, 2013 are as follows: 
 
Carrying Value
 
Fair Value
 
(In thousands)
Cash and cash equivalents
$
63,525

 
$
63,525

Held-to-maturity securities
11,396

 
12,086

 
$
74,921

 
$
75,611

In 2011, the Company recorded a gain of $0.1 million on the sale of available-for-sale securities held as reclamation deposits.
Held-to-Maturity and Available-for-Sale Reclamation Deposits
The amortized cost, gross unrealized holding gains and losses and fair value of held-to-maturity securities are as follows: 
 
Years Ended December 31,
 
2013
 
2012
 
(In thousands)
Amortized cost
$
11,396

 
$
19,832

Gross unrealized holding gains
764

 
1,190

Gross unrealized holding losses
(74
)
 
(9
)
Fair value
$
12,086

 
$
21,013

Maturities of held-to-maturity securities are as follows at December 31, 2013: 
 
Amortized Cost
 
Fair Value
 
(In thousands)
Within one year
$
17

 
$
17

Due in five years or less
6,645

 
6,976

Due after five years to ten years
3,002

 
3,123

Due in more than ten years
1,732

 
1,970

 
$
11,396

 
$
12,086

The cost basis, gross unrealized holding gains and fair value of available-for-sale securities are as follows:
 
December 31,
 
2013
 
2012
 
(In thousands)
Cost basis
$
—

 
$
1,000

Gross unrealized holding gains
—

 
39

Fair value
$
—

 
$
1,039


35
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

10.
DERIVATIVE INSTRUMENTS
Derivative Liabilities
The Company evaluates all of its financial instruments to determine if such instruments are derivatives, derivatives that qualify for the normal purchase normal sale exception, or contain features that qualify as embedded derivatives. All derivative financial instruments, except for derivatives that qualify for the normal purchase normal sale exception, are recognized on the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting.
Convertible Debt
As a part of the Parent Notes offering in February 2011, the Company’s convertible notes were retired.
The effect of derivative instruments not designated as hedging instruments on the accompanying consolidated statements of operations was as follows (in thousands): 
 
 
Statement of
Operations Location
 
Income Recognized in
Earnings on Derivatives
 
 
Years Ended December 31,
Derivative Instrument
 
2013
 
2012
 
2011
Convertible debt -conversion feature
 
Other income (loss)
 
$
—

 
$
—

 
$
3,079


11.
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 Company is required to disclose the fair value of financial instruments where practicable. The carrying amounts of cash equivalents, accounts receivable and accounts payable reflected on the consolidated balance sheets approximate the fair value of these instruments due to the short duration to their maturities. 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 as of December 31, 2013 (Level 3).
The estimated fair value of the Company’s debt with fixed interest rates are as follows: 
 
Carrying Value
 
Fair Value
 
(In thousands)
December 31, 2012
$
345,408

 
$
359,753

December 31, 2013
$
328,473

 
$
364,329

The table below sets forth, by level, the Company’s financial assets and liabilities that are accounted for at fair value on a recurring basis:
 
Year Ended December 31, 2012
Level 1
 
Level 2
 
Level 3
 
Total
(In thousands)
Assets:
 
 
 
 
 
 
 
Available-for-sale investments included in Restricted investments and bond collateral
$
191

 
$
—

 
$
—

 
$
191

Available-for-sale investments included in Reclamation deposits
1,039

 
—

 
—

 
1,039

Total assets
$
1,230

 
$
—

 
$
—

 
$
1,230


12.
RESTRICTED STOCK UNITS, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (SARs)
As of December 31, 2013, the Company had restricted stock units, stock options, and stock-settled stock appreciation rights, or SARs, outstanding from three stock incentive plans. Two of these plans were terminated in October 2009. The Company grants employees and non-employee directors restricted stock units from the Amended and Restated 2007 Equity

36
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Incentive Stock Plan. The Amended and Restated 2007 Equity Incentive Stock Plan provides that non-employee directors will receive equity awards of 7,000 shares after each annual meeting.
The maximum number of remaining shares that can be issued under the 2007 Incentive Stock Plan is 49,050.
Compensation cost arising from share-based arrangements is shown in the following table: 
 
Years Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands)
Recognition of fair value of restricted stock units, stock options and SARs over vesting period; and issuance of stock
$
2,967

 
$
3,088

 
$
1,969

Contributions of stock to the Company’s 401(k) plan
2,355

 
2,952

 
2,752

Total share-based compensation expense
$
5,322

 
$
6,040

 
$
4,721

Restricted Stock Units
The Company may issue restricted stock units, which requires no payment from the employee. Restricted stock units typically vest ratably over three years. Upon vesting, the Company can elect to settle the restricted stock units in either cash or the Company’s common stock. Compensation expense is based on the fair value on the grant date and is recorded ratably over the vesting period.
In April 2013, the Company granted 54,730 restricted stock units, of which 27,366 units will vest ratably over a three-year period. The remaining 27,364 units are performance based, which will vest and pay out at the end of a three-year period if performance goals are met. The Company’s management believes it is probable that the target performance condition will be met.
A summary of restricted stock award activity for the year ended December 31, 2013 is as follows: 
 
Units
 
Weighted Average
Grant-Date Fair
Value
 
Unamortized
Compensation
Expense
(In thousands)
 
Non-vested at December 31, 2012
680,185

 
$
8.88

 
 
 
Granted
103,730

 
$
11.70

 
 
 
Vested
(195,940
)
 
$
8.62

 
 
 
Forfeited
—

 
$
—

 
 
 
Non-vested at December 31, 2013
587,975

 
$
9.46

 
$
2,346

(1) 
____________________ 
(1)
Expected to be recognized over the next three years.
Additional information related to restricted stock units: 
Years Ended December 31:
Weighted
Average
Grant-Date
Fair Value
 
Total
Grant- Date
Fair Value of
Restricted Stock
Units that Vested
(In thousands)
2013
$
11.70

 
$
1,689

2012
$
7.57

 
$
1,336

2011
$
14.99

 
$
1,757

Stock Options
Stock options generally vest over three years, expire ten years from the date of grant, and have an option price equal to the market value of the stock on the date of grant.

37
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Information with respect to stock option activity for the year ended December 31, 2013, is as follows:
 
Stock Options
 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Life
(In years)
 
Aggregate
Intrinsic
Value
(In thousands)
 
Unamortized
Compensation
Expense
(In thousands)
Outstanding at December 31, 2012
170,823

 
$
21.30

 
 
 
 
 
 
Expired
(25,017
)
 
$
17.41

 
 
 
 
 
 
Outstanding and exercisable at December 31, 2013
145,806

 
$
21.97

 
4.254
 
$
—

 
$
—

Additional information related to stock options: 
Years Ended December 31:
Intrinsic Value of
Stock Options
Exercised
 
Total Grant-Date
Fair Value of Stock
Options that Vested
 
(In thousands)
2013
$
—

 
$
—

2012
$
—

 
$
—

2011
$
86

 
$
538

There were no stock options granted during 2013, 2012 or 2011.
SARs
SARs generally vest over three years, expire ten years from the date of grant, and have a base price equal to the market value of the stock on the date of grant. Upon vesting, the holders may exercise the SARs and receive a number of shares of common stock having a value equal to the appreciation in the value of the common stock between the grant date and the exercise date.
Information with respect to SARs granted and outstanding for the year ended December 31, 2013 is as follows:
 
SARs
 
Weighted
Average Exercise Price
 
Weighted
Average
Remaining
Contractual
Life
(In years)
 
Aggregate
Intrinsic
Value
(In thousands)
 
Unamortized
Compensation
Expense
(In thousands)
Outstanding at December 31, 2012
70,734

 
$
22.60

 
 
 
 
 
 
Expired
—

 
$
—

 
 
 
 
 
 
Outstanding and exercisable at December 31, 2013
70,734

 
$
22.60

 
1.7
 
$
—

 
$
—

There were no SARs granted or exercised during 2013, 2012, or 2011.
The total grant-date fair value of SARs that vested was less than $0.1 million in 2011. No SARs vested during 2012 or 2013.
13.
STOCKHOLDERS’ EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Preferred and Common Stock
The Company has two classes of capital stock outstanding, common stock, par value $2.50 per share, and Series A Convertible Exchangeable Preferred Stock on which cumulative dividends of $2.125 per share are payable quarterly. Each share of Series A Preferred Stock is represented by four Depositary Shares. Under the terms of the Series A Preferred Stock, the Company can redeem preferred shares at any time for the redemption value of $100.00 plus any accumulated dividends paid in cash. In February 2011, the Company paid $19.9 million of accumulated preferred stock dividends as of January 1, 2011. The Company is permitted to pay preferred stock dividends to the extent there is a surplus, defined by Delaware law. In June 2011, approximately 169 shares of preferred stock were converted into 1,152 shares of common stock.  Subsequent to December 31, 2013 and through February 25, 2014, approximately 37,300 shares of preferred stock were converted into 254,822 shares of common stock. The Company paid $1.4 million of preferred stock dividends for the year ended December 31, 2013.

38
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Accumulated Other Comprehensive Income (Loss)
The following is a summary of accumulated other comprehensive income (loss):
 
Pension and
Postretirement
Medical Benefits
 
Available for
Sale
Securities
 
Tax Effect of
Other
Comprehensive
Income Gains
 
Accumulated
Other
Comprehensive
Loss
 
(In thousands)
Balance at January 1, 2011
$
(32,049
)
 
$
525

 
$
(26,156
)
 
$
(57,680
)
2011 activity
(63,575
)
 
(200
)
 
—

 
(63,775
)
Balance at December 31, 2011
(95,624
)
 
325

 
(26,156
)
 
(121,455
)
2012 activity
(26,622
)
 
(268
)
 
—

 
(26,890
)
Balance at December 31, 2012
(122,246
)
 
57

 
(26,156
)
 
(148,345
)
2013 activity
89,699

 
(57
)
 
(4,892
)
 
84,750

Balance at December 31, 2013
$
(32,547
)
 
$
—

 
$
(31,048
)
 
$
(63,595
)

Pension and postretirement medical benefit adjustments relate to changes in the funded status of various benefit plans. The unrealized gains and losses associated with recognizing the Company’s “available-for-sale” securities at fair value are recorded through Accumulated other comprehensive loss.

Changes in Accumulated Other Comprehensive Income

The following table reflects the changes in accumulated other comprehensive income (loss) by component:
 
Pension
 
Postretirement
medical benefits
 
Available for
sale
securities
 
Tax effect of
other
comprehensive
income gains
 
Accumulated
other
comprehensive
loss
 
(In thousands)
Balance at December 31, 2012
$
(44,719
)
 
$
(77,527
)
 
$
57

 
$
(26,156
)
 
$
(148,345
)
Other comprehensive income before reclassifications
28,974

 
53,230

 
(45
)
 
(4,892
)
 
77,267

Amounts reclassified from accumulated other comprehensive income (loss)
3,490

 
4,005

 
(12
)
 
—

 
7,483

Balance at December 31, 2013
$
(12,255
)
 
$
(20,292
)
 
$
—

 
$
(31,048
)
 
$
(63,595
)
The following table reflects the reclassifications out of accumulated other comprehensive income (loss) for the year ended December 31, 2013 (in thousands):
Details about accumulated other comprehensive income (loss) components
 
Amount reclassified from accumulated
other comprehensive income (loss)(1)
 
Affected line item
in the statement
where net income
(loss) is presented
 
 
Available-for sale securities
 
 
 
 
Realized gains and losses on available-for sale securities
 
$
(12
)
 
Other income (loss)
 
 
$
(12
)
 
Total
Amortization of defined benefit pension items:
 
 
 
 
Actuarial losses
 
$
3,490

 
(2) 
Amortization of postretirement medical items:
 
 
 
 
Prior service costs
 
$
(636
)
 
(3) 
Actuarial losses
 
4,641

 
(3) 
 
 
$
4,005

 
Total

39
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

____________________
(1)
Amounts in parentheses indicate debits to income/loss.
(2)
These accumulated other comprehensive income components are included in the computation of net periodic pension cost. (See Note 7 - Pension and Other Savings Plans for additional details)
(3)
These accumulated other comprehensive income components are included in the computation of net periodic postretirement medical cost. (See Note 6 - Postretirement Medical Benefits for additional details)
14.
INCOME TAX
Income tax expense (benefit) attributable to net loss before income taxes consists of: 
 
Years Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands)
Current:
 
 
 
 
 
Federal
$
(2
)
 
$
(8
)
 
$
(174
)
State
112

 
98

 
168

 
110

 
90

 
(6
)
Deferred:
 
 
 
 
 
Federal
(4,189
)
 
—

 
—

State
(703
)
 
—

 
(420
)
 
(4,892
)
 
—

 
(420
)
Income tax expense (benefit)
$
(4,782
)
 
$
90

 
$
(426
)
Income tax expense (benefit) attributable to net loss before income taxes differed from the amounts computed by applying the statutory Federal income tax rate of 34% to pre-tax income as a result of the following: 
 
Years Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands)
Computed tax benefit at statutory rate
$
(4,389
)
 
$
(4,615
)
 
$
(12,683
)
Increase (decrease) in tax expense resulting from:
 
 
 
 
 
Tax depletion in excess of basis
(6,187
)
 
(4,782
)
 
(3,820
)
Non-deductible interest expense
—

 
—

 
3,717

Noncontrolling interest
1,167

 
2,188

 
1,283

State income taxes, net
(2,506
)
 
(3,427
)
 
(4,548
)
Change in valuation allowance for net deferred tax assets
15

 
8,571

 
2,923

Indian Coal Tax Credits
92

 
83

 
(122
)
Federal and state NOL expiration
—

 
153

 
11,226

Change in state effective tax rate
6,202

 
2,049

 
1,310

Other, net
824

 
(130
)
 
288

Income tax expense (benefit)
$
(4,782
)
 
$
90

 
$
(426
)

40
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

For the year ended December 31, 2013, the Company recorded a tax benefit of approximately $4.9 million due to non-cash income tax expense related to gains recorded within other comprehensive income during 2013. Generally accepted accounting principles, or GAAP, requires all items be considered, including items recorded in other comprehensive income, in determining the amount of tax benefit that results from a loss from continuing operations that should be allocated to continuing operations. In accordance with GAAP, the Company recorded a tax benefit on its loss from continuing operations, which was exactly offset by income tax expense on other comprehensive income as follows:

 
Loss From
Continuing
Operations
 
Other
Comprehensive
Income
 
Total
Comprehensive
Income
 
(In thousands)
Pre-allocation
$
110

 
$
—

 
$
110

Tax allocation
(4,892
)
 
4,892

 
—

As presented
$
(4,782
)
 
$
4,892

 
$
110

 
 
 
 
 
 
Components of OCI gain:
 
 
 
 
 
Gross
 
Tax Allocation
 
 
Pension
$
32,464

 
$
1,772

 
 
Post-retirement benefits
57,235

 
3,123

 
 
Unrealized gain (loss) on securities
(57
)
 
(3
)
 
 
Total
$
89,642

 
$
4,892

 
 
The PPACA reduces the tax benefits available to an employer that receives the Medicare Part D subsidy beginning in years ending after December 31, 2010. As a result of the PPACA, employers that receive the Medicare Part D subsidy will recognize the deferred tax effects of the reduced deductibility of the postretirement prescription drug coverage in the period the PPACA was enacted. On March 30, 2010, a companion bill, the Reconciliation Act, was signed into law. The Reconciliation Act reduces the effect of the PPACA on affected employers by deferring for two years (until years ending after December 31, 2012) the reduced deductibility of the postretirement prescription drug coverage. Accounting for income taxes requires that the effect of adjusting the deferred tax asset for the elimination of this deduction be included in income from continuing operations. However, entities that have a full valuation allowance for this deferred tax asset would recognize a related decrease in the valuation allowance. As the Company has a full valuation allowance against its related deferred tax asset, this change in tax law regarding the Medicare Part D subsidy will not have an effect on the Company’s income from continuing operations.
On September 13, 2013, the IRS issued T.D. 9636, Guidance Regarding Deduction and Capitalization of Expenditures Related to Tangible Property (the Repairs Regulations) under IRC Sections 162(a) and 263(a) with an effective date of January 1, 2014. These address when costs incurred to acquire, produce or improve tangible property must be capitalized or may be deducted as incurred. Management is currently reviewing and analyzing the final repair Regulations and have estimated the effect to be a reduction in the deferred tax asset of approximately $4.5 million, tax effected. The amount will be confirmed as new data is analyzed and when the companion Regulations governing general asset accounts and the disposition of depreciable property are finalized.

41
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
 
December 31,
 
2013
 
2012
 
(In thousands)
Deferred tax assets:
 
 
 
Federal net operating loss carryforwards
$
89,698

 
$
84,330

State net operating loss carryforwards
26,509

 
28,700

Alternative minimum tax credit carryforwards
7,179

 
6,973

Charitable contribution carryforwards
146

 
132

Indian Coal Tax Credit carryforwards
25,499

 
25,591

Accruals for the following:
 
 
 
Workers’ compensation
2,726

 
3,592

Postretirement medical benefit and pension obligations
106,912

 
138,710

Incentive plans
1,606

 
1,995

Asset retirement obligations
68,989

 
77,698

Deferred revenues
18,919

 
22,500

Excess of pneumoconiosis benefit obligation over trust assets
3,262

 
3,185

Acquisition Costs
1,276

 
198

Restructuring
1,909

 
—

Other accruals
6,656

 
6,035

Total gross deferred assets
361,286

 
399,639

Less valuation allowance
(264,464
)
 
(293,504
)
Net deferred tax assets
96,822

 
106,135

Deferred tax liabilities:
 
 
 
Property, plant and equipment, differences due to depreciation and amortization
(94,868
)
 
(104,992
)
Other
(1,954
)
 
(1,143
)
Total gross deferred tax liabilities
(96,822
)
 
(106,135
)
Net deferred tax asset
$
—

 
$
—

As of December 31, 2013, the Company had significant deferred tax assets. The deferred tax assets include federal and state regular net operating losses, or NOLs, alternative minimum tax, or AMT, credit carryforwards, Indian Coal Tax Credit, or ICTC, carryforwards, charitable contribution carryforwards, and net deductible reversing temporary differences related to on-going differences between book and taxable income.
The Company believes it will be taxed under the AMT system for the foreseeable future due to the significant amount of statutory tax depletion in excess of book depletion expected to be generated by its mining operations. As a result, Westmoreland has determined that a valuation allowance is required for all of its regular federal net operating loss carryforwards and AMT credit carryforwards, since they are only available to offset future regular taxes. As of December 31, 2013, the Company has an estimated $7.2 million of AMT credit carryforwards, which have an indefinite carryover life, with no expiration.
As of December 31, 2013, the Company has an estimated $25.5 million in ICTC carryforwards that are available to offset the Company's regular tax and AMT liabilities. The Company has determined that a full valuation allowance is required for all its ICTC carryforward. The ICTC can generally be used to offset AMT liability. The Company does not believe it has sufficient positive evidence of significant magnitude to substantiate that its deferred tax asset for the ICTC carryforward is realizable at a more-likely-than-not level of assurance. As a result, the Company will continue to record a full valuation allowance on its ICTC carryforward; reversing valuation allowance only if utilized in a future year. ICTC credits are a general business credit with a 20-year carryforward period. The majority of the credits will expire in years 2020-2033.

42
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

The Company has determined that since its net deductible temporary differences will not reverse for the foreseeable future, and it is unable to forecast that it will have regular taxable income when they do reverse, a full valuation allowance is required for these deferred tax assets.
As of December 31, 2013, the Company has available Federal net operating loss carryforwards to reduce future regular taxable income, which expire as follows:
Expiration Date
 
Regular Tax
 
 
(In thousands)
2018
 
$
28

2019
 
88,429

2020
 
32

2021
 
20

after 2022
 
176,413

Total
 
$
264,922

As of December 31, 2013, the Company also has an estimated $701 million in state net operating loss carryforwards, expiring in years 2016 through 2033, to reduce future taxable income. The Company has recorded a full valuation allowance for all of its state net operating losses since it believes they will not be realized in the foreseeable future. A portion of our deferred tax assets include NOL benefits that if realized would result in an increase to other paid-in capital.
As of December 31, 2013, Westmoreland had no liability related to uncertain tax positions. The Company has elected under ASC 740-10-40 to recognize interest and penalties related to income tax matters in income tax expense.
The Company files tax returns in the U.S. federal jurisdiction and in various U.S. state jurisdictions, and is subject to examination by taxing authorities in all of these jurisdictions. From time to time, the Company's tax returns are reviewed or audited by various U.S. federal and state taxing authorities. The Company believes that adjustments, if any, resulting from these reviews or audits would not be material, individually or in the aggregate, to the Company's financial position, results of operations or liquidity. It is reasonably possible that the amount of unrecognized tax benefits related to certain of the Company's tax positions will increase or decrease in the next twelve months as audits or reviews are initiated and settled. At this time, an estimate of the range of a reasonably possible change cannot be made. With few exceptions, the Company is not subject to income tax examinations by U.S. federal or state jurisdictions for fiscal years prior to 2010.
15.
COMMITMENTS AND CONTINGENCIES
Supply Agreements
Westmoreland Partners, which owns ROVA, has two coal supply agreements with TECO Coal Corporation, or TECO, that includes minimum purchase requirements. At the current pricing, Westmoreland Partners is obligated to pay TECO $17.9 million for 2014 and $2.9 million for 2015.
Leases
The following shows the gross value and accumulated amortization of property, plant and equipment and mine development assets under capital leases related primarily to the leasing of mining equipment: 
 
2013
 
2012
 
(In thousands)
Gross value
$
24,982

 
$
34,677

Accumulated amortization
11,983

 
15,887


43
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Future minimum capital and operating lease payments as of December 31, 2013, are as follows: 
 
Capital
Leases
 
Operating
Leases
 
(In thousands)
2014
$
5,949

 
$
7,896

2015
2,419

 
5,156

2016
1,548

 
2,584

2017
495

 
1,256

2018
316

 
515

Thereafter
—

 
—

Total minimum lease payments
10,727

 
$
17,407

Less imputed interest
(574
)
 
 
Present value of minimum capital lease payments
$
10,153

 
 
Rental expense under operating leases during the years ended December 31, 2013, 2012 and 2011 totaled $11.8 million, $9.5 million and $7.7 million, respectively.
The Company leases certain of its coal reserves from third parties and pays royalties based on either a per ton rate or as a percentage of revenues received. Royalties charged to expense under all such lease agreements amounted to $43.6 million, $40.1 million and $38.8 million in the years ended December 31, 2013, 2012 and 2011, respectively.
At December 31, 2013, the Company had fuel supply contracts outstanding with a minimum purchase requirement of 4.0 million gallons of diesel fuel per year. These contracts qualify for the normal purchase normal sale exception under hedge accounting.
Contingencies
The Company is a party to numerous claims and lawsuits with respect to various matters. The Company provides for costs related to contingencies when a loss is probable and the amount is reasonably estimable. After conferring with counsel, it is the opinion of management that the ultimate resolution of pending claims will not have a material adverse effect on the consolidated financial condition, results of operations, or liquidity of the Company.
16.
BUSINESS SEGMENT INFORMATION
Segment information is based on a management approach, which requires segmentation based upon the Company’s internal organization, reporting of revenue, and operating income.
The Company’s operations are classified into four reporting segments: coal, power, heritage and corporate. The coal reporting segment includes the aggregated operations of coal mines located in Wyoming, Montana, North Dakota and Texas. The power segment includes its ROVA operations located in North Carolina. The heritage segment costs primarily include benefits the Company provides to former mining operation employees as well as other administrative costs associated with providing those benefits and cost containment efforts. The corporate segment primarily consists of corporate administrative expenses.

44
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Summarized financial information by segment is as follows:
 
Coal
 
Power
 
Heritage
 
Corporate
 
Consolidated
 
(In thousands)
December 31, 2013
 
 
 
 
 
 
 
 
 
Revenues
$
587,119

 
$
87,567

 
$
—

 
$
—

 
$
674,686

Restructuring charges
—

 
5,078

 
—

 
—

 
5,078

Operating income (loss)
44,471

 
4,907

 
(14,498
)
 
(9,518
)
 
25,362

Depreciation, depletion, and amortization
56,698

 
10,179

 
—

 
354

 
67,231

Total assets
705,816

 
180,684

 
15,497

 
44,688

 
946,685

Capital expenditures
27,064

 
790

 
—

 
737

 
28,591

December 31, 2012
 
 
 
 
 
 
 
 
 
Revenues
$
519,152

 
$
81,285

 
$
—

 
$
—

 
$
600,437

Operating income (loss)
48,235

 
8,244

 
(14,711
)
 
(12,896
)
 
28,872

Depreciation, depletion, and amortization
46,639

 
10,085

 
—

 
421

 
57,145

Total assets
703,315

 
189,599

 
15,508

 
27,693

 
936,115

Capital expenditures
18,804

 
2,070

 
—

 
158

 
21,032

December 31, 2011
 
 
 
 
 
 
 
 
 
Revenues
$
414,928

 
$
86,785

 
$
—

 
$
—

 
$
501,713

Operating income (loss)
27,453

 
12,119

 
(19,675
)
 
(9,271
)
 
10,626

Depreciation, depletion, and amortization
35,112

 
10,176

 
—

 
306

 
45,594

Total assets
510,507

 
194,730

 
13,769

 
40,166

 
759,172

Capital expenditures
24,678

 
2,119

 
—

 
797

 
27,594

A reconciliation of segment income from operations to loss before income taxes follows: 
 
Years Ended
 
2013
 
2012
 
2011
 
(In thousands)
Income from operations
$
25,362

 
$
28,872

 
$
10,626

Loss on extinguishment of debt
(64
)
 
(1,986
)
 
(17,030
)
Interest expense
(39,937
)
 
(42,677
)
 
(29,769
)
Interest income
1,366

 
1,496

 
1,444

Other income (loss)
364

 
723

 
(2,572
)
Loss before income taxes
$
(12,909
)
 
$
(13,572
)
 
$
(37,301
)
The Company derives its revenues from a few key customers. The customers from which more than 10% of total revenue has been derived and the percentage of total revenue from those customers is summarized as follows: 
 
2013
 
2012
 
2011
 
(In thousands)
Customer A – coal
$
117,545

 
$
126,982

 
$
120,243

Customer B – coal (1)
112,061

 
96,718

 
—

Customer C – coal
89,266

 
81,981

 
81,353

Customer D – power
86,390

 
80,109

 
85,639

Customer E – coal
85,929

 
66,128

 
65,224

Customer F – coal (2)
25,958

 
26,525

 
52,835

Percentage of total revenue
77
%
 
80
%
 
81
%
____________________ 
(1)
The revenue from Customer B did not exceed 10% in 2011.
(2)
The revenue from Customer F did not exceed 10% in 2013 or 2012.

45
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

17.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows: 
 
Three Months Ended
 
March 31
 
June 30
 
September 30
 
December 31
 
(In thousands; except per share data)
2013:
 
 
 
 
 
 
 
Revenues
$
161,448

 
$
162,499

 
$
176,792

 
$
173,947

Operating income (loss)
5,734

 
11,975

 
8,536

 
(883
)
Net income (loss) applicable to common shareholders
(2,725
)
 
(622
)
 
2,421

 
(5,131
)
Basic income (loss) per common share
$
(0.19
)
 
$
(0.04
)
 
$
0.17

 
$
(0.35
)
2012:
 
 
 
 
 
 
 
Revenues
$
147,236

 
$
132,842

 
$
161,332

 
$
159,027

Operating income (loss)
9,086

 
(4,262
)
 
15,451

 
8,597

Net income (loss) applicable to common shareholders
518

 
(12,423
)
 
7,282

 
(3,963
)
Basic income (loss) per common share
$
0.04

 
$
(0.89
)
 
$
0.52

 
$
(0.28
)
During the second quarter of 2012, the Company revised its preliminary allocation of the Kemmerer Mine purchase price for $2.2 million of deferred revenue. Adjustments to preliminary fair values are assumed to have been made as of the acquisition date. As a result, additional revenue of approximately $1.3 million was subsequently recorded in the first quarter of 2012, compared to what was originally reported in the Form 10-Q for the three months ended March 31, 2012. The information above for the three months ended March 31, 2012 reflects this additional revenue.

During the fourth quarter of 2013, as a result of a review of useful lives assigned to assets under capital leases and an evaluation of other operating income, the Company recorded $1.5 million of additional net expense related to prior years. In accordance with applicable U.S. GAAP, management quantitatively and qualitatively evaluated the impact and determined it to be immaterial to the Company's 2013 consolidated financial statements.
18.
SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
Pursuant to the indenture governing the 10.75% Senior Notes, certain 100% owned subsidiaries of the Company have fully and unconditionally guaranteed the notes on a joint and several basis.
Guarantees of the Senior Notes will be released under certain circumstances, including:
(1)
in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor Subsidiary, by way of merger, consolidation or otherwise, a sale or other disposition of all of the Equity Interests of such Guarantor Subsidiary then held by the Issuers or any Restricted Subsidiary; provided, that the sale or other disposition does not violate the “Asset Sales” provisions of the Indenture;
(2)
if such Guarantor Subsidiary is designated as an Unrestricted Subsidiary in accordance with the provisions of the Indenture, upon effectiveness of such designation;
(3)
upon Legal Defeasance or Covenant Defeasance (as such terms are defined in the indenture) or upon satisfaction and discharge of the Indenture;
(4)
upon the liquidation or dissolution of such Guarantor Subsidiary, provided no event of default has occurred and is continuing; or
(5)
at such time as such Guarantor Subsidiary is no longer required to be a Guarantor Subsidiary of the Senior Notes as described in the Indenture, provided no event of default has occurred and is continuing.
The following tables present unaudited consolidating financial information for (i) the issuer of the notes (Westmoreland Coal Company), (ii) the co-issuer of the notes (Westmoreland Partners), (iii) the guarantors under the notes, and (iv) the entities that are not guarantors under the notes.
Certain amounts in prior periods have been reclassified to conform with the presentation of 2013. These reclassifications affected only the statements of cash flows. The following tables are historical and present WML and its

46
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014. The effects of the changes to guarantors that took place on July 31, 2014 are presented below these tables with an explanatory paragraph.

CONSOLIDATING BALANCE SHEETS (1) 
December 31, 2013
(In thousands)
 
Assets
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
25,326

 
$
3,341

 
$
7,942

 
$
24,501

 
$
—

 
$
61,110

Receivables:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
—

 
12,934

 
17,389

 
35,873

 
—

 
66,196

Contractual third-party reclamation receivables
 
—

 
—

 
44

 
8,443

 
—

 
8,487

Intercompany receivable/payable
 
(3,568
)
 
—

 
4,384

 
(33,681
)
 
32,865

 
—

Other
 
95

 
210

 
2,974

 
1,831

 
(24
)
 
5,086

 
 
(3,473
)
 
13,144

 
24,791

 
12,466

 
32,841

 
79,769

Inventories
 
—

 
6,161

 
16,077

 
17,735

 
(1
)
 
39,972

Deferred income taxes
 
—

 
—

 
870

 
—

 
(870
)
 
—

Restricted investments and bond collateral
 
—

 
5,998

 
—

 
—

 
—

 
5,998

Other current assets
 
6,115

 
143

 
6,883

 
5,049

 
—

 
18,190

Total current assets
 
27,968

 
28,787

 
56,563

 
59,751

 
31,970

 
205,039

Property, plant and equipment:
 
 
 
 
 
 
 
 
 
 
 
 
Land and mineral rights
 
—

 
1,395

 
104,631

 
172,163

 
(1
)
 
278,188

Plant and equipment
 
3,939

 
220,872

 
229,998

 
202,886

 
1

 
657,696

 
 
3,939

 
222,267

 
334,629

 
375,049

 
—

 
935,884

Less accumulated depreciation, depletion and amortization
 
2,705

 
71,653

 
132,189

 
239,302

 
(1
)
 
445,848

Net property, plant and equipment
 
1,234

 
150,614

 
202,440

 
135,747

 
1

 
490,036

Advanced coal royalties
 
—

 
—

 
3,000

 
4,311

 
—

 
7,311

Reclamation deposits
 
—

 
—

 
—

 
74,921

 
—

 
74,921

Restricted investments and bond collateral
 
15,134

 
—

 
36,619

 
17,482

 
—

 
69,235

Contractual third-party reclamation receivables
 
—

 
—

 
293

 
88,010

 
—

 
88,303

Intangible assets
 
—

 
1,283

 
—

 
238

 
(1
)
 
1,520

Investment in subsidiaries
 
266,847

 
—

 
—

 
3,770

 
(270,617
)
 
—

Other assets
 
8,636

 
—

 
586

 
3,098

 
(2,000
)
 
10,320

Total assets
 
$
319,819

 
$
180,684

 
$
299,501

 
$
387,328

 
$
(240,647
)
 
$
946,685

____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.

47
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING BALANCE SHEETS (1) 
December 31, 2013
(In thousands)
 
Liabilities and Shareholders’ Deficit
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Current installments of long-term debt
 
$
20,392

 
$
—

 
$
2,790

 
$
21,161

 
$
—

 
$
44,343

Accounts payable and accrued expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
4,122

 
10,119

 
12,522

 
30,743

 
1

 
57,507

Production taxes
 
—

 
3

 
17,429

 
24,472

 
1

 
41,905

Workers’ compensation
 
717

 
—

 
—

 
—

 
—

 
717

Postretirement medical benefits
 
12,042

 
—

 
329

 
1,583

 
1

 
13,955

SERP
 
390

 
—

 
—

 
—

 
—

 
390

Deferred revenue
 
—

 
9,024

 
3,969

 
1,075

 
—

 
14,068

Asset retirement obligations
 
—

 
—

 
3,104

 
20,250

 
(1
)
 
23,353

Other current liabilities
 
11,302

 
5,053

 
317

 
142

 
(24
)
 
16,790

Total current liabilities
 
48,965

 
24,199

 
40,460

 
99,426

 
(22
)
 
213,028

Long-term debt, less current installments
 
224,582

 
—

 
2,664

 
70,248

 
(2,000
)
 
295,494

Workers’ compensation, less current portion
 
6,744

 
—

 
—

 
—

 
—

 
6,744

Excess of black lung benefit obligation over trust assets
 
8,675

 
—

 
—

 
—

 
—

 
8,675

Postretirement medical benefits, less current portion
 
185,858

 
—

 
49,418

 
35,098

 
—

 
270,374

Pension and SERP obligations, less current portion
 
13,069

 
99

 
9,381

 
1,627

 
—

 
24,176

Deferred revenue, less current portion
 
—

 
41,297

 
—

 
5,271

 
(1
)
 
46,567

Asset retirement obligations, less current portion
 
—

 
892

 
50,472

 
205,147

 
—

 
256,511

Intangible liabilities
 
—

 
5,606

 
—

 
—

 
—

 
5,606

Other liabilities
 
5,939

 
—

 
6,220

 
1,450

 
(6,220
)
 
7,389

Intercompany receivable/payable
 
13,866

 
—

 
525

 
6,434

 
(20,825
)
 
—

Total liabilities
 
507,698

 
72,093

 
159,140

 
424,701

 
(29,068
)
 
1,134,564

Shareholders’ deficit
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
160

 
—

 
—

 
—

 
—

 
160

Common stock
 
36,479

 
5

 
110

 
132

 
(247
)
 
36,479

Other paid-in capital
 
134,861

 
52,835

 
94,370

 
64,401

 
(211,606
)
 
134,861

Accumulated other comprehensive income (loss)
 
(63,595
)
 
(164
)
 
17,492

 
(14,153
)
 
(3,175
)
 
(63,595
)
Accumulated earnings (deficit)
 
(295,784
)
 
55,915

 
28,389

 
(87,753
)
 
3,449

 
(295,784
)
Total Westmoreland Coal Company shareholders’ deficit
 
(187,879
)
 
108,591

 
140,361

 
(37,373
)
 
(211,579
)
 
(187,879
)
Noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

Total equity (deficit)
 
(187,879
)
 
108,591

 
140,361

 
(37,373
)
 
(211,579
)
 
(187,879
)
Total liabilities and shareholders’ deficit
 
$
319,819

 
$
180,684

 
$
299,501

 
$
387,328

 
$
(240,647
)
 
$
946,685

____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.


48
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING BALANCE SHEETS (1) 
December 31, 2012
(In thousands)
 
Assets
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
14,836

 
$
4,545

 
$
5,362

 
$
6,867

 
$
—

 
$
31,610

Receivables:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
—

 
13,018

 
13,428

 
33,591

 
—

 
60,037

Contractual third-party reclamation receivables
 
—

 
—

 
56

 
10,151

 
—

 
10,207

Intercompany receivable/payable
 
(8,002
)
 
—

 
5,667

 
(30,641
)
 
32,976

 
—

Other
 
77

 
—

 
16,806

 
1,182

 
(14,845
)
 
3,220

 
 
(7,925
)
 
13,018

 
35,957

 
14,283

 
18,131

 
73,464

Inventories
 
—

 
3,047

 
16,538

 
18,149

 
—

 
37,734

Other current assets
 
739

 
298

 
5,550

 
9,917

 
—

 
16,504

Total current assets
 
7,650

 
20,908

 
63,407

 
49,216

 
18,131

 
159,312

Property, plant and equipment:
 
 
 
 
 
 
 
 
 
 
 
 
Land and mineral rights
 
—

 
1,395

 
91,741

 
168,605

 
—

 
261,741

Plant and equipment
 
3,198

 
219,857

 
215,751

 
196,914

 
—

 
635,720

 
 
3,198

 
221,252

 
307,492

 
365,519

 
—

 
897,461

Less accumulated depreciation, depletion and amortization
 
2,364

 
61,474

 
108,151

 
212,632

 
—

 
384,621

Net property, plant and equipment
 
834

 
159,778

 
199,341

 
152,887

 
—

 
512,840

Advanced coal royalties
 
—

 
—

 
500

 
3,816

 
—

 
4,316

Reclamation deposits
 
—

 
—

 
—

 
72,718

 
—

 
72,718

Restricted investments and bond collateral
 
15,183

 
5,990

 
39,208

 
26,828

 
—

 
87,209

Contractual third-party reclamation receivables
 
—

 
—

 
327

 
83,831

 
—

 
84,158

Intangible assets
 
—

 
2,923

 
—

 
280

 
—

 
3,203

Investment in subsidiaries
 
248,565

 
—

 
(792
)
 
3,770

 
(251,543
)
 
—

Other assets
 
10,267

 
—

 
635

 
3,457

 
(2,000
)
 
12,359

Total assets
 
$
282,499

 
$
189,599

 
$
302,626

 
$
396,803

 
$
(235,412
)
 
$
936,115

____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.


49
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING BALANCE SHEETS (1) 
December 31, 2012
(In thousands)
 
Liabilities and Shareholders’ Deficit
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Current installments of long-term debt
 
$
(1,548
)
 
$
—

 
$
1,939

 
$
23,400

 
$
—

 
$
23,791

Accounts payable and accrued expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
4,707

 
4,978

 
15,163

 
42,085

 
(14,840
)
 
52,093

Production taxes
 
—

 
3

 
10,014

 
23,211

 
—

 
33,228

Workers’ compensation
 
820

 
—

 
—

 
—

 
—

 
820

Postretirement medical benefits
 
12,494

 
—

 
87

 
1,487

 
—

 
14,068

SERP
 
390

 
—

 
—

 
—

 
—

 
390

Deferred revenue
 
—

 
8,788

 
2,997

 
1,037

 
—

 
12,822

Asset retirement obligations
 
—

 
—

 
3,519

 
18,719

 
—

 
22,238

Other current liabilities
 
11,312

 
—

 
10

 
144

 
(4
)
 
11,462

Total current liabilities
 
28,175

 
13,769

 
33,729

 
110,083

 
(14,844
)
 
170,912

Long-term debt, less current installments
 
245,456

 
—

 
2,473

 
91,269

 
(2,000
)
 
337,198

Workers’ compensation, less current portion
 
8,710

 
—

 
—

 
—

 
—

 
8,710

Excess of black lung benefit obligation over trust assets
 
8,356

 
—

 
—

 
—

 
—

 
8,356

Postretirement medical benefits, less current portion
 
224,336

 
—

 
55,981

 
39,458

 
—

 
319,775

Pension and SERP obligations, less current portion
 
29,265

 
289

 
19,346

 
5,350

 
—

 
54,250

Deferred revenue, less current portion
 
—

 
50,239

 
—

 
6,652

 
—

 
56,891

Asset retirement obligations, less current portion
 
—

 
829

 
40,063

 
200,717

 
—

 
241,609

Intangible liabilities
 
—

 
6,625

 
—

 
—

 
—

 
6,625

Other liabilities
 
701

 
—

 
15,677

 
1,642

 
—

 
18,020

Intercompany receivable/payable
 
23,731

 
—

 
(7,972
)
 
35,787

 
(51,546
)
 
—

Total liabilities
 
568,730

 
71,751

 
159,297

 
490,958

 
(68,390
)
 
1,222,346

Shareholders’ deficit
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
160

 
—

 
—

 
—

 
—

 
160

Common stock
 
35,502

 
5

 
110

 
132

 
(247
)
 
35,502

Other paid-in capital
 
130,852

 
52,807

 
93,456

 
62,539

 
(208,802
)
 
130,852

Accumulated other comprehensive loss
 
(148,345
)
 
(372
)
 
(4,987
)
 
(24,492
)
 
29,851

 
(148,345
)
Accumulated earnings (deficit)
 
(289,727
)
 
65,408

 
54,750

 
(132,334
)
 
12,176

 
(289,727
)
Total Westmoreland Coal Company shareholders’ deficit
 
(271,558
)
 
117,848

 
143,329

 
(94,155
)
 
(167,022
)
 
(271,558
)
Noncontrolling interest
 
(14,673
)
 
—

 
—

 
—

 
—

 
(14,673
)
Total equity (deficit)
 
(286,231
)
 
117,848

 
143,329

 
(94,155
)
 
(167,022
)
 
(286,231
)
Total liabilities and shareholders’ deficit
 
$
282,499

 
$
189,599

 
$
302,626

 
$
396,803

 
$
(235,412
)
 
$
936,115

____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.


50
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF OPERATIONS (1) 
Year Ended December 31, 2013
(In thousands)
 
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$
—

 
$
87,567

 
$
214,481

 
$
414,085

 
$
(41,447
)
 
$
674,686

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
63,794

 
174,204

 
338,769

 
(41,447
)
 
535,320

Depreciation, depletion and amortization
354

 
10,178

 
27,452

 
29,247

 
—

 
67,231

Selling and administrative
12,339

 
3,609

 
11,092

 
23,681

 
—

 
50,721

Heritage health benefit expenses
12,361

 
—

 
—

 
1,057

 
—

 
13,418

Loss (gain) on sales of assets
—

 
—

 
115

 
(189
)
 
—

 
(74
)
Restructuring charges
—

 
5,078

 
—

 
—

 
—

 
5,078

Other operating income
—

 
—

 
(22,367
)
 
(3
)
 
—

 
(22,370
)
 
25,054

 
82,659

 
190,496

 
392,562

 
(41,447
)
 
649,324

Operating income (loss)
(25,054
)
 
4,908

 
23,985

 
21,523

 
—

 
25,362

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(30,417
)
 
(39
)
 
(295
)
 
(9,221
)
 
35

 
(39,937
)
Loss on extinguishment of debt
(64
)
 
—

 
—

 
—

 
—

 
(64
)
Interest income
165

 
26

 
522

 
688

 
(35
)
 
1,366

Other income
1

 
—

 
328

 
35

 
—

 
364

 
(30,315
)
 
(13
)
 
555

 
(8,498
)
 
—

 
(38,271
)
Income (loss) before income taxes and income of consolidated subsidiaries
(55,369
)
 
4,895

 
24,540

 
13,025

 
—

 
(12,909
)
Equity in income of subsidiaries
42,347

 
—

 
—

 
—

 
(42,347
)
 
—

Loss before income taxes
(13,022
)
 
4,895

 
24,540

 
13,025

 
(42,347
)
 
(12,909
)
Income tax expense (benefit)
(4,895
)
 
680

 
8,461

 
(47
)
 
(8,981
)
 
(4,782
)
Net income (loss)
(8,127
)
 
4,215

 
16,079

 
13,072

 
(33,366
)
 
(8,127
)
Less net loss attributable to noncontrolling interest
(3,430
)
 
—

 
—

 
—

 
—

 
(3,430
)
Net income (loss) attributable to the Parent company
$
(4,697
)
 
$
4,215

 
$
16,079

 
$
13,072

 
$
(33,366
)
 
$
(4,697
)
____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.


51
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF OPERATIONS (1) 
Year Ended December 31, 2012
(In thousands)
 
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$
—

 
$
81,285

 
$
184,506

 
$
366,105

 
$
(31,459
)
 
$
600,437

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
59,299

 
134,683

 
303,998

 
(31,459
)
 
466,521

Depreciation, depletion and amortization
421

 
10,085

 
19,571

 
27,068

 
—

 
57,145

Selling and administrative
13,748

 
3,657

 
9,993

 
24,037

 
(1,527
)
 
49,908

Heritage health benefit expenses
12,406

 
—

 
—

 
982

 
—

 
13,388

Loss on sales of assets
13

 
—

 
251

 
264

 
—

 
528

Other operating income
—

 
—

 
(17,452
)
 
—

 
1,527

 
(15,925
)
 
26,588

 
73,041

 
147,046

 
356,349

 
(31,459
)
 
571,565

Operating income (loss)
(26,588
)
 
8,244

 
37,460

 
9,756

 
—

 
28,872

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(31,301
)
 
(39
)
 
(378
)
 
(11,039
)
 
80

 
(42,677
)
Loss on extinguishment of debt
(1,986
)
 
—

 
—

 
—

 
—

 
(1,986
)
Interest income
253

 
15

 
294

 
1,014

 
(80
)
 
1,496

Other income
190

 
—

 
395

 
138

 
—

 
723

 
(32,844
)
 
(24
)
 
311

 
(9,887
)
 
—

 
(42,444
)
Income (loss) before income taxes and income of consolidated subsidiaries
(59,432
)
 
8,220

 
37,771

 
(131
)
 
—

 
(13,572
)
Equity in income of subsidiaries
45,762

 
—

 
—

 
—

 
(45,762
)
 
—

Income (loss) before income taxes
(13,670
)
 
8,220

 
37,771

 
(131
)
 
(45,762
)
 
(13,572
)
Income tax expense (benefit)
(8
)
 
107

 
—

 
4,410

 
(4,419
)
 
90

Net income (loss)
(13,662
)
 
8,113

 
37,771

 
(4,541
)
 
(41,343
)
 
(13,662
)
Less net loss attributable to noncontrolling interest
(6,436
)
 
—

 
—

 
—

 
—

 
(6,436
)
Net income (loss) attributable to the Parent company
$
(7,226
)
 
$
8,113

 
$
37,771

 
$
(4,541
)
 
$
(41,343
)
 
$
(7,226
)
____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.


52
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF OPERATIONS (1) 
Year Ended December 31, 2011
(In thousands)
 
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$
—

 
$
86,785

 
$
58,544

 
$
411,908

 
$
(55,524
)
 
$
501,713

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
60,243

 
49,439

 
338,629

 
(55,524
)
 
392,787

Depreciation, depletion and amortization
306

 
10,175

 
7,936

 
27,177

 
—

 
45,594

Selling and administrative
10,616

 
4,059

 
4,566

 
21,508

 
(473
)
 
40,276

Heritage health benefit expenses
17,754

 
—

 
—

 
821

 
—

 
18,575

Gain (loss) on sales of assets
3

 
189

 
59

 
389

 
—

 
640

Other operating income
—

 
—

 
(7,258
)
 
—

 
473

 
(6,785
)
 
28,679

 
74,666

 
54,742

 
388,524

 
(55,524
)
 
491,087

Operating income (loss)
(28,679
)
 
12,119

 
3,802

 
23,384

 
—

 
10,626

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(16,365
)
 
(469
)
 
(657
)
 
(12,370
)
 
92

 
(29,769
)
Loss on extinguishment of debt
(7,873
)
 
(9,073
)
 
(84
)
 
—

 
—

 
(17,030
)
Interest income
266

 
14

 
206

 
1,050

 
(92
)
 
1,444

Other income (loss)
(3,014
)
 
—

 
170

 
272

 
—

 
(2,572
)
 
(26,986
)
 
(9,528
)
 
(365
)
 
(11,048
)
 
—

 
(47,927
)
Loss before income taxes and income of consolidated subsidiaries
(55,665
)
 
2,591

 
3,437

 
12,336

 
—

 
(37,301
)
Equity in income of subsidiaries
18,508

 
—

 
—

 
—

 
(18,508
)
 
—

Loss before income taxes
(37,157
)
 
2,591

 
3,437

 
12,336

 
(18,508
)
 
(37,301
)
Income tax expense (benefit)
(282
)
 
(2,498
)
 
(26
)
 
7,263

 
(4,883
)
 
(426
)
Net income (loss)
(36,875
)
 
5,089

 
3,463

 
5,073

 
(13,625
)
 
(36,875
)
Less net loss attributable to noncontrolling interest
(3,775
)
 
—

 
—

 
—

 
—

 
(3,775
)
Net loss attributable to the Parent company
$
(33,100
)
 
$
5,089

 
$
3,463

 
$
5,073

 
$
(13,625
)
 
$
(33,100
)
____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.


53
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (1) 
Year Ended December 31, 2013
(In thousands)
 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(8,127
)
 
$
4,215

 
$
16,079

 
$
13,072

 
$
(33,366
)
 
$
(8,127
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
3,490

 
28

 
—

 
863

 
(891
)
 
3,490

Adjustments to accumulated actuarial losses and transition obligations, pension
28,974

 
180

 
10,554

 
3,252

 
(13,986
)
 
28,974

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
4,005

 
—

 
—

 
852

 
(852
)
 
4,005

Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits
53,230

 
—

 
11,941

 
5,411

 
(17,352
)
 
53,230

Tax effect of other comprehensive income gains
(4,892
)
 
—

 
—

 
—

 
—

 
(4,892
)
Unrealized and realized gains and losses on available-for-sale securities
(57
)
 
—

 
(17
)
 
(38
)
 
55

 
(57
)
Other comprehensive income
84,750

 
208

 
22,478

 
10,340

 
(33,026
)
 
84,750

Comprehensive income attributable to Westmoreland Coal Company
$
76,623

 
$
4,423

 
$
38,557

 
$
23,412

 
$
(66,392
)
 
$
76,623

____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.





54
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (1) 
Year Ended December 31, 2012
(In thousands)

 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(13,662
)
 
$
8,113

 
$
37,771

 
$
(4,541
)
 
$
(41,343
)
 
$
(13,662
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
2,960

 
23

 
—

 
766

 
(789
)
 
2,960

Adjustments to accumulated actuarial losses and transition obligations, pension
(9,812
)
 
(52
)
 
(3,034
)
 
(2,132
)
 
5,218

 
(9,812
)
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
2,572

 
—

 
—

 
973

 
(973
)
 
2,572

Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits
(22,342
)
 
—

 
(1,969
)
 
(865
)
 
2,834

 
(22,342
)
Unrealized and realized gains and losses on available-for-sale securities
(268
)
 
—

 
1

 
(65
)
 
64

 
(268
)
Other comprehensive income
(26,890
)
 
(29
)
 
(5,002
)
 
(1,323
)
 
6,354

 
(26,890
)
Comprehensive income (loss) attributable to Westmoreland Coal Company
$
(40,552
)
 
$
8,084

 
$
32,769

 
$
(5,864
)
 
$
(34,989
)
 
$
(40,552
)
____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.




55
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (1) 
Year Ended December 31, 2011
(In thousands)

 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(36,875
)
 
$
5,089

 
$
3,463

 
$
5,073

 
$
(13,625
)
 
$
(36,875
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
1,647

 
9

 
—

 
702

 
(711
)
 
1,647

Adjustments to accumulated actuarial losses and transition obligations, pension
(15,798
)
 
(150
)
 
—

 
(444
)
 
594

 
(15,798
)
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
(288
)
 
—

 
—

 
295

 
(295
)
 
(288
)
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits
(49,136
)
 
—

 
—

 
(9,269
)
 
9,269

 
(49,136
)
Unrealized and realized gains and losses on available-for-sale securities
(200
)
 
—

 
(103
)
 
(100
)
 
203

 
(200
)
Other comprehensive income
(63,775
)
 
(141
)
 
(103
)
 
(8,816
)
 
9,060

 
(63,775
)
Comprehensive income (loss) attributable to Westmoreland Coal Company
$
(100,650
)
 
$
4,948

 
$
3,360

 
$
(3,743
)
 
$
(4,565
)
 
$
(100,650
)
____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.



56
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF CASH FLOWS (1) 
Year Ended December 31, 2013
(In thousands)
 
Statements of Cash Flows
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(8,127
)
 
$
4,215

 
$
16,079

 
$
13,072

 
$
(33,366
)
 
$
(8,127
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
(42,347
)
 
—

 
—

 
—

 
42,347

 
—

Depreciation, depletion, and amortization
 
354

 
10,178

 
27,452

 
29,247

 
—

 
67,231

Accretion of asset retirement obligation and receivable
 
—

 
63

 
4,192

 
8,426

 
—

 
12,681

Non-cash tax benefits
 
(4,892
)
 
—

 
—

 
—

 
—

 
(4,892
)
Amortization of intangible assets and liabilities, net
 
—

 
622

 
—

 
43

 
—

 
665

Share-based compensation
 
2,437

 
37

 
914

 
1,934

 
—

 
5,322

Loss on sale of assets
 
—

 
—

 
115

 
(189
)
 
—

 
(74
)
Amortization of deferred financing costs
 
3,165

 
—

 
49

 
517

 
—

 
3,731

Other
 
—

 
—

 
(1,001
)
 
—

 
—

 
(1,001
)
Loss on extinguishment of debt
 
64

 
—

 
—

 
—

 
—

 
64

Gain on sales of investments
 
—

 
—

 
19

 
(22
)
 
—

 
(3
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
(18
)
 
(126
)
 
9,871

 
(4,069
)
 
(13,294
)
 
(7,636
)
Inventories
 
—

 
(3,114
)
 
187

 
415

 
—

 
(2,512
)
Excess of black lung benefit obligation over trust assets
 
319

 
—

 
—

 
—

 
—

 
319

Accounts payable and accrued expenses
 
(613
)
 
5,141

 
4,082

 
(9,852
)
 
14,821

 
13,579

Deferred revenue
 
—

 
(8,706
)
 
972

 
(1,344
)
 
—

 
(9,078
)
Income tax payable
 
—

 
—

 
(1,679
)
 
1,678

 
—

 
(1
)
Accrual for workers’ compensation
 
(2,069
)
 
—

 
—

 
—

 
—

 
(2,069
)
Asset retirement obligations
 
—

 
—

 
(1,971
)
 
(7,439
)
 
—

 
(9,410
)
Accrual for postretirement medical benefits
 
101

 
—

 
5,620

 
2,000

 
—

 
7,721

Pension and SERP obligations
 
1,391

 
18

 
589

 
390

 
—

 
2,388

Other assets and liabilities
 
(144
)
 
4,983

 
8,206

 
4,124

 
(5,350
)
 
11,819

Distributions received from subsidiaries
 
78,000

 
—

 
—

 
—

 
(78,000
)
 
—

Net cash provided by (used in) operating activities
 
27,621

 
13,311

 
73,696

 
38,931

 
(72,842
)
 
80,717

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
(737
)
 
(790
)
 
(17,156
)
 
(9,908
)
 
—

 
(28,591
)
Change in restricted investments and bond collateral and reclamation deposits
 
49

 
(8
)
 
1,766

 
(373
)
 
—

 
1,434

Net proceeds from sales of assets
 
—

 
—

 
534

 
368

 
—

 
902


57
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Proceeds from the sale of restricted investments
 
—

 
—

 
788

 
7,499

 
—

 
8,287

Receivable from customer for property and equipment purchases
 
—

 
—

 
—

 
(389
)
 
—

 
(389
)
Other
 
—

 
—

 
(2,500
)
 
(1,040
)
 
—

 
(3,540
)
Net cash provided by (used in) investing activities
 
(688
)
 
(798
)
 
(16,568
)
 
(3,843
)
 
—

 
(21,897
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 
—

 
—

 
310

 
—

 
—

 
310

Repayments of long-term debt
 
(500
)
 
—

 
(2,322
)
 
(25,266
)
 
—

 
(28,088
)
Borrowings on revolving lines of credit
 
—

 
—

 
—

 
7,000

 
—

 
7,000

Repayments on revolving lines of credit
 
—

 
—

 
—

 
(7,000
)
 
—

 
(7,000
)
Debt issuance costs and other refinancing costs
 
(26
)
 
—

 
—

 
(156
)
 
—

 
(182
)
Dividends/distributions
 
(1,360
)
 
(14,500
)
 
(44,500
)
 
(19,000
)
 
78,000

 
(1,360
)
Transactions with Parent/affiliates
 
(14,557
)
 
783

 
(8,036
)
 
26,968

 
(5,158
)
 
—

Net cash provided by (used in) financing activities
 
(16,443
)
 
(13,717
)
 
(54,548
)
 
(17,454
)
 
72,842

 
(29,320
)
Net increase (decrease) in cash and cash equivalents
 
10,490

 
(1,204
)
 
2,580

 
17,634

 
—

 
29,500

Cash and cash equivalents, beginning of year
 
14,836

 
4,545

 
5,362

 
6,867

 
—

 
31,610

Cash and cash equivalents, end of year
 
$
25,326

 
$
3,341

 
$
7,942

 
$
24,501

 
$
—

 
$
61,110

____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.


58
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF CASH FLOWS (1) 
Year Ended December 31, 2012
(In thousands)
 
Statements of Cash Flows
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(13,662
)
 
$
8,113

 
$
37,771

 
$
(4,541
)
 
$
(41,343
)
 
$
(13,662
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
(45,762
)
 
—

 
—

 
—

 
45,762

 
—

Depreciation, depletion, and amortization
 
421

 
10,085

 
19,571

 
27,068

 
—

 
57,145

Accretion of asset retirement obligation and receivable
 
—

 
59

 
4,038

 
8,092

 
—

 
12,189

Amortization of intangible assets and liabilities, net
 
—

 
622

 
—

 
36

 
—

 
658

Share-based compensation
 
2,716

 
44

 
559

 
2,721

 
—

 
6,040

Loss (gain) on sale of assets
 
13

 
—

 
251

 
264

 
—

 
528

Amortization of deferred financing costs
 
2,889

 
—

 
847

 
622

 
—

 
4,358

Loss on extinguishment of debt
 
1,986

 
—

 
—

 
—

 
—

 
1,986

Gain on sales of investments
 
(190
)
 
—

 
—

 
25

 
—

 
(165
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
147

 
(151
)
 
(20,910
)
 
102

 
7,957

 
(12,855
)
Inventories
 
—

 
709

 
(2,389
)
 
(484
)
 
—

 
(2,164
)
Excess of black lung benefit obligation over trust assets
 
1,791

 
—

 
—

 
—

 
—

 
1,791

Accounts payable and accrued expenses
 
4,981

 
(3,209
)
 
18,396

 
5,453

 
(8,222
)
 
17,399

Deferred revenue
 
—

 
(8,312
)
 
772

 
(658
)
 
—

 
(8,198
)
Accrual for workers’ compensation
 
(2,096
)
 
—

 
—

 
—

 
—

 
(2,096
)
Asset retirement obligations
 
—

 
—

 
(1,198
)
 
(5,745
)
 
—

 
(6,943
)
Accrual for postretirement medical benefits
 
(524
)
 
—

 
4,858

 
1,857

 
—

 
6,191

Pension and SERP obligations
 
1,286

 
15

 
709

 
792

 
—

 
2,802

Other assets and liabilities
 
(243
)
 
(536
)
 
1,047

 
(10,128
)
 
2,000

 
(7,860
)
Distributions received from subsidiaries
 
31,971

 
—

 
—

 
—

 
(31,971
)
 
—

Net cash provided by (used in) operating activities
 
(14,276
)
 
7,439

 
64,322

 
25,476

 
(25,817
)
 
57,144

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
(159
)
 
(2,067
)
 
(8,385
)
 
(10,421
)
 
—

 
(21,032
)
Change in restricted investments and bond collateral and reclamation deposits
 
(3,248
)
 
(7
)
 
(27,504
)
 
(3,133
)
 
—

 
(33,892
)
Cash payments related to acquisitions and other
 
4,000

 
—

 
(76,522
)
 
—

 
—

 
(72,522
)
Net proceeds from sales of assets
 
—

 
—

 
240

 
240

 
—

 
480

Proceeds from the sale of restricted investments
 
1,581

 
—

 
1,889

 
636

 
—

 
4,106

Receivable from customer for property and equipment purchases
 
—

 
—

 
—

 
(674
)
 
—

 
(674
)

59
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Net cash provided by (used in) investing activities
 
2,174

 
(2,074
)
 
(110,282
)
 
(13,352
)
 
—

 
(123,534
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 
—

 
(259
)
 
6

 
—

 
—

 
(253
)
Borrowings from long-term debt
 
119,364

 
—

 
—

 
—

 
—

 
119,364

Repayments of long-term debt
 
(23,000
)
 
—

 
(2,494
)
 
(19,352
)
 
—

 
(44,846
)
Borrowings on revolving lines of credit
 
—

 
—

 
—

 
16,500

 
—

 
16,500

Repayments on revolving lines of credit
 
—

 
—

 
—

 
(16,500
)
 
—

 
(16,500
)
Debt issuance costs and other refinancing costs
 
(5,666
)
 
—

 
—

 
(22
)
 
—

 
(5,688
)
Dividends/distributions
 
(1,360
)
 
(1,050
)
 
(19,173
)
 
(11,748
)
 
31,971

 
(1,360
)
Transactions with Parent/affiliates
 
(88,541
)
 
483

 
72,840

 
21,372

 
(6,154
)
 
—

Net cash provided by (used in) financing activities
 
797

 
(826
)
 
51,179

 
(9,750
)
 
25,817

 
67,217

Net increase (decrease) in cash and cash equivalents
 
(11,305
)
 
4,539

 
5,219

 
2,374

 
—

 
827

Cash and cash equivalents, beginning of year
 
26,141

 
6

 
143

 
4,493

 
—

 
30,783

Cash and cash equivalents, end of year
 
$
14,836

 
$
4,545

 
$
5,362

 
$
6,867

 
$
—

 
$
31,610

____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.


60
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF CASH FLOWS (1) 
Year Ended December 31, 2011
(In thousands)
 
Statements of Cash Flows
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(36,875
)
 
$
5,089

 
$
3,463

 
$
5,073

 
$
(13,625
)
 
$
(36,875
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
(18,508
)
 
—

 
—

 
—

 
18,508

 
—

Depreciation, depletion, and amortization
 
306

 
10,175

 
7,936

 
27,177

 
—

 
45,594

Accretion of asset retirement obligation and receivable
 
—

 
55

 
3,034

 
7,789

 
—

 
10,878

Amortization of intangible assets and liabilities, net
 
—

 
621

 
—

 
36

 
—

 
657

Share-based compensation
 
1,671

 
32

 
249

 
2,769

 
—

 
4,721

Loss (gain) on sale of assets
 
3

 
189

 
59

 
389

 
—

 
640

Amortization of deferred financing costs
 
1,485

 
(21
)
 
383

 
668

 
—

 
2,515

Loss on extinguishment of debt
 
7,873

 
9,073

 
84

 
—

 
—

 
17,030

Gain on sales of investments
 
—

 
—

 
(75
)
 
(75
)
 
—

 
(150
)
Loss on derivative instruments
 
3,079

 
—

 
—

 
—

 
—

 
3,079

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
(158
)
 
1,479

 
(4,343
)
 
2,263

 
6,250

 
5,491

Inventories
 
—

 
(1,820
)
 
134

 
(439
)
 
—

 
(2,125
)
Excess of black lung benefit obligation over trust assets
 
4,319

 
—

 
—

 
—

 
—

 
4,319

Accounts payable and accrued expenses
 
5,849

 
(1,063
)
 
378

 
3,103

 
(4,139
)
 
4,128

Deferred revenue
 
—

 
(8,774
)
 
(349
)
 
(795
)
 
—

 
(9,918
)
Accrual for workers’ compensation
 
1,248

 
—

 
—

 
—

 
—

 
1,248

Asset retirement obligations
 
—

 
—

 
(875
)
 
(5,635
)
 
—

 
(6,510
)
Accrual for postretirement medical benefits
 
(2,878
)
 
—

 
—

 
1,235

 
—

 
(1,643
)
Pension and SERP obligations
 
(4,320
)
 
(50
)
 
—

 
3,092

 
—

 
(1,278
)
Other assets and liabilities
 
444

 
(529
)
 
3,839

 
(392
)
 
(428
)
 
2,934

Distributions received from subsidiaries
 
23,400

 
—

 
—

 
—

 
(23,400
)
 
—

Net cash provided by (used in) operating activities
 
(13,062
)
 
14,456

 
13,917

 
46,258

 
(16,834
)
 
44,735

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
(797
)
 
(2,119
)
 
(2,569
)
 
(22,109
)
 
—

 
(27,594
)
Change in restricted investments and bond collateral and reclamation deposits
 
(1,714
)
 
2,581

 
(3,738
)
 
(3,115
)
 
—

 
(5,986
)
Cash payments related to acquisitions and other
 
(4,000
)
 
—

 
—

 
—

 
—

 
(4,000
)
Net proceeds from sales of assets
 
—

 
—

 
250

 
437

 
—

 
687

Proceeds from the sale of investments
 
—

 
—

 
1,075

 
2,275

 
—

 
3,350


61
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Receivable from customer for property and equipment purchases
 
—

 
—

 
—

 
(96
)
 
—

 
(96
)
Net cash provided by (used in) investing activities
 
(6,511
)
 
462

 
(4,982
)
 
(22,608
)
 
—

 
(33,639
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 
(146
)
 
259

 
(694
)
 
(143
)
 
—

 
(724
)
Borrowings from long-term debt
 
142,500

 
—

 
—

 
—

 
—

 
142,500

Repayments of long-term debt
 
(2,532
)
 
(46,220
)
 
(11,982
)
 
(12,832
)
 
—

 
(73,566
)
Borrowings on revolving lines of credit
 
—

 
1,500

 
12,200

 
73,500

 
—

 
87,200

Repayments on revolving lines of credit
 
—

 
(1,500
)
 
(29,100
)
 
(75,000
)
 
—

 
(105,600
)
Debt issuance costs
 
(6,042
)
 
(9,077
)
 
100

 
—

 
—

 
(15,019
)
Exercise of stock options
 
422

 
—

 
—

 
—

 
—

 
422

Dividends/distributions
 
(21,301
)
 
(10,700
)
 
—

 
(12,700
)
 
23,400

 
(21,301
)
Transactions with Parent/affiliates
 
(67,458
)
 
49,946

 
20,684

 
3,394

 
(6,566
)
 
—

Net cash provided by (used in) financing activities
 
45,443

 
(15,792
)
 
(8,792
)
 
(23,781
)
 
16,834

 
13,912

Net increase (decrease) in cash and cash equivalents
 
25,870

 
(874
)
 
143

 
(131
)
 
—

 
25,008

Cash and cash equivalents, beginning of year
 
271

 
880

 
—

 
4,624

 
—

 
5,775

Cash and cash equivalents, end of year
 
$
26,141

 
$
6

 
$
143

 
$
4,493

 
$
—

 
$
30,783

____________________
(1)    This table is presented for historical information and presents WML and its subsidiaries as non-guarantor subsidiaries. WML and its subsidiaries became additional guarantor subsidiaries effective on July 31, 2014.






62
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

On July 31, 2014, WML and WML’s four subsidiaries entered into the Fifth Supplemental Indenture (the “Fifth Supplemental Indenture”) to the existing indenture dated as of February 4, 2011, as amended and supplemented (the “Indenture”) among the Company and Westmoreland Partners, as co-issuers (together, the “Co-Issuers”), the guarantors named therein (the “Existing Guarantors”), Wells Fargo Bank, National Association, as trustee, and Wells Fargo Bank, National Association, as note collateral agent, which governs the 10.75% Senior Notes. Pursuant to the Fifth Supplemental Indenture, WML and its subsidiaries (the “New Guarantors”) each became restricted subsidiaries that are subject to the terms and conditions of the Indenture and agreed to guarantee the 10.75% Senior Notes on the same terms and conditions as the other Existing Guarantors. In connection with their entering into the Fifth Supplemental Indenture, the New Guarantors also entered into a Pledge and Security Agreement Supplement by which they secured their obligations under their guarantees and the obligations of the Company and the Co-Issuers under the Indenture.
The following tables present revised unaudited consolidating financial information to reflect WML and its subsidiaries as additional subsidiary guarantors of the 10.75% Senior Notes resulting from the Fifth Supplemental Indenture.


63
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING BALANCE SHEETS
December 31, 2013
(In thousands)
 
Assets
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
25,326

 
$
3,341

 
$
27,451

 
$
4,992

 
$
—

 
$
61,110

Receivables:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
—

 
12,934

 
46,985

 
6,277

 
—

 
66,196

Contractual third-party reclamation receivables
 
—

 
—

 
8,487

 
—

 
—

 
8,487

Intercompany receivable/payable
 
(16,273
)
 
—

 
2,761

 
(19,353
)
 
32,865

 
—

Other
 
1,616

 
210

 
3,256

 
28

 
(24
)
 
5,086

 
 
(14,657
)
 
13,144

 
61,489

 
(13,048
)
 
32,841

 
79,769

Inventories
 
—

 
6,161

 
33,811

 
—

 
—

 
39,972

Deferred income taxes
 
—

 
—

 
870

 
—

 
(870
)
 
—

Restricted investments and bond collateral
 
—

 
5,998

 
—

 
—

 
—

 
5,998

Other current assets
 
6,144

 
143

 
11,069

 
834

 
—

 
18,190

Total current assets
 
16,813

 
28,787

 
134,690

 
(7,222
)
 
31,971

 
205,039

Property, plant and equipment:
 
 
 
 
 
 
 
 
 
 
 
 
Land and mineral rights
 
—

 
1,395

 
276,793

 
—

 
—

 
278,188

Plant and equipment
 
3,973

 
220,872

 
432,851

 
—

 
—

 
657,696

 
 
3,973

 
222,267

 
709,644

 
—

 
—

 
935,884

Less accumulated depreciation, depletion and amortization
 
2,707

 
71,653

 
371,488

 
—

 
—

 
445,848

Net property, plant and equipment
 
1,266

 
150,614

 
338,156

 
—

 
—

 
490,036

Advanced coal royalties
 
—

 
—

 
7,311

 
—

 
—

 
7,311

Reclamation deposits
 
—

 
—

 
74,921

 
—

 
—

 
74,921

Restricted investments and bond collateral
 
15,134

 
—

 
54,101

 
—

 
—

 
69,235

Contractual third-party reclamation receivables
 
—

 
—

 
88,303

 
—

 
—

 
88,303

Intangible assets
 
—

 
1,283

 
237

 
—

 
—

 
1,520

Investment in subsidiaries
 
280,843

 
—

 
—

 
3,770

 
(284,613
)
 
—

Other assets
 
8,636

 
—

 
1,683

 
2,000

 
(1,999
)
 
10,320

Total assets
 
$
322,692

 
$
180,684

 
$
699,402

 
$
(1,452
)
 
$
(254,641
)
 
$
946,685


64
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING BALANCE SHEETS
December 31, 2013
(In thousands)
 
Liabilities and Shareholders’ Deficit
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Current installments of long-term debt
 
$
20,392

 
$
—

 
$
23,951

 
$
—

 
$
—

 
$
44,343

Accounts payable and accrued expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
6,840

 
10,119

 
38,061

 
2,487

 
—

 
57,507

Production taxes
 
—

 
3

 
36,522

 
5,380

 
—

 
41,905

Workers’ compensation
 
717

 
—

 
—

 
—

 
—

 
717

Postretirement medical benefits
 
12,042

 
—

 
774

 
1,139

 
—

 
13,955

SERP
 
390

 
—

 
—

 
—

 
—

 
390

Deferred revenue
 
—

 
9,024

 
5,044

 
—

 
—

 
14,068

Asset retirement obligations
 
—

 
—

 
23,353

 
—

 
—

 
23,353

Other current liabilities
 
11,302

 
5,053

 
457

 
—

 
(22
)
 
16,790

Total current liabilities
 
51,683

 
24,199

 
128,162

 
9,006

 
(22
)
 
213,028

Long-term debt, less current installments
 
224,582

 
—

 
72,912

 
—

 
(2,000
)
 
295,494

Workers’ compensation, less current portion
 
6,744

 
—

 
—

 
—

 
—

 
6,744

Excess of black lung benefit obligation over trust assets
 
8,675

 
—

 
—

 
—

 
—

 
8,675

Postretirement medical benefits, less current portion
 
185,858

 
—

 
66,439

 
18,077

 
—

 
270,374

Pension and SERP obligations, less current portion
 
13,069

 
99

 
10,765

 
243

 
—

 
24,176

Deferred revenue, less current portion
 
—

 
41,297

 
5,270

 
—

 
—

 
46,567

Asset retirement obligations, less current portion
 
—

 
892

 
255,619

 
—

 
—

 
256,511

Intangible liabilities
 
—

 
5,606

 
—

 
—

 
—

 
5,606

Other liabilities
 
5,939

 
—

 
6,687

 
983

 
(6,220
)
 
7,389

Intercompany receivable/payable
 
14,021

 
—

 
(7,851
)
 
14,654

 
(20,824
)
 
—

Total liabilities
 
510,571

 
72,093

 
538,003

 
42,963

 
(29,066
)
 
1,134,564

Shareholders’ deficit
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
160

 
—

 
—

 
—

 
—

 
160

Common stock
 
36,479

 
5

 
110

 
132

 
(247
)
 
36,479

Other paid-in capital
 
134,861

 
52,835

 
157,984

 
(124
)
 
(210,695
)
 
134,861

Accumulated other comprehensive income (loss)
 
(63,595
)
 
(164
)
 
6,425

 
(3,086
)
 
(3,175
)
 
(63,595
)
Accumulated earnings (deficit)
 
(295,784
)
 
55,915

 
(3,120
)
 
(41,337
)
 
(11,458
)
 
(295,784
)
Total Westmoreland Coal Company shareholders’ deficit
 
(187,879
)
 
108,591

 
161,399

 
(44,415
)
 
(225,575
)
 
(187,879
)
Noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

Total equity (deficit)
 
(187,879
)
 
108,591

 
161,399

 
(44,415
)
 
(225,575
)
 
(187,879
)
Total liabilities and shareholders’ deficit
 
$
322,692

 
$
180,684

 
$
699,402

 
$
(1,452
)
 
$
(254,641
)
 
$
946,685


65
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING BALANCE SHEETS
December 31, 2012
(In thousands)
 
Assets
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
14,836

 
$
4,545

 
$
10,236

 
$
1,993

 
$
—

 
$
31,610

Receivables:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
—

 
13,018

 
43,420

 
3,599

 
—

 
60,037

Contractual third-party reclamation receivables
 
—

 
—

 
10,207

 
—

 
—

 
10,207

Intercompany receivable/payable
 
(17,309
)
 
—

 
2,595

 
(18,262
)
 
32,976

 
—

Other
 
680

 
—

 
17,377

 
8

 
(14,845
)
 
3,220

 
 
(16,629
)
 
13,018

 
73,599

 
(14,655
)
 
18,131

 
73,464

Inventories
 
—

 
3,047

 
34,687

 
—

 
—

 
37,734

Other current assets
 
743

 
298

 
15,463

 
—

 
—

 
16,504

Total current assets
 
(1,050
)
 
20,908

 
133,985

 
(12,662
)
 
18,131

 
159,312

Property, plant and equipment:
 
 
 
 
 
 
 
 
 
 
 
 
Land and mineral rights
 
—

 
1,395

 
260,346

 
—

 
—

 
261,741

Plant and equipment
 
3,198

 
219,857

 
412,665

 
—

 
—

 
635,720

 
 
3,198

 
221,252

 
673,011

 
—

 
—

 
897,461

Less accumulated depreciation, depletion and amortization
 
2,364

 
61,474

 
320,783

 
—

 
—

 
384,621

Net property, plant and equipment
 
834

 
159,778

 
352,228

 
—

 
—

 
512,840

Advanced coal royalties
 
—

 
—

 
4,316

 
—

 
—

 
4,316

Reclamation deposits
 
—

 
—

 
72,718

 
—

 
—

 
72,718

Restricted investments and bond collateral
 
15,183

 
5,990

 
66,036

 
—

 
—

 
87,209

Contractual third-party reclamation receivables
 
—

 
—

 
84,158

 
—

 
—

 
84,158

Intangible assets
 
—

 
2,923

 
280

 
—

 
—

 
3,203

Investment in subsidiaries
 
257,773

 
—

 
(792
)
 
3,770

 
(260,751
)
 
—

Other assets
 
10,267

 
—

 
2,092

 
2,000

 
(2,000
)
 
12,359

Total assets
 
$
283,007

 
$
189,599

 
$
715,021

 
$
(6,892
)
 
$
(244,620
)
 
$
936,115


66
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING BALANCE SHEETS
December 31, 2012
(In thousands)
 
Liabilities and Shareholders’ Deficit
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Current installments of long-term debt
 
$
(1,548
)
 
$
—

 
$
25,339

 
$
—

 
$
—

 
$
23,791

Accounts payable and accrued expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
5,060

 
4,978

 
40,715

 
16,181

 
(14,841
)
 
52,093

Production taxes
 
—

 
3

 
28,856

 
4,369

 
—

 
33,228

Workers’ compensation
 
820

 
—

 
—

 
—

 
—

 
820

Postretirement medical benefits
 
12,494

 
—

 
449

 
1,125

 
—

 
14,068

SERP
 
390

 
—

 
—

 
—

 
—

 
390

Deferred revenue
 
—

 
8,788

 
4,034

 
—

 
—

 
12,822

Asset retirement obligations
 
—

 
—

 
22,238

 
—

 
—

 
22,238

Other current liabilities
 
11,311

 
—

 
155

 
—

 
(4
)
 
11,462

Total current liabilities
 
28,527

 
13,769

 
121,786

 
21,675

 
(14,845
)
 
170,912

Long-term debt, less current installments
 
245,456

 
—

 
93,742

 
—

 
(2,000
)
 
337,198

Workers’ compensation, less current portion
 
8,710

 
—

 
—

 
—

 
—

 
8,710

Excess of black lung benefit obligation over trust assets
 
8,356

 
—

 
—

 
—

 
—

 
8,356

Postretirement medical benefits, less current portion
 
224,336

 
—

 
74,589

 
20,850

 
—

 
319,775

Pension and SERP obligations, less current portion
 
29,265

 
289

 
23,955

 
741

 
—

 
54,250

Deferred revenue, less current portion
 
—

 
50,239

 
6,652

 
—

 
—

 
56,891

Asset retirement obligations, less current portion
 
—

 
829

 
240,780

 
—

 
—

 
241,609

Intangible liabilities
 
—

 
6,625

 
—

 
—

 
—

 
6,625

Other liabilities
 
701

 
—

 
16,145

 
1,174

 
—

 
18,020

Intercompany receivable/payable
 
23,887

 
—

 
13,004

 
14,654

 
(51,545
)
 
—

Total liabilities
 
569,238

 
71,751

 
590,653

 
59,094

 
(68,390
)
 
1,222,346

Shareholders’ deficit
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
160

 
—

 
—

 
—

 
—

 
160

Common stock
 
35,502

 
5

 
110

 
132

 
(247
)
 
35,502

Other paid-in capital
 
130,852

 
52,806

 
155,585

 
(124
)
 
(208,267
)
 
130,852

Accumulated other comprehensive loss
 
(148,345
)
 
(372
)
 
(22,777
)
 
(6,702
)
 
29,851

 
(148,345
)
Accumulated earnings (deficit)
 
(289,727
)
 
65,409

 
(8,550
)
 
(59,292
)
 
2,433

 
(289,727
)
Total Westmoreland Coal Company shareholders’ deficit
 
(271,558
)
 
117,848

 
124,368

 
(65,986
)
 
(176,230
)
 
(271,558
)
Noncontrolling interest
 
(14,673
)
 
—

 
—

 
—

 
—

 
(14,673
)
Total equity (deficit)
 
(286,231
)
 
117,848

 
124,368

 
(65,986
)
 
(176,230
)
 
(286,231
)
Total liabilities and shareholders’ deficit
 
$
283,007

 
$
189,599

 
$
715,021

 
$
(6,892
)
 
$
(244,620
)
 
$
936,115


67
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2013
(In thousands)
 
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$
—

 
$
87,567

 
$
571,021

 
$
57,545

 
$
(41,447
)
 
$
674,686

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
(1,525
)
 
63,794

 
453,508

 
60,990

 
(41,447
)
 
535,320

Depreciation, depletion and amortization
357

 
10,178

 
56,696

 
—

 
—

 
67,231

Selling and administrative
19,027

 
3,609

 
30,596

 
(2,511
)
 
—

 
50,721

Heritage health benefit expenses
12,361

 
—

 
—

 
1,057

 
—

 
13,418

Loss (gain) on sales of assets
—

 
—

 
(74
)
 
—

 
—

 
(74
)
Restructuring charges
—

 
5,078

 
—

 
—

 
—

 
5,078

Other operating income
—

 
—

 
(22,370
)
 
—

 
—

 
(22,370
)
 
30,220

 
82,659

 
518,356

 
59,536

 
(41,447
)
 
649,324

Operating income (loss)
(30,220
)
 
4,908

 
52,665

 
(1,991
)
 
—

 
25,362

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(30,417
)
 
(39
)
 
(9,495
)
 
(21
)
 
35

 
(39,937
)
Loss on extinguishment of debt
(64
)
 
—

 
—

 
—

 
—

 
(64
)
Interest income
165

 
26

 
1,190

 
20

 
(35
)
 
1,366

Other income
—

 
—

 
364

 
—

 
—

 
364

 
(30,316
)
 
(13
)
 
(7,941
)
 
(1
)
 
—

 
(38,271
)
Income (loss) before income taxes and income of consolidated subsidiaries
(60,536
)
 
4,895

 
44,724

 
(1,992
)
 
—

 
(12,909
)
Equity in income of subsidiaries
47,514

 
—

 
—

 
—

 
(47,514
)
 
—

Loss before income taxes
(13,022
)
 
4,895

 
44,724

 
(1,992
)
 
(47,514
)
 
(12,909
)
Income tax expense (benefit)
(4,895
)
 
680

 
8,414

 
—

 
(8,981
)
 
(4,782
)
Net income (loss)
(8,127
)
 
4,215

 
36,310

 
(1,992
)
 
(38,533
)
 
(8,127
)
Less net loss attributable to noncontrolling interest
(3,430
)
 
—

 
—

 
—

 
—

 
(3,430
)
Net income (loss) attributable to the Parent company
$
(4,697
)
 
$
4,215

 
$
36,310

 
$
(1,992
)
 
$
(38,533
)
 
$
(4,697
)

68
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2012
(In thousands)
 
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$
—

 
$
81,285

 
$
511,570

 
$
39,041

 
$
(31,459
)
 
$
600,437

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
(587
)
 
59,299

 
393,793

 
45,475

 
(31,459
)
 
466,521

Depreciation, depletion and amortization
421

 
10,085

 
46,639

 
—

 
—

 
57,145

Selling and administrative
18,407

 
3,657

 
29,334

 
37

 
(1,527
)
 
49,908

Heritage health benefit expenses
12,406

 
—

 
(1
)
 
983

 
—

 
13,388

Loss on sales of assets
13

 
—

 
515

 
—

 
—

 
528

Other operating income
—

 
—

 
(17,452
)
 
—

 
1,527

 
(15,925
)
 
30,660

 
73,041

 
452,828

 
46,495

 
(31,459
)
 
571,565

Operating income (loss)
(30,660
)
 
8,244

 
58,742

 
(7,454
)
 
—

 
28,872

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(31,301
)
 
(39
)
 
(11,349
)
 
(68
)
 
80

 
(42,677
)
Loss on extinguishment of debt
(1,986
)
 
—

 
—

 
—

 
—

 
(1,986
)
Interest income
253

 
15

 
1,289

 
19

 
(80
)
 
1,496

Other income
190

 
—

 
533

 
—

 
—

 
723

 
(32,844
)
 
(24
)
 
(9,527
)
 
(49
)
 
—

 
(42,444
)
Income (loss) before income taxes and income of consolidated subsidiaries
(63,504
)
 
8,220

 
49,215

 
(7,503
)
 
—

 
(13,572
)
Equity in income of subsidiaries
49,834

 
—

 
—

 
—

 
(49,834
)
 
—

Income (loss) before income taxes
(13,670
)
 
8,220

 
49,215

 
(7,503
)
 
(49,834
)
 
(13,572
)
Income tax expense (benefit)
(8
)
 
107

 
4,410

 
—

 
(4,419
)
 
90

Net income (loss)
(13,662
)
 
8,113

 
44,805

 
(7,503
)
 
(45,415
)
 
(13,662
)
Less net loss attributable to noncontrolling interest
(6,436
)
 
—

 
—

 
—

 
—

 
(6,436
)
Net income (loss) attributable to the Parent company
$
(7,226
)
 
$
8,113

 
$
44,805

 
$
(7,503
)
 
$
(45,415
)
 
$
(7,226
)

69
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2011
(In thousands)
 
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$
—

 
$
86,785

 
$
390,621

 
$
79,831

 
$
(55,524
)
 
$
501,713

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
(158
)
 
60,243

 
304,652

 
83,574

 
(55,524
)
 
392,787

Depreciation, depletion and amortization
306

 
10,175

 
35,113

 
—

 
—

 
45,594

Selling and administrative
13,394

 
4,059

 
23,850

 
(554
)
 
(473
)
 
40,276

Heritage health benefit expenses
17,754

 
—

 
—

 
821

 
—

 
18,575

Gain (loss) on sales of assets
3

 
189

 
448

 
—

 
—

 
640

Other operating income
—

 
—

 
(7,258
)
 
—

 
473

 
(6,785
)
 
31,299

 
74,666

 
356,805

 
83,841

 
(55,524
)
 
491,087

Operating income (loss)
(31,299
)
 
12,119

 
33,816

 
(4,010
)
 
—

 
10,626

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(16,365
)
 
(469
)
 
(12,957
)
 
(70
)
 
92

 
(29,769
)
Loss on extinguishment of debt
(7,873
)
 
(9,073
)
 
(84
)
 
—

 
—

 
(17,030
)
Interest income
266

 
14

 
1,229

 
27

 
(92
)
 
1,444

Other income (loss)
(3,014
)
 
—

 
418

 
24

 
—

 
(2,572
)
 
(26,986
)
 
(9,528
)
 
(11,394
)
 
(19
)
 
—

 
(47,927
)
Loss before income taxes and income of consolidated subsidiaries
(58,285
)
 
2,591

 
22,422

 
(4,029
)
 
—

 
(37,301
)
Equity in income of subsidiaries
21,128

 
—

 
—

 
—

 
(21,128
)
 
—

Loss before income taxes
(37,157
)
 
2,591

 
22,422

 
(4,029
)
 
(21,128
)
 
(37,301
)
Income tax expense (benefit)
(282
)
 
(2,498
)
 
7,236

 
—

 
(4,882
)
 
(426
)
Net income (loss)
(36,875
)
 
5,089

 
15,186

 
(4,029
)
 
(16,246
)
 
(36,875
)
Less net loss attributable to noncontrolling interest
(3,775
)
 
—

 
—

 
—

 
—

 
(3,775
)
Net loss attributable to the Parent company
$
(33,100
)
 
$
5,089

 
$
15,186

 
$
(4,029
)
 
$
(16,246
)
 
$
(33,100
)

70
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, 2013
(In thousands)
 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(8,127
)
 
$
4,215

 
$
36,310

 
$
(1,992
)
 
$
(38,533
)
 
$
(8,127
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
3,490

 
28

 
801

 
61

 
(890
)
 
3,490

Adjustments to accumulated actuarial losses and transition obligations, pension
28,974

 
180

 
13,331

 
475

 
(13,986
)
 
28,974

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
4,005

 
—

 
577

 
275

 
(852
)
 
4,005

Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits
53,230

 
180

 
14,548

 
2,804

 
(17,532
)
 
53,230

Tax effect of other comprehensive income gains
(4,892
)
 
—

 
—

 
—

 
—

 
(4,892
)
Unrealized and realized gains and losses on available-for-sale securities
(57
)
 
—

 
(55
)
 
—

 
55

 
(57
)
Other comprehensive income
84,750

 
388

 
29,202

 
3,615

 
(33,205
)
 
84,750

Comprehensive income attributable to Westmoreland Coal Company
$
76,623

 
$
4,603

 
$
65,512

 
$
1,623

 
$
(71,738
)
 
$
76,623





71
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, 2012
(In thousands)

 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(13,662
)
 
$
8,113

 
$
44,805

 
$
(7,503
)
 
$
(45,415
)
 
$
(13,662
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
2,960

 
23

 
720

 
46

 
(789
)
 
2,960

Adjustments to accumulated actuarial losses and transition obligations, pension
(9,812
)
 
(52
)
 
(5,144
)
 
(22
)
 
5,218

 
(9,812
)
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
2,572

 
—

 
823

 
150

 
(973
)
 
2,572

Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits
(22,342
)
 
—

 
(1,367
)
 
(1,467
)
 
2,834

 
(22,342
)
Unrealized and realized gains and losses on available-for-sale securities
(268
)
 
—

 
(64
)
 
—

 
64

 
(268
)
Other comprehensive income (loss)
(26,890
)
 
(29
)
 
(5,032
)
 
(1,293
)
 
6,354

 
(26,890
)
Comprehensive income (loss) attributable to Westmoreland Coal Company
$
(40,552
)
 
$
8,084

 
$
39,773

 
$
(8,796
)
 
$
(39,061
)
 
$
(40,552
)



72
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, 2011
(In thousands)

 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(36,875
)
 
$
5,089

 
$
15,186

 
$
(4,029
)
 
$
(16,246
)
 
$
(36,875
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
1,647

 
9

 
86

 
36

 
(131
)
 
1,647

Adjustments to accumulated actuarial losses and transition obligations, pension
(15,798
)
 
(150
)
 
72

 
(516
)
 
594

 
(15,798
)
Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
(288
)
 
—

 
348

 
(54
)
 
(294
)
 
(288
)
Adjustments to accumulated actuarial gains and transition obligations, postretirement medical benefits
(49,136
)
 
—

 
(5,934
)
 
(3,335
)
 
9,269

 
(49,136
)
Unrealized and realized gains and losses on available-for-sale securities
(200
)
 
—

 
(203
)
 
—

 
203

 
(200
)
Other comprehensive income (loss)
(63,775
)
 
(141
)
 
(5,631
)
 
(3,869
)
 
9,641

 
(63,775
)
Comprehensive income (loss) attributable to Westmoreland Coal Company
$
(100,650
)
 
$
4,948

 
$
9,555

 
$
(7,898
)
 
$
(6,605
)
 
$
(100,650
)


73
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2013
(In thousands)
 
Statements of Cash Flows
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(8,127
)
 
$
4,215

 
$
36,310

 
$
(1,992
)
 
$
(38,533
)
 
$
(8,127
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
(47,514
)
 
—

 
—

 
—

 
47,514

 
—

Depreciation, depletion, and amortization
 
357

 
10,178

 
56,696

 
—

 
—

 
67,231

Accretion of asset retirement obligation and receivable
 
—

 
63

 
12,618

 
—

 
—

 
12,681

Non-cash tax benefits
 
(4,892
)
 
—

 
—

 
—

 
—

 
(4,892
)
Amortization of intangible assets and liabilities, net
 
—

 
622

 
43

 
—

 
—

 
665

Share-based compensation
 
2,887

 
37

 
2,398

 
—

 
—

 
5,322

Loss on sale of assets
 
—

 
—

 
(74
)
 
—

 
—

 
(74
)
Amortization of deferred financing costs
 
3,165

 
—

 
566

 
—

 
—

 
3,731

Other
 
—

 
—

 
(1,001
)
 
—

 
—

 
(1,001
)
Loss on extinguishment of debt
 
64

 
—

 
—

 
—

 
—

 
64

Gain on sales of investments
 
—

 
—

 
(3
)
 
—

 
—

 
(3
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
(936
)
 
(126
)
 
10,945

 
(4,225
)
 
(13,294
)
 
(7,636
)
Inventories
 
—

 
(3,114
)
 
602

 
—

 
—

 
(2,512
)
Excess of black lung benefit obligation over trust assets
 
319

 
—

 
—

 
—

 
—

 
319

Accounts payable and accrued expenses
 
1,753

 
5,141

 
4,545

 
(12,683
)
 
14,823

 
13,579

Deferred revenue
 
—

 
(8,706
)
 
(372
)
 
—

 
—

 
(9,078
)
Income tax payable
 
—

 
—

 
(1
)
 
—

 
—

 
(1
)
Accrual for workers’ compensation
 
(2,069
)
 
—

 
—

 
—

 
—

 
(2,069
)
Asset retirement obligations
 
—

 
—

 
(9,410
)
 
—

 
—

 
(9,410
)
Accrual for postretirement medical benefits
 
101

 
—

 
7,300

 
320

 
—

 
7,721

Pension and SERP obligations
 
1,391

 
18

 
941

 
38

 
—

 
2,388

Other assets and liabilities
 
(170
)
 
4,983

 
13,383

 
(1,025
)
 
(5,352
)
 
11,819

Distributions received from subsidiaries
 
78,000

 
—

 
—

 
—

 
(78,000
)
 
—

Net cash provided by (used in) operating activities
 
24,329

 
13,311

 
135,486

 
(19,567
)
 
(72,842
)
 
80,717

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
(771
)
 
(790
)
 
(27,030
)
 
—

 
—

 
(28,591
)
Change in restricted investments and bond collateral and reclamation deposits
 
49

 
(8
)
 
1,393

 
—

 
—

 
1,434

Net proceeds from sales of assets
 
—

 
—

 
902

 
—

 
—

 
902


74
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Proceeds from the sale of restricted investments
 
—

 
—

 
8,287

 
—

 
—

 
8,287

Receivable from customer for property and equipment purchases
 
—

 
—

 
(389
)
 
—

 
—

 
(389
)
Other
 
—

 
—

 
(3,540
)
 
—

 
—

 
(3,540
)
Net cash provided by (used in) investing activities
 
(722
)
 
(798
)
 
(20,377
)
 
—

 
—

 
(21,897
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 
—

 
—

 
310

 
—

 
—

 
310

Repayments of long-term debt
 
(500
)
 
—

 
(27,588
)
 
—

 
—

 
(28,088
)
Borrowings on revolving lines of credit
 
—

 
—

 
7,000

 
—

 
—

 
7,000

Repayments on revolving lines of credit
 
—

 
—

 
(7,000
)
 
—

 
—

 
(7,000
)
Debt issuance costs and other refinancing costs
 
(26
)
 
—

 
(156
)
 
—

 
—

 
(182
)
Dividends/distributions
 
(1,360
)
 
(14,500
)
 
(63,500
)
 
—

 
78,000

 
(1,360
)
Transactions with Parent/affiliates
 
(11,231
)
 
783

 
(6,960
)
 
22,566

 
(5,158
)
 
—

Net cash provided by (used in) financing activities
 
(13,117
)
 
(13,717
)
 
(97,894
)
 
22,566

 
72,842

 
(29,320
)
Net increase (decrease) in cash and cash equivalents
 
10,490

 
(1,204
)
 
17,215

 
2,999

 
—

 
29,500

Cash and cash equivalents, beginning of year
 
14,836

 
4,545

 
10,236

 
1,993

 
—

 
31,610

Cash and cash equivalents, end of year
 
$
25,326

 
$
3,341

 
$
27,451

 
$
4,992

 
$
—

 
$
61,110


75
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2012
(In thousands)
 
Statements of Cash Flows
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(13,662
)
 
$
8,113

 
$
44,805

 
$
(7,503
)
 
$
(45,415
)
 
$
(13,662
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
(49,834
)
 
—

 
—

 
—

 
49,834

 
—

Depreciation, depletion, and amortization
 
421

 
10,085

 
46,639

 
—

 
—

 
57,145

Accretion of asset retirement obligation and receivable
 
—

 
59

 
12,130

 
—

 
—

 
12,189

Amortization of intangible assets and liabilities, net
 
—

 
622

 
36

 
—

 
—

 
658

Share-based compensation
 
3,054

 
44

 
2,942

 
—

 
—

 
6,040

Loss (gain) on sale of assets
 
13

 
—

 
515

 
—

 
—

 
528

Amortization of deferred financing costs
 
2,889

 
—

 
1,469

 
—

 
—

 
4,358

Loss on extinguishment of debt
 
1,986

 
—

 
—

 
—

 
—

 
1,986

Gain on sales of investments
 
(190
)
 
—

 
25

 
—

 
—

 
(165
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
(280
)
 
(151
)
 
(22,246
)
 
1,865

 
7,957

 
(12,855
)
Inventories
 
—

 
709

 
(2,873
)
 
—

 
—

 
(2,164
)
Excess of black lung benefit obligation over trust assets
 
1,791

 
—

 
—

 
—

 
—

 
1,791

Accounts payable and accrued expenses
 
4,792

 
(3,208
)
 
18,551

 
5,488

 
(8,224
)
 
17,399

Deferred revenue
 
—

 
(8,312
)
 
114

 
—

 
—

 
(8,198
)
Accrual for workers’ compensation
 
(2,096
)
 
—

 
—

 
—

 
—

 
(2,096
)
Asset retirement obligations
 
—

 
—

 
(6,943
)
 
—

 
—

 
(6,943
)
Accrual for postretirement medical benefits
 
(524
)
 
—

 
6,828

 
(113
)
 
—

 
6,191

Pension and SERP obligations
 
1,286

 
15

 
1,602

 
(101
)
 
—

 
2,802

Other assets and liabilities
 
(247
)
 
(536
)
 
(7,185
)
 
(1,892
)
 
2,000

 
(7,860
)
Distributions received from subsidiaries
 
31,971

 
—

 
—

 
—

 
(31,971
)
 
—

Net cash provided by (used in) operating activities
 
(18,630
)
 
7,440

 
96,409

 
(2,256
)
 
(25,819
)
 
57,144

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
(159
)
 
(2,067
)
 
(18,806
)
 
—

 
—

 
(21,032
)
Change in restricted investments and bond collateral and reclamation deposits
 
(3,248
)
 
(7
)
 
(30,637
)
 
—

 
—

 
(33,892
)
Cash payments related to acquisitions and other
 
4,000

 
—

 
(76,522
)
 
—

 
—

 
(72,522
)
Net proceeds from sales of assets
 
—

 
—

 
480

 
—

 
—

 
480

Proceeds from the sale of restricted investments
 
1,581

 
—

 
2,525

 
—

 
—

 
4,106

Receivable from customer for property and equipment purchases
 
—

 
—

 
(674
)
 
—

 
—

 
(674
)

76
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Net cash provided by (used in) investing activities
 
2,174

 
(2,074
)
 
(123,634
)
 
—

 
—

 
(123,534
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 
—

 
(259
)
 
6

 
—

 
—

 
(253
)
Borrowings from long-term debt
 
119,364

 
—

 
—

 
—

 
—

 
119,364

Repayments of long-term debt
 
(23,000
)
 
—

 
(21,846
)
 
—

 
—

 
(44,846
)
Borrowings on revolving lines of credit
 
—

 
—

 
16,500

 
—

 
—

 
16,500

Repayments on revolving lines of credit
 
—

 
—

 
(16,500
)
 
—

 
—

 
(16,500
)
Debt issuance costs and other refinancing costs
 
(5,666
)
 
—

 
(22
)
 
—

 
—

 
(5,688
)
Dividends/distributions
 
(1,360
)
 
(1,050
)
 
(30,921
)
 
—

 
31,971

 
(1,360
)
Transactions with Parent/affiliates
 
(84,186
)
 
482

 
86,863

 
2,993

 
(6,152
)
 
—

Net cash provided by (used in) financing activities
 
5,152

 
(827
)
 
34,080

 
2,993

 
25,819

 
67,217

Net increase (decrease) in cash and cash equivalents
 
(11,304
)
 
4,539

 
6,855

 
737

 
—

 
827

Cash and cash equivalents, beginning of year
 
26,140

 
6

 
3,381

 
1,256

 
—

 
30,783

Cash and cash equivalents, end of year
 
$
14,836

 
$
4,545

 
$
10,236

 
$
1,993

 
$
—

 
$
31,610


77
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2011
(In thousands)
 
Statements of Cash Flows
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(36,875
)
 
$
5,089

 
$
15,186

 
$
(4,029
)
 
$
(16,246
)
 
$
(36,875
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
(21,128
)
 
—

 
—

 
—

 
21,128

 
—

Depreciation, depletion, and amortization
 
306

 
10,175

 
35,113

 
—

 
—

 
45,594

Accretion of asset retirement obligation and receivable
 
—

 
55

 
10,823

 
—

 
—

 
10,878

Amortization of intangible assets and liabilities, net
 
—

 
621

 
36

 
—

 
—

 
657

Share-based compensation
 
1,670

 
32

 
3,019

 
—

 
—

 
4,721

Loss (gain) on sale of assets
 
3

 
189

 
448

 
—

 
—

 
640

Amortization of deferred financing costs
 
1,485

 
(21
)
 
1,051

 
—

 
—

 
2,515

Loss on extinguishment of debt
 
7,873

 
9,073

 
84

 
—

 
—

 
17,030

Gain on sales of investments
 
—

 
—

 
(150
)
 
—

 
—

 
(150
)
Loss on derivative instruments
 
3,079

 
—

 
—

 
—

 
—

 
3,079

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
(270
)
 
1,479

 
1,367

 
(3,334
)
 
6,249

 
5,491

Inventories
 
—

 
(1,820
)
 
(305
)
 
—

 
—

 
(2,125
)
Excess of black lung benefit obligation over trust assets
 
4,319

 
—

 
—

 
—

 
—

 
4,319

Accounts payable and accrued expenses
 
5,944

 
(1,063
)
 
(940
)
 
4,326

 
(4,139
)
 
4,128

Deferred revenue
 
—

 
(8,774
)
 
(1,144
)
 
—

 
—

 
(9,918
)
Accrual for workers’ compensation
 
1,248

 
—

 
—

 
—

 
—

 
1,248

Asset retirement obligations
 
—

 
—

 
(6,510
)
 
—

 
—

 
(6,510
)
Accrual for postretirement medical benefits
 
(2,879
)
 
—

 
1,132

 
104

 
—

 
(1,643
)
Pension and SERP obligations
 
(3,741
)
 
(50
)
 
2,520

 
(7
)
 
—

 
(1,278
)
Other assets and liabilities
 
444

 
(530
)
 
3,405

 
42

 
(427
)
 
2,934

Distributions received from subsidiaries
 
23,400

 
—

 
—

 
—

 
(23,400
)
 
—

Net cash provided by (used in) operating activities
 
(15,122
)
 
14,455

 
65,135

 
(2,898
)
 
(16,835
)
 
44,735

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
(797
)
 
(2,119
)
 
(24,678
)
 
—

 
—

 
(27,594
)
Change in restricted investments and bond collateral and reclamation deposits
 
(1,713
)
 
2,580

 
(6,853
)
 
—

 
—

 
(5,986
)
Cash payments related to acquisitions and other
 
(4,000
)
 
—

 
—

 
—

 
—

 
(4,000
)
Net proceeds from sales of assets
 
—

 
—

 
687

 
—

 
—

 
687

Proceeds from the sale of investments
 
—

 
—

 
3,350

 
—

 
—

 
3,350


78
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Receivable from customer for property and equipment purchases
 
—

 
—

 
(96
)
 
—

 
—

 
(96
)
Net cash provided by (used in) investing activities
 
(6,510
)
 
461

 
(27,590
)
 
—

 
—

 
(33,639
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 
(146
)
 
259

 
(837
)
 
—

 
—

 
(724
)
Borrowings from long-term debt
 
142,500

 
—

 
—

 
—

 
—

 
142,500

Repayments of long-term debt
 
(2,532
)
 
(46,220
)
 
(24,814
)
 
—

 
—

 
(73,566
)
Borrowings on revolving lines of credit
 
—

 
1,500

 
85,700

 
—

 
—

 
87,200

Repayments on revolving lines of credit
 
—

 
(1,500
)
 
(104,100
)
 
—

 
—

 
(105,600
)
Debt issuance costs
 
(6,042
)
 
(9,077
)
 
100

 
—

 
—

 
(15,019
)
Exercise of stock options
 
422

 
—

 
—

 
—

 
—

 
422

Dividends/distributions
 
(21,301
)
 
(10,700
)
 
(11,700
)
 
(1,000
)
 
23,400

 
(21,301
)
Transactions with Parent/affiliates
 
(65,400
)
 
49,948

 
21,135

 
882

 
(6,565
)
 
—

Net cash provided by (used in) financing activities
 
47,501

 
(15,790
)
 
(34,516
)
 
(118
)
 
16,835

 
13,912

Net increase (decrease) in cash and cash equivalents
 
25,869

 
(874
)
 
3,029

 
(3,016
)
 
—

 
25,008

Cash and cash equivalents, beginning of year
 
271

 
880

 
352

 
4,272

 
—

 
5,775

Cash and cash equivalents, end of year
 
$
26,140

 
$
6

 
$
3,381

 
$
1,256

 
$
—

 
$
30,783






79
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

19.
SUBSEQUENT EVENT

On February 7, 2014, the Company closed on a private offering of $425 million in aggregate principal amount of 10.75% Senior Secured Notes due 2018 at a price of 106.875% plus accrued interest from February 1, 2014. The proceeds from the offering will be used primarily to pay the purchase price and related expenses for the Sherritt Acquisition (See Note 1 for additional details of the Sherritt Acquisition), to prepay the outstanding senior secured notes issued of WML (See Note 5 for additional details of the WML debt), and for working capital. The proceeds will be held in escrow pending the completion of the Sherritt Acquisition, which is expected to occur by the end of the first quarter of 2014.


80