EX-99.2 6 exh99-2_073114.htm EXHIBIT 99.2 exh99-2_073114

Exhibit 99.2

INDEX TO FINANCIAL STATEMENTS

WESTMORELAND COAL COMPANY



1

PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
 
March 31,
2014
 
December 31,
2013
 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
61,900

 
$
61,110

Receivables:
 
 
 
Trade
64,715

 
66,196

Contractual third-party reclamation receivables
8,213

 
8,487

Other
1,375

 
5,086

 
74,303

 
79,769

Inventories
35,447

 
39,972

Restricted investments and bond collateral
16,900

 
5,998

Other current assets
16,643

 
18,190

Total current assets
205,193

 
205,039

Property, plant and equipment:
 
 
 
Land and mineral rights
278,198

 
278,188

Plant and equipment
673,189

 
657,696

 
951,387

 
935,884

Less accumulated depreciation, depletion and amortization
461,754

 
445,848

Net property, plant and equipment
489,633

 
490,036

Advanced coal royalties
7,263

 
7,311

Reclamation deposits
75,315

 
74,921

Restricted investments and bond collateral
523,483

 
69,235

Contractual third-party reclamation receivables, less current portion
88,036

 
88,303

Intangible assets, net of accumulated amortization of $14.5 million and $14.1 million at March 31, 2014 and December 31, 2013, respectively
1,099

 
1,520

Other assets
17,125

 
10,320

Total Assets
$
1,407,147

 
$
946,685

See accompanying Notes to Consolidated Financial Statements.

2

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(Unaudited)
 
March 31,
2014
 
December 31,
2013
 
(In thousands)
Liabilities and Shareholders’ Deficit
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
48,586

 
$
44,343

Accounts payable and accrued expenses:
 
 
 
Trade
62,598

 
57,507

Production taxes
46,794

 
41,905

Workers’ compensation
712

 
717

Postretirement medical benefits
13,955

 
13,955

SERP
390

 
390

Deferred revenue
16,034

 
14,068

Asset retirement obligations
22,227

 
23,353

Other current liabilities
24,390

 
16,790

Total current liabilities
235,686

 
213,028

Long-term debt, less current installments
751,645

 
295,494

Workers’ compensation, less current portion
6,680

 
6,744

Excess of black lung benefit obligation over trust assets
9,376

 
8,675

Postretirement medical benefits, less current portion
271,275

 
270,374

Pension and SERP obligations, less current portion
23,524

 
24,176

Deferred revenue, less current portion
43,299

 
46,567

Asset retirement obligations, less current portion
259,036

 
256,511

Intangible liabilities, net of accumulated amortization of $12.7 million and $12.4 million at March 31, 2014 and December 31, 2013, respectively
5,339

 
5,606

Other liabilities
7,503

 
7,389

Total liabilities
1,613,363

 
1,134,564

Shareholders’ deficit:
 
 
 
Preferred stock of $1.00 par value
 
 
 
Authorized 5,000,000 shares; issued and outstanding 121,223 shares at March 31, 2014 and 159,960 at December 31, 2013
121

 
160

Common stock of $2.50 par value
 
 
 
Authorized 30,000,000 shares; issued and outstanding 14,862,595 shares at March 31, 2014 and 14,592,231 shares at December 31, 2013
37,155

 
36,479

Other paid-in capital
134,952

 
134,861

Accumulated other comprehensive loss
(63,369
)
 
(63,595
)
Accumulated deficit
(315,075
)
 
(295,784
)
Total shareholders’ deficit
(206,216
)
 
(187,879
)
Total Liabilities and Shareholders’ Deficit
$
1,407,147

 
$
946,685

See accompanying Notes to Consolidated Financial Statements.

3

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands, except per share data)
Revenues
$
180,202

 
$
161,448

Cost, expenses and other:
 
 
 
Cost of sales
138,630

 
130,421

Depreciation, depletion and amortization
16,059

 
14,426

Selling and administrative
13,331

 
11,887

Heritage health benefit expenses
3,544

 
3,951

Loss (gain) on sales of assets
38

 
(234
)
Restructuring charges
397

 
—

Other operating loss (income)
150

 
(4,737
)
 
172,149

 
155,714

Operating income
8,053

 
5,734

Other income (expense):
 
 
 
Interest expense
(20,798
)
 
(10,160
)
Interest income
302

 
297

Loss on foreign exchange
(6,790
)
 
—

Other income
93

 
70

 
(27,193
)
 
(9,793
)
Loss before income taxes
(19,140
)
 
(4,059
)
Income tax expense (benefit)
(110
)
 
28

Net loss
(19,030
)
 
(4,087
)
Less net loss attributable to noncontrolling interest
—

 
(1,702
)
Net loss attributable to the Parent company
(19,030
)
 
(2,385
)
Less preferred stock dividend requirements
261

 
340

Net loss applicable to common shareholders
$
(19,291
)
 
$
(2,725
)
Net loss per share applicable to common shareholders:
 
 
 
Basic and diluted
$
(1.30
)
 
$
(0.19
)
Weighted average number of common shares outstanding
 
 
 
Basic and diluted
14,787

 
14,282

See accompanying Notes to Consolidated Financial Statements.

4

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
Net loss
$
(19,030
)
 
$
(4,087
)
Other comprehensive income (loss):
 
 
 
Pension and other postretirement plans:
 
 
 
Amortization of accumulated actuarial gains or losses, pension
359

 
741

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
5

 
1,001

Tax effect of other comprehensive income gains
(138
)
 
—

Other comprehensive income
226

 
1,742

Comprehensive loss attributable to the Parent company
$
(18,804
)
 
$
(2,345
)
See accompanying Notes to Consolidated Financial Statements.

5

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Deficit
Three Months Ended March 31, 2014
(Unaudited)

 
Preferred Stock
 
Common Stock
 
Other
Paid-In
Capital
 
Accumulated
Other
Comprehensive Loss
 
Accumulated
Deficit
 
Total
Shareholders’
Deficit
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
(In thousands, except shares data)
Balance at December 31, 2013
159,960

 
$
160

 
14,592,231

 
$
36,479

 
$
134,861

 
$
(63,595
)
 
$
(295,784
)
 
$
(187,879
)
Preferred dividends declared
—

 
—

 
—

 
—

 
—

 
—

 
(261
)
 
(261
)
Common stock issued as compensation
—

 
—

 
—

 
—

 
728

 
—

 
—

 
728

SARs exercised
—

 
—

 
5,723

 
14

 
(14
)
 
—

 
—

 
—

Conversion of convertible notes and securities
(38,737
)
 
(39
)
 
264,641

 
662

 
(623
)
 
—

 
—

 
—

Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(19,030
)
 
(19,030
)
Other comprehensive income
—

 
—

 
—

 
—

 
—

 
226

 
—

 
226

Balance at March 31, 2014
121,223

 
$
121

 
14,862,595

 
$
37,155

 
$
134,952

 
$
(63,369
)
 
$
(315,075
)
 
$
(206,216
)
See accompanying Notes to Consolidated Financial Statements.

6

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(19,030
)
 
$
(4,087
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
16,059

 
14,426

Accretion of asset retirement obligation and receivable
3,479

 
3,180

Non-cash tax benefits
(138
)
 
—

Amortization of intangible assets and liabilities, net
153

 
164

Share-based compensation
728

 
2,386

Loss (gain) on sales of assets
38

 
(234
)
Amortization of deferred financing costs
271

 
933

Loss on sales of investment securities
—

 
7

Loss on foreign exchange
6,790

 
—

Changes in operating assets and liabilities:
 
 
 
Receivables, net
5,202

 
120

Inventories
4,525

 
(2,687
)
Excess of black lung benefit obligation over trust assets
701

 
83

Accounts payable and accrued expenses
10,959

 
3,245

Deferred revenue
(1,302
)
 
160

Income tax payable
28

 
27

Accrual for workers’ compensation
(69
)
 
(191
)
Asset retirement obligations
(1,352
)
 
(3,207
)
Accrual for postretirement medical benefits
906

 
1,985

Pension and SERP obligations
(293
)
 
742

Other assets and liabilities
1,993

 
4,164

Net cash provided by operating activities
29,648

 
21,216

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(3,050
)
 
(5,301
)
Change in restricted investments and bond collateral and reclamation deposits
(465,544
)
 
(6,435
)
Net proceeds from sales of assets
—

 
441

Proceeds from the sale of restricted investments
—

 
5,619

Receivable from customer for property and equipment purchases
(10
)
 
(49
)
Other
(60
)
 
—

Net cash used in investing activities
(468,664
)
 
(5,725
)
Cash flows from financing activities:
 
 
 
Change in book overdrafts
(315
)
 
820

Borrowings from long-term debt, net of debt premium
454,219

 
—

Repayments of long-term debt
(6,239
)
 
(6,573
)
Borrowings on revolving lines of credit
—

 
6,000

Repayments on revolving lines of credit
—

 
(6,000
)
Debt issuance costs and other refinancing costs
(7,598
)
 
(156
)
Preferred dividends paid
(261
)
 
(340
)
Net cash provided by (used in) financing activities
439,806

 
(6,249
)
Net increase in cash and cash equivalents
790

 
9,242

Cash and cash equivalents, beginning of period
61,110

 
31,610

Cash and cash equivalents, end of period
$
61,900

 
$
40,852

See accompanying Notes to Consolidated Financial Statements.

7

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include accounts of Westmoreland Coal Company, or the Company, or Parent, and its subsidiaries and controlled entities. The 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 the Roanoke Valley power plants, or ROVA, in North Carolina. The Company’s activities are primarily conducted through wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.
The Company’s Kemmerer Mine is owned by its subsidiary Westmoreland Kemmerer, Inc., or Kemmerer. The Company’s Absaloka Mine is owned by its subsidiary Westmoreland Resources, Inc., or WRI. The Beulah, Jewett, Rosebud, and Savage Mines are owned through the Company’s subsidiary Westmoreland Mining LLC, or WML.
The consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles and require use of management’s estimates. The financial information contained in this Form 10-Q is unaudited, but reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of results to be expected for the year ending December 31, 2014.
These quarterly consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, or the 2013 Form 10-K. The accounting principles followed by the Company are set forth in the Notes to the Company’s consolidated financial statements in its 2013 Form 10-K. Most of the descriptions of the accounting principles and other footnote disclosures previously made have been omitted in this report so long as the interim information presented is not misleading or inconsistent.
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, collectively referred to as the Sherritt Acquisition. These operations include 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 preliminary purchase price of $435 million will be made up of $293 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 and financing costs of $18.1 million have been expensed for the three months ended March 31, 2014; which includes $6.8 million of loss on foreign exchange as described in Note 8, $6.1 million of interest expense on the New Notes as described in Note 4, $4.9 million included in Interest expense related to a bridge facility commitment fee, and $0.3 million of other expenses included in Selling and administrative costs. The Company expects this acquisition to be completed during the second quarter of 2014.
Debt Obligations
The Company is subject to three major debt arrangements: (1) $81.0 million in aggregate principal amount of senior secured notes at WML that are collateralized by all assets of WML, Westmoreland Savage Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC; and (2) $251.5 million in aggregate principal amount of senior secured notes at the Parent level that are collateralized by the assets of the Parent, WRI, Kemmerer and ROVA; and (3) $425.0 million in aggregate principal amount of 10.75% senior secured notes, referred to as the New Notes, which are also collateralized by the assets of the Parent, WRI, Kemmerer and ROVA. The proceeds from the New Notes will be used primarily to pay the purchase price and related expenses for the Sherritt Acquisition, to prepay the outstanding senior secured notes issued of WML debt, and for working capital. The proceeds are being held in escrow pending the completion of the Sherritt Acquisition. See Note 4 for additional details.
Business Interruption Insurance
The Company received business interruption insurance proceeds for the three months ended March 31, 2014 due to an explosion and subsequent fire at a customer’s facility that occurred in November 2011. Operations at that facility resumed during October 2013. The Company recognizes income as business interruption losses are incurred and reimbursement is virtually assured. The Company reports this income in Other operating income and recognized nil and $4.8 million of income for the three months ended March 31, 2014 and 2013, respectively. The Company received $4.6 million of cash proceeds for

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

the three months ended March 31, 2014 related to income recorded in 2013. Insurance proceeds are included in Net cash provided by operating activities. As of March 31, 2014, the Company has collected all cash proceeds related to income recognized.
Derivatives
The Company utilized foreign exchange derivatives to manage exposure to fluctuations in the exchange rates of the Canadian dollar regarding the Sherritt acquisition. The Company does not utilize derivative financial instruments for trading purposes or for speculative purposes. The Company's derivative instruments are recorded on the Consolidated Balance Sheets in Other current assets and Other current liabilities at fair value with changes in fair value recognized in the statement of operations at the end of each period in Loss on foreign exchange.
Income Taxes
The difference between the statutory income tax rate and the effective income tax rate is due to a change in the valuation allowance recorded against the net deferred tax assets.
Restructuring Charges
In 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. During the first quarter of 2014, the Company recorded a restructuring charge of $0.4 million for additional contractual obligations. The Company expects that the $5.1 million of accruals will be paid out in the second quarter of 2014.
The table below represents the restructuring provision activity during the three months ended March 31, 2014 (in millions):
Beginning Balance
 
Restructuring Charges
 
Restructuring Payments
 
Ending Balance
$
5.1

 
$
0.4

 
$
0.4

 
$
5.1

Recently Adopted Accounting Pronouncements

The Company did not adopt any new accounting pronouncements during the three months ended March 31, 2014.

2.
INVENTORIES
Inventories consisted of the following:
 
March 31, 2014
 
December 31, 2013
 
(In thousands)
Coal stockpiles
$
1,189

 
$
543

Coal fuel inventories
1,844

 
6,161

Materials and supplies
33,189

 
34,233

Reserve for obsolete inventory
(775
)
 
(965
)
Total
$
35,447

 
$
39,972



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

3.
RESTRICTED INVESTMENTS AND BOND COLLATERAL
The Company’s restricted investments and bond collateral consist of the following: 
 
March 31, 2014
 
December 31, 2013
 
(In thousands)
Coal Segment:
 
 
 
WML debt reserve account
$
13,068

 
$
13,067

Reclamation bond collateral:
 
 
 
Kemmerer Mine
24,944

 
24,966

Absaloka Mine
11,670

 
11,653

Rosebud Mine
3,145

 
3,145

Beulah Mine
1,270

 
1,270

Power Segment:
 
 
 
Letter of credit account
—

 
5,998

Corporate Segment:
 
 
 
Proceeds from the New Notes held in escrow
454,219

 
—

Other requirements for Sherritt Acquisition held in escrow
16,900

 
—

Postretirement medical benefit bonds
8,481

 
8,467

Workers’ compensation bonds
6,686

 
6,667

Total restricted investments and bond collateral
540,383

 
75,233

Less current portion
(16,900
)
 
(5,998
)
Total restricted investments and bond collateral, less current portion
$
523,483

 
$
69,235


For all of its restricted investments and bond collateral accounts, the Company can select from limited fixed-income investment options for the funds and receive the investment returns on these investments. Funds in the restricted investments and bond collateral accounts are not available to meet the Company’s general cash needs. Net proceeds from the New Notes (see Note 4) are held in escrow pending the completion of the Sherritt Acquisition and are held entirely in cash. Other requirements for the Sherritt Acquisition include cash required to be deposited in a restricted account for interest accrued as of March 31, 2014 for the New Notes and other fees expected to be paid in connection with the Sherritt Acquisition.

These accounts include 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’s carrying value and estimated fair value of its restricted investments and bond collateral at March 31, 2014 are as follows:
 
Carrying Value
 
Fair Value
 
(In thousands)
Cash and cash equivalents
$
503,391

 
$
503,391

Time deposits
2,444

 
2,444

Held-to-maturity securities
34,548

 
34,707

 
$
540,383

 
$
540,542


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

Held-to-Maturity Restricted Investments and Bond Collateral

The amortized cost, gross unrealized holding gains and fair value of held-to-maturity securities at March 31, 2014 is as follows (in thousands):
Amortized cost
$
34,548

Gross unrealized holding gains
440

Gross unrealized holding losses
(281
)
Fair value
$
34,707

Maturities of held-to-maturity securities are as follows at March 31, 2014: 
 
Amortized Cost
 
Fair Value
 
(In thousands)
Due within one year
$
1,193

 
$
1,217

Due in five years or less
19,539

 
19,752

Due after five years to ten years
6,718

 
6,717

Due in more than ten years
7,098

 
7,021

 
$
34,548

 
$
34,707


The Company does not intend to sell its held-to-maturity securities and it is not more likely than not that the Company will be required to sell the securities before recovery of amortized cost bases, which may be at maturity.

As of February 2014, the Company is no longer required to fund a letter of credit account for its power operations.

4.
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
 
March 31, 2014
 
December 31, 2013
 
(In thousands)
10.75% Senior Notes due 2018
$
251,500

 
$
251,500

New Notes - 10.75% senior notes due 2018
425,000

 
—

8.02% WML term debt due 2018
81,000

 
85,500

Capital lease obligations
21,465

 
10,153

Other
1,093

 
1,209

Debt premium (discount), net
20,173

 
(8,525
)
Total debt outstanding
800,231

 
339,837

Less current installments
(48,586
)
 
(44,343
)
Total debt outstanding, less current installments
$
751,645

 
$
295,494



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

The following table presents aggregate contractual debt maturities of all long-term debt: 
 
As of March 31, 2014
 
(In thousands)
2014
$
19,569

2015
24,710

2016
24,055

2017
24,664

2018
684,556

Thereafter
2,504

Total
780,058

Plus: debt premium (discount), net
20,173

Total debt
$
800,231

    
On February 7, 2014, the Company closed on a private offering of $425.0 million in aggregate principal amount of 10.75% senior notes due 2018 at a price of 106.875% plus accrued interest from February 1, 2014, referred to as the New Notes. Total proceeds of the offering was $454.2 million, which included $29.2 million of debt premium. The net proceeds of the offering of the New Notes will be used to finance the approximately $293 million cash portion of the purchase price of the Sherritt Acquisition, an estimated $58 million to satisfy the cash bonding obligations for the Sherritt mines and cash transaction costs associated with the acquisition and offering of the New Notes of approximately $26 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 of the offering are being held in escrow pending the completion of the acquisition. The Company will pay interest on the New Notes semi-annually on February 1st and August 1st of each year beginning on August 1, 2014. The Company capitalized debt issuance costs of $7.6 million during the three months ended March 31, 2014.

Promptly following the completion of the Sherritt Acquisition, the Company will exchange the New Notes for $425 million aggregate principal amount of add-on 10.75% senior secured notes due 2018 (the “Add-On Notes”) and the Company will become party to a registration rights agreement, pursuant to which the Company will agree to register with the Securities and Exchange Commission the exchange of Add-On Notes for registered notes with the same terms as the existing 10.75% Senior Notes due 2018.

If the Sherritt Acquisition is not completed on or prior to June 30, 2014, then the New Notes will be subject to a mandatory redemption at a redemption price equal to 101% of the offering price of the New Notes, plus accrued and unpaid interest through the mandatory redemption date.

During the three months ended March 31, 2014, we entered into $12.9 million of new capital leases at our Kemmerer Mine.

Additional information regarding the Company's debt is outlined in Note 5 to the Consolidated Financial Statements in the Company's 2013 Annual Report on Form 10-K.

5.
POSTRETIREMENT MEDICAL BENEFITS AND PENSION
Postretirement Medical Benefits
The Company provides postretirement medical benefits to retired employees and their dependents as mandated by the Coal Industry Retiree Health Benefit Act of 1992 and pursuant to collective bargaining agreements. The Company also provides these benefits to qualified full-time employees pursuant to collective bargaining agreements.

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

The components of net periodic postretirement medical benefit cost are as follows: 
 
Three Months Ended March 31,
2014
 
2013
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
Service cost
$
822

 
$
1,109

Interest cost
3,203

 
3,035

Amortization of deferred items
5

 
1,001

Total net periodic benefit cost
$
4,030

 
$
5,145

The following table shows the net periodic postretirement medical benefit costs that relate to current and former mining operations: 
 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
Former mining operations
$
2,403

 
$
3,119

Current operations
1,627

 
2,026

Total net periodic benefit cost
$
4,030

 
$
5,145


The costs for the former mining operations are included in Heritage health benefit expenses and costs for current operations are included in Cost of sales and Selling and administrative expenses.
Pension

The Company provides pension benefits to qualified full-time employees pursuant to collective bargaining agreements.

The Company incurred net periodic benefit costs of providing these pension benefits as follows:
 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
Service cost
$
500

 
$
534

Interest cost
1,747

 
1,625

Expected return on plan assets
(2,154
)
 
(2,060
)
Amortization of deferred items
359

 
741

Total net periodic pension cost
$
452

 
$
840

These costs are included in Cost of sales and Selling and administrative expenses.

The Company contributed $0.6 million of cash contributions to its pension plans in the three months ended March 31, 2014 and expects to make $3.7 million of pension plan contributions during the remainder of 2014.


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

6.
HERITAGE HEALTH BENEFIT EXPENSES
The caption Heritage health benefit expenses used in the consolidated statements of operations refers to costs of benefits the Company provides to its former mining operation employees. The components of these expenses are as follows:

 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
Health care benefits
$
2,276

 
$
3,176

Combined benefit fund payments
512

 
576

Workers’ compensation benefits
136

 
116

Black lung benefits
620

 
83

Total
$
3,544

 
$
3,951


7.
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 March 31, 2014 are summarized below: 
 
Asset
Retirement
Obligation
 
Contractual
Third-Party
Reclamation
Receivable
 
Reclamation
Deposits
 
(In thousands)
Rosebud
$
127,989

 
$
21,656

 
$
75,315

Jewett
74,247

 
74,247

 
—

Absaloka
37,286

 
346

 
—

Beulah
17,764

 
—

 
—

Kemmerer
17,569

 
—

 
—

Savage
5,499

 
—

 
—

ROVA
909

 
—

 
—

Total
$
281,263

 
$
96,249

 
$
75,315

Asset Retirement Obligations
Changes in the Company’s asset retirement obligations were as follows: 
 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
Asset retirement obligations, beginning of year (including current portion)
$
279,864

 
$
263,847

Accretion
5,836

 
5,481

Liabilities settled
(4,437
)
 
(5,839
)
Asset retirement obligations, end of period
281,263

 
263,489

Less current portion
(22,227
)
 
(23,154
)
Asset retirement obligations, less current portion
$
259,036

 
$
240,335



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

Contractual Third-Party Reclamation Receivables
At March 31, 2014, the Company has recognized as an asset of $96.2 million as contractual third-party reclamation receivables, representing the present value of customer obligations to reimburse the Company for future reclamation expenditures at the Company’s Rosebud, Jewett and Absaloka Mines.
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 March 31, 2014 are as follows: 
 
Carrying Value
 
Fair Value
 
Fair Value Hierarchy
 
(In thousands)
 
 
Cash and cash equivalents
$
49,627

 
$
49,627

 
Level 1
Held-to-maturity securities
25,688

 
26,401

 
Level 2
 
$
75,315

 
$
76,028


 
Held-to-Maturity Reclamation Deposits
The amortized cost, gross unrealized holding gains and losses and fair value of held-to-maturity securities at March 31, 2014 are as follows (in thousands):
Amortized cost
$
25,688

Gross unrealized holding gains
826

Gross unrealized holding losses
(113
)
Fair value
$
26,401


Maturities of held-to-maturity securities are as follows at March 31, 2014:
 
Amortized Cost
 
Fair Value
 
(In thousands)
Within one year
$
479

 
$
468

Due in five years or less
17,562

 
17,880

Due after five years to ten years
4,869

 
5,023

Due in more than ten years
2,778

 
3,030

 
$
25,688

 
$
26,401


The Company does not intend to sell its held-to-maturity securities and it is not more likely than not that the Company will be required to sell the securities before recovery of amortized cost bases, which may be at maturity.

8.
DERIVATIVE INSTRUMENTS
Derivative Assets and Liabilities
The Company evaluates all of its financial instruments to determine if such instruments are derivatives, derivatives that qualify for the normal purchase normal sale exception, or contain features that qualify as embedded derivatives. All derivative financial instruments, except for derivatives that qualify for the normal purchase normal sale exception, are recognized on the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting.
In the first quarter of 2014, the Company entered into two foreign currency exchange forward contracts to purchase Canadian Dollars in order to hedge a portion of its exposure to fluctuating rates of exchange on anticipated Canadian Dollar-denominated Sherritt Acquisition cash flows. As of March 31, 2014, the Company had two individual foreign currency exchange forward contracts with external counterparties for a total notional amount of $348.3 million, which both have settlement dates of April 30, 2014.

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

The fair value of outstanding derivative instruments not designated as hedging instruments on the accompanying Consolidated Balance Sheets was as follows (in thousands): 
Derivative Instruments
 
Balance Sheet Location
 
March 31, 2014
Canadian dollar foreign exchange forward contracts
 
Other current assets
 
$
246

Canadian dollar foreign exchange forward contracts
 
Other current liabilities
 
(7,036
)
The effect of derivative instruments not designated as hedging instruments on the accompanying Consolidated Statements of Operations was as follows (in thousands): 
Derivative Instruments
 
Statement of
Operations Location
 
Three Months Ended March 31, 2014
Canadian dollar foreign exchange forward contracts
 
Loss on foreign exchange
 
$
(6,790
)

9.
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Notes 3, 7 and 8 for additional disclosures related to fair value measurements.
Fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
•
Level 1, defined as observable inputs such as quoted prices in active markets for identical assets.

•
Level 2, defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
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 March 31, 2014 (Level 3). The estimated fair values of the Company’s debt with fixed interest rates are as follows:
 
Carrying Value
 
Fair Value
 
(In thousands)
December 31, 2013
$
328,473

 
$
364,329

March 31, 2014
$
777,670

 
$
823,603

The Company uses derivative financial instruments, primarily foreign exchange contracts, to reduce its exposure to market risks from changes in foreign exchange rates. These foreign exchange contracts are measured at fair value using quoted forward foreign exchange prices from counterparties corroborated by market-based pricing (Level 2). Additional information related to the Company’s derivative financial instruments is disclosed in Note 1 and Note 8 to the consolidated financial statements.
The Company’s non-recurring fair value measurements include asset retirement obligations (refer to Note 7).
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 dates of reclamation. The asset retirement liability is accreted to its present value each period and the capitalized asset retirement cost is depleted using the units-of-production method.

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

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.

10.
SHAREHOLDERS’ EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Preferred Stock

The Company has outstanding Series A Convertible Exchangeable Preferred Stock on which cumulative dividends of $2.125 per share are payable quarterly. The Company paid $0.3 million of preferred stock dividends for the three months ended March 31, 2014. During the three months ended March 31, 2014, approximately 38,737 shares of preferred stock were converted into 264,641 shares of common stock. Subsequent to March 31, 2014 and through April 23, 2014, approximately 7,830 shares of preferred stock were converted into 53,486 shares of common stock.

Changes in Accumulated Other Comprehensive Income

The following table reflects the changes in accumulated other comprehensive loss by component:
 
Pension
 
Postretirement
medical benefits
 
Tax effect of
other
comprehensive
income gains
 
Accumulated
other
comprehensive
loss
 
(In thousands)
Balance at December 31, 2013
$
(12,255
)
 
$
(20,292
)
 
$
(31,048
)
 
$
(63,595
)
Other comprehensive income (loss) before reclassifications
—

 
—

 
(138
)
 
(138
)
Amounts reclassified from accumulated other comprehensive income (loss)
359

 
5

 
—

 
364

Balance at March 31, 2014
$
(11,896
)
 
$
(20,287
)
 
$
(31,186
)
 
$
(63,369
)
The following table reflects the reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2014 are as follows (in thousands):
Details about accumulated other comprehensive loss components
 
Amount reclassified from accumulated
other comprehensive loss1
 
Affected line item
in the statement
where net income
(loss) is presented
 
Three Months Ended March 31, 2014
 
Amortization of defined benefit pension items
 
 
 
 
Actuarial losses
 
$
359

 
2 
Amortization of postretirement medical items
 
 
 
 
Prior service costs
 
$
(159
)
 
3 
Actuarial losses
 
164

 
3 
 
 
$
5

 
Total
____________________
(1)
Amounts in parentheses indicate debits to income/loss.
(2)
These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. (See Note 5 - Pension for additional details)
(3)
These accumulated other comprehensive loss components are included in the computation of net periodic postretirement medical cost. (See Note 5 - Postretirement Medical Benefits for additional details)


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

11.   SHARE-BASED COMPENSATION

The Company grants employees and non-employee directors restricted stock units from the Amended and Restated 2007 Equity Incentive Stock Plan.

The Company recognized compensation expense from share-based arrangements shown in the following table:
 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
Recognition of fair value of restricted stock units, stock options and SARs over vesting period; and issuance of stock
$
728

 
$
1,663

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

 
723

Total share-based compensation expense
$
728

 
$
2,386


Restricted Stock Units

A summary of restricted stock award activity for the three months ended March 31, 2014 is as follows: 
 
Units
 
Weighted
Average
Grant-Date
Fair Value
 
Unamortized
Compensation
Expense
(In thousands)
 
Non-vested at December 31, 2013
588,727

 
$
9.37

 
 
 
Granted
—

 
—

 
 
 
Vested
—

 
—

 
 
 
Non-vested at March 31, 2014
588,727

 
$
9.37

 
$
1,618

(1) 
____________________
(1)
Expected to be recognized over the next three years.
Stock Options
A summary of stock option activity for the three months ended March 31, 2014 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, 2013
145,806

 
$
21.97

 
 
 
 
 
 
Exercised
—

 
$
—

 
 
 
 
 
 
Expired
—

 
$
—

 
 
 
 
 
 
Outstanding and exercisable at March 31, 2014
145,806

 
$
21.97

 
4.0

 
$
1,139

 
$
—

There were no stock options granted during the three months ended March 31, 2014.

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

SARs
A summary of SARs activity for the three months ended March 31, 2014 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, 2013
70,734

 
$
22.60

 
 
 
 
 
 
Exercised
(25,667
)
 
$
—

 
 
 
 
 
 
Expired
—

 
$
—

 
 
 
 
 
 
Outstanding and exercisable at March 31, 2014
45,067

 
$
23.95

 
1.9
 
$
352

 
$
—


There were no SARs granted during the three months ended March 31, 2014.

12.   EARNINGS PER SHARE
Basic earnings (loss) per share has been computed by dividing the net income (loss) applicable to common shareholders by the weighted average number of shares of common stock outstanding during each period. Net income (loss) applicable to common shareholders includes the adjustment for net income or loss attributable to noncontrolling interest. Diluted earnings (loss) per share is computed by including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding convertible notes and securities, stock options, stock appreciation rights, and restricted stock units. No such items were included in the computations of diluted loss per share in the three months ended March 31, 2014 and March 31, 2013 because the Company incurred a net loss applicable to common shareholders in these periods and the effect of inclusion would have been anti-dilutive.
The table below shows the number of shares that were excluded from the calculation of diluted loss per share because their inclusion would be anti-dilutive to the calculation:
 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
Convertible securities
828

 
1,093

Restricted stock units, stock options and SARs
779

 
978

Total shares excluded from diluted shares calculation
1,607

 
2,071


13.   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.

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

Summarized financial information by segment is as follows:
 
Coal
 
Power
 
Heritage
 
Corporate
 
Consolidated
 
(In thousands)
Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
Revenues
$
158,190

 
$
22,012

 
$
—

 
$
—

 
$
180,202

Restructuring charges
—

 
397

 
—

 
—

 
397

Depreciation, depletion, and amortization
13,459

 
2,524

 
—

 
76

 
16,059

Operating income (loss)
13,447

 
1,744

 
(3,830
)
 
(3,308
)
 
8,053

Total assets
697,916

 
167,998

 
15,622

 
525,611

 
1,407,147

Capital expenditures
3,053

 
35

 
—

 
(38
)
 
3,050

Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
Revenues
$
142,112

 
$
19,336

 
$
—

 
$
—

 
$
161,448

Depreciation, depletion, and amortization
11,801

 
2,531

 
—

 
94

 
14,426

Operating income (loss)
13,472

 
(1,003
)
 
(4,175
)
 
(2,560
)
 
5,734

Total assets
711,128

 
186,309

 
15,877

 
29,701

 
943,015

Capital expenditures
5,010

 
134

 
—

 
157

 
5,301


A reconciliation of segment income (loss) from operations to loss before income taxes follows: 
 
Three Months Ended March 31,
 
2014
 
2013
 
(In thousands)
Income from operations
$
8,053

 
$
5,734

Interest expense
(20,798
)
 
(10,160
)
Interest income
302

 
297

Loss on foreign exchange
(6,790
)
 
—

Other income
93

 
70

Loss before income taxes
$
(19,140
)
 
$
(4,059
)

14.   CONTINGENCIES

The Company is a party to routine 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.

15.   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.

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


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. The following tables are historical and present WML and its 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.

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

CONSOLIDATING BALANCE SHEETS(1) 
March 31, 2014
(In thousands)

Assets
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
28,759

 
$
4,043

 
$
8,794

 
$
20,304

 
$
—

 
$
61,900

Receivables:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
—

 
12,456

 
22,857

 
29,402

 
—

 
64,715

Contractual third-party reclamation receivables
 
—

 
—

 
44

 
8,169

 
—

 
8,213

Intercompany receivable/payable
 
(2,263
)
 
—

 
3,499

 
(33,946
)
 
32,710

 
—

Other
 
273

 
208

 
244

 
681

 
(31
)
 
1,375

 
 
(1,990
)
 
12,664

 
26,644

 
4,306

 
32,679

 
74,303

Inventories
 
—

 
1,845

 
15,133

 
18,469

 
—

 
35,447

Restricted investments and bond collateral
 
16,900

 
—

 
—

 
—

 
—

 
16,900

Other current assets
 
7,044

 
425

 
3,168

 
6,005

 
1

 
16,643

Total current assets
 
50,713

 
18,977

 
53,739

 
49,084

 
32,680

 
205,193

Property, plant and equipment:
 
 
 
 
 
 
 
 
 
 
 
 
Land and mineral rights
 
—

 
1,395

 
104,640

 
172,163

 
—

 
278,198

Plant and equipment
 
3,966

 
220,932

 
245,368

 
202,923

 
—

 
673,189

 
 
3,966

 
222,327

 
350,008

 
375,086

 
—

 
951,387

Less accumulated depreciation, depletion and amortization
 
2,781

 
74,177

 
138,718

 
246,079

 
(1
)
 
461,754

Net property, plant and equipment
 
1,185

 
148,150

 
211,290

 
129,007

 
1

 
489,633

Advanced coal royalties
 
—

 
—

 
3,000

 
4,263

 
—

 
7,263

Reclamation deposits
 
—

 
—

 
—

 
75,315

 
—

 
75,315

Restricted investments and bond collateral
 
469,385

 
—

 
36,615

 
17,483

 
—

 
523,483

Contractual third-party reclamation receivables
 
—

 
—

 
302

 
87,734

 
—

 
88,036

Intangible assets
 
—

 
871

 
—

 
228

 
—

 
1,099

Investment in subsidiaries
 
237,926

 
—

 
—

 
3,770

 
(241,696
)
 
—

Other assets
 
15,563

 
—

 
569

 
4,493

 
(3,500
)
 
17,125

Total assets
 
$
774,772

 
$
167,998

 
$
305,515

 
$
371,377

 
$
(212,515
)
 
$
1,407,147

____________________
(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.


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

CONSOLIDATING BALANCE SHEETS(1) 
March 31, 2014
(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
 
$
22,785

 
$
—

 
$
4,596

 
$
21,205

 
$
—

 
$
48,586

Accounts payable and accrued expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
9,000

 
6,331

 
14,710

 
32,557

 
—

 
62,598

Production taxes
 
—

 
405

 
22,442

 
23,947

 
—

 
46,794

Workers’ compensation
 
712

 
—

 
—

 
—

 
—

 
712

Postretirement medical benefits
 
12,042

 
—

 
329

 
1,583

 
1

 
13,955

SERP
 
390

 
—

 
—

 
—

 
—

 
390

Deferred revenue
 
—

 
9,581

 
4,813

 
1,640

 
—

 
16,034

Asset retirement obligations
 
—

 
—

 
3,554

 
18,673

 
—

 
22,227

Other current liabilities
 
19,196

 
5,053

 
—

 
172

 
(31
)
 
24,390

Total current liabilities
 
64,125

 
21,370

 
50,444

 
99,777

 
(30
)
 
235,686

Long-term debt, less current installments
 
677,385

 
—

 
12,912

 
64,848

 
(3,500
)
 
751,645

Workers’ compensation, less current portion
 
6,680

 
—

 
—

 
—

 
—

 
6,680

Excess of black lung benefit obligation over trust assets
 
9,376

 
—

 
—

 
—

 
—

 
9,376

Postretirement medical benefits, less current portion
 
185,447

 
—

 
50,472

 
35,356

 
—

 
271,275

Pension and SERP obligations, less current portion
 
12,921

 
98

 
9,494

 
1,011

 
—

 
23,524

Deferred revenue, less current portion
 
—

 
38,325

 
—

 
4,974

 
—

 
43,299

Asset retirement obligations, less current portion
 
—

 
909

 
51,300

 
206,827

 
—

 
259,036

Intangible liabilities
 
—

 
5,339

 
—

 
—

 
—

 
5,339

Other liabilities
 
6,440

 
—

 
—

 
1,063

 
—

 
7,503

Intercompany receivable/payable
 
18,613

 
—

 
(4,326
)
 
5,633

 
(19,920
)
 
—

Total liabilities
 
980,987

 
66,041

 
170,296

 
419,489

 
(23,450
)
 
1,613,363

Shareholders’ deficit
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
121

 
—

 
—

 
—

 
—

 
121

Common stock
 
37,155

 
5

 
110

 
132

 
(247
)
 
37,155

Other paid-in capital
 
134,953

 
52,842

 
92,896

 
66,027

 
(211,766
)
 
134,952

Accumulated other comprehensive loss
 
(63,369
)
 
(162
)
 
17,372

 
(13,937
)
 
(3,273
)
 
(63,369
)
Accumulated earnings (deficit)
 
(315,075
)
 
49,272

 
24,841

 
(100,334
)
 
26,221

 
(315,075
)
Total equity (deficit)
 
(206,215
)
 
101,957

 
135,219

 
(48,112
)
 
(189,065
)
 
(206,216
)
Total liabilities and shareholders’ deficit
 
$
774,772

 
$
167,998

 
$
305,515

 
$
371,377

 
$
(212,515
)
 
$
1,407,147

____________________
(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.


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

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.

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

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

CONSOLIDATING STATEMENTS OF OPERATIONS(1) 
Three Months Ended March 31, 2014
(In thousands)
 
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$
—

 
$
22,012

 
$
64,292

 
$
93,898

 
$
—

 
$
180,202

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
16,454

 
50,558

 
71,618

 
—

 
138,630

Depreciation, depletion and amortization
76

 
2,524

 
6,269

 
7,190

 
—

 
16,059

Selling and administrative
3,746

 
894

 
2,994

 
5,697

 
—

 
13,331

Heritage health benefit expenses
3,326

 
—

 
—

 
218

 
—

 
3,544

Loss (gain) on sales of assets
—

 
—

 
(1
)
 
39

 
—

 
38

Restructuring charges
—

 
397

 
—

 
—

 
—

 
397

Other operating income
—

 
—

 
150

 
—

 
—

 
150

 
7,148

 
20,269

 
59,970

 
84,762

 
—

 
172,149

Operating income (loss)
(7,148
)
 
1,743

 
4,322

 
9,136

 
—

 
8,053

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(18,673
)
 
(44
)
 
(110
)
 
(1,978
)
 
7

 
(20,798
)
Interest income
123

 
4

 
25

 
157

 
(7
)
 
302

Loss on foreign exchange
(6,790
)
 
—

 
—

 
—

 
—

 
(6,790
)
Other income
1

 
—

 
55

 
37

 
—

 
93

 
(25,339
)
 
(40
)
 
(30
)
 
(1,784
)
 
—

 
(27,193
)
Income (loss) before income taxes and income of consolidated subsidiaries
(32,487
)
 
1,703

 
4,292

 
7,352

 
—

 
(19,140
)
Equity in income of subsidiaries
13,319

 
—

 
—

 
—

 
(13,319
)
 
—

Income (loss) before income taxes
(19,168
)
 
1,703

 
4,292

 
7,352

 
(13,319
)
 
(19,140
)
Income tax expense (benefit)
(138
)
 
—

 
(1,511
)
 
6,626

 
(5,087
)
 
(110
)
Net income (loss)
(19,030
)
 
1,703

 
5,803

 
726

 
(8,232
)
 
(19,030
)
Less net loss attributable to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

Net income (loss) attributable to the Parent company
$
(19,030
)
 
$
1,703

 
$
5,803

 
$
726

 
$
(8,232
)
 
$
(19,030
)
____________________
(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.


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

CONSOLIDATING STATEMENTS OF OPERATIONS(1) 
Three Months Ended March 31, 2013
(In thousands)

 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$
—

 
$
19,336

 
$
50,687

 
$
100,401

 
$
(8,976
)
 
$
161,448

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
16,954

 
40,421

 
82,022

 
(8,976
)
 
130,421

Depreciation, depletion and amortization
94

 
2,531

 
5,189

 
6,612

 
—

 
14,426

Selling and administrative
3,054

 
855

 
2,637

 
5,341

 
—

 
11,887

Heritage health benefit expenses
3,689

 
—

 
—

 
262

 
—

 
3,951

Gain on sales of assets
—

 
—

 
(133
)
 
(101
)
 
—

 
(234
)
Other operating income
—

 
—

 
(4,737
)
 
—

 
—

 
(4,737
)
 
6,837

 
20,340

 
43,377

 
94,136

 
(8,976
)
 
155,714

Operating income (loss)
(6,837
)
 
(1,004
)
 
7,310

 
6,265

 
—

 
5,734

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(7,584
)
 
(10
)
 
(74
)
 
(2,500
)
 
8

 
(10,160
)
Interest income
30

 
10

 
44

 
221

 
(8
)
 
297

Other income (loss)
—

 
—

 
92

 
(22
)
 
—

 
70

 
(7,554
)
 
—

 
62

 
(2,301
)
 
—

 
(9,793
)
Income (loss) before income taxes and income of consolidated subsidiaries
(14,391
)
 
(1,004
)
 
7,372

 
3,964

 
—

 
(4,059
)
Equity in income of subsidiaries
10,304

 
—

 
—

 
—

 
(10,304
)
 
—

Income (loss) before income taxes
(4,087
)
 
(1,004
)
 
7,372

 
3,964

 
(10,304
)
 
(4,059
)
Income tax expense (benefit)
—

 
—

 
496

 
2,823

 
(3,291
)
 
28

Net income (loss)
(4,087
)
 
(1,004
)
 
6,876

 
1,141

 
(7,013
)
 
(4,087
)
Less net loss attributable to noncontrolling interest
(1,702
)
 
—

 
—

 
—

 
—

 
(1,702
)
Net income (loss) attributable to the Parent company
$
(2,385
)
 
$
(1,004
)
 
$
6,876

 
$
1,141

 
$
(7,013
)
 
$
(2,385
)
____________________
(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.


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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(1) 
Three Months Ended March 31, 2014
(In thousands)
 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income (loss)
$
(19,030
)
 
$
1,703

 
$
5,803

 
$
726

 
$
(8,232
)
 
$
(19,030
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
359

 
2

 
—

 
128

 
(130
)
 
359

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
5

 
—

 
(119
)
 
88

 
31

 
5

Tax effect of other comprehensive income gains
(138
)
 
—

 
—

 
—

 
—

 
(138
)
Other comprehensive income (loss)
226

 
2

 
(119
)
 
216

 
(99
)
 
226

Comprehensive income (loss) attributable to the Parent company
$
(18,804
)
 
$
1,705

 
$
5,684

 
$
942

 
$
(8,331
)
 
$
(18,804
)
____________________
(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.


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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(1) 
Three Months Ended March 31, 2013
(In thousands)
 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income (loss)
$
(4,087
)
 
$
(1,004
)
 
$
6,876

 
$
1,141

 
$
(7,013
)
 
$
(4,087
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
741

 
6

 
—

 
193

 
(199
)
 
741

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
1,001

 
—

 
—

 
213

 
(213
)
 
1,001

Other comprehensive income (loss)
1,742

 
6

 
—

 
406

 
(412
)
 
1,742

Comprehensive income (loss) attributable to the Parent company
$
(2,345
)
 
$
(998
)
 
$
6,876

 
$
1,547

 
$
(7,425
)
 
$
(2,345
)
____________________
(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.


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

CONSOLIDATING STATEMENTS OF CASH FLOWS(1) 
Three Months Ended March 31, 2014
(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)
 
$
(19,030
)
 
$
1,703

 
$
5,803

 
$
726

 
$
(8,232
)
 
$
(19,030
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
(13,319
)
 
—

 
—

 
—

 
13,319

 
—

Depreciation, depletion, and amortization
 
76

 
2,524

 
6,269

 
7,190

 
—

 
16,059

Accretion of asset retirement obligation and receivable
 
—

 
18

 
1,278

 
2,183

 
—

 
3,479

Non-cash tax benefits
 
(138
)
 
—

 
—

 
—

 
—

 
(138
)
Amortization of intangible assets and liabilities, net
 
—

 
146

 
—

 
7

 
—

 
153

Share-based compensation
 
569

 
7

 
37

 
115

 
—

 
728

Loss (gain) on sales of assets
 
—

 
—

 
(1
)
 
39

 
—

 
38

Amortization of deferred financing costs
 
149

 
—

 
—

 
122

 
—

 
271

Loss on foreign exchange
 
6,790

 
—

 
—

 
—

 
—

 
6,790

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
(178
)
 
480

 
(2,738
)
 
6,104

 
1,534

 
5,202

Inventories
 
—

 
4,316

 
944

 
(735
)
 
—

 
4,525

Excess of black lung benefit obligation over trust assets
 
701

 
—

 
—

 
—

 
—

 
701

Accounts payable and accrued expenses
 
5,670

 
(3,386
)
 
7,356

 
1,327

 
(8
)
 
10,959

Deferred revenue
 
—

 
(2,415
)
 
844

 
269

 
—

 
(1,302
)
Income tax payable
 
—

 
—

 
—

 
28

 
—

 
28

Accrual for workers’ compensation
 
(69
)
 
—

 
—

 
—

 
—

 
(69
)
Asset retirement obligations
 
—

 
—

 
(9
)
 
(1,343
)
 
—

 
(1,352
)
Accrual for postretirement medical benefits
 
(374
)
 
—

 
935

 
345

 
—

 
906

Pension and SERP obligations
 
83

 
1

 
113

 
(490
)
 
—

 
(293
)
Other assets and liabilities
 
(183
)
 
(309
)
 
(1,616
)
 
(2,880
)
 
6,981

 
1,993

Distributions received from subsidiaries
 
42,500

 
—

 
—

 
—

 
(42,500
)
 
—

Net cash provided by (used in) operating activities
 
23,247

 
3,085

 
19,215

 
13,007

 
(28,906
)
 
29,648

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
38

 
(35
)
 
(2,609
)
 
(444
)
 
—

 
(3,050
)
Change in restricted investments and bond collateral and reclamation deposits
 
(471,151
)
 
5,998

 
4

 
(395
)
 
—

 
(465,544
)

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

Receivable from customer for property and equipment purchases
 
—

 
—

 
—

 
(10
)
 
—

 
(10
)
Other
 
—

 
—

 
—

 
(60
)
 
—

 
(60
)
Net cash provided by (used in) investing activities
 
(471,113
)
 
5,963

 
(2,605
)
 
(909
)
 
—

 
(468,664
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 
—

 
—

 
(317
)
 
2

 
—

 
(315
)
Borrowings from long-term debt
 
454,219

 
—

 
—

 
—

 
—

 
454,219

Repayments of long-term debt
 
—

 
—

 
(875
)
 
(5,364
)
 
—

 
(6,239
)
Debt issuance costs and other refinancing costs
 
(7,598
)
 
—

 
—

 
—

 
—

 
(7,598
)
Dividends/distributions
 
(261
)
 
(8,500
)
 
(18,000
)
 
(16,000
)
 
42,500

 
(261
)
Transactions with Parent/affiliates
 
4,939

 
154

 
3,434

 
5,067

 
(13,594
)
 
—

Net cash provided by (used in) financing activities
 
451,299

 
(8,346
)
 
(15,758
)
 
(16,295
)
 
28,906

 
439,806

Net increase (decrease) in cash and cash equivalents
 
3,433

 
702

 
852

 
(4,197
)
 
—

 
790

Cash and cash equivalents, beginning of period
 
25,326

 
3,341

 
7,942

 
24,501

 
—

 
61,110

Cash and cash equivalents, end of period
 
$
28,759

 
$
4,043

 
$
8,794

 
$
20,304

 
$
—

 
$
61,900

____________________
(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.


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

CONSOLIDATING STATEMENTS OF CASH FLOWS(1) 
Three Months Ended March 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)
 
$
(4,087
)
 
$
(1,004
)
 
$
6,876

 
$
1,141

 
$
(7,013
)
 
$
(4,087
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
(10,304
)
 
—

 
—

 
—

 
10,304

 
—

Depreciation, depletion, and amortization
 
94

 
2,531

 
5,189

 
6,612

 
—

 
14,426

Accretion of asset retirement obligation and receivable
 
—

 
16

 
1,050

 
2,114

 
—

 
3,180

Amortization of intangible assets and liabilities, net
 
—

 
156

 
—

 
8

 
—

 
164

Share-based compensation
 
682

 
10

 
681

 
1,013

 
—

 
2,386

Gain on sales of assets
 
—

 
—

 
(133
)
 
(101
)
 
—

 
(234
)
Amortization of deferred financing costs
 
771

 
—

 
13

 
149

 
—

 
933

Loss on sales of investment securities
 
—

 
—

 
7

 
—

 
—

 
7

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
49

 
2,885

 
(2,467
)
 
(3,355
)
 
3,008

 
120

Inventories
 
—

 
(2,181
)
 
(753
)
 
247

 
—

 
(2,687
)
Excess of black lung benefit obligation over trust assets
 
83

 
—

 
—

 
—

 
—

 
83

Accounts payable and accrued expenses
 
(8,202
)
 
5,960

 
(10
)
 
6,979

 
(1,482
)
 
3,245

Deferred revenue
 
—

 
(1,927
)
 
1,703

 
384

 
—

 
160

Income tax payable
 
—

 
—

 
(1,679
)
 
1,706

 
—

 
27

Accrual for workers’ compensation
 
(191
)
 
—

 
—

 
—

 
—

 
(191
)
Asset retirement obligations
 
—

 
—

 
(190
)
 
(3,017
)
 
—

 
(3,207
)
Accrual for postretirement medical benefits
 
(100
)
 
—

 
1,478

 
607

 
—

 
1,985

Pension and SERP obligations
 
320

 
4

 
177

 
241

 
—

 
742

Other assets and liabilities
 
(187
)
 
465

 
(195
)
 
4,081

 
—

 
4,164

Distributions received from subsidiaries
 
19,600

 
—

 
—

 
—

 
(19,600
)
 
—

Net cash provided by (used in) operating activities
 
(1,472
)
 
6,915

 
11,747

 
18,809

 
(14,783
)
 
21,216

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
(157
)
 
(134
)
 
(4,224
)
 
(786
)
 
—

 
(5,301
)
Change in restricted investments and bond collateral and reclamation deposits
 
(398
)
 
(3
)
 
(151
)
 
(5,883
)
 
—

 
(6,435
)
Net proceeds from sales of assets
 
—

 
—

 
309

 
132

 
—

 
441

Proceeds from the sale of investments
 
—

 
—

 
120

 
5,499

 
—

 
5,619


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

Receivable from customer for property and equipment purchases
 
—

 
—

 
—

 
(49
)
 
—

 
(49
)
Net cash provided by (used in) investing activities
 
(555
)
 
(137
)
 
(3,946
)
 
(1,087
)
 
—

 
(5,725
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 
—

 
—

 
(7
)
 
827

 
—

 
820

Repayments of long-term debt
 
—

 
—

 
(713
)
 
(5,860
)
 
—

 
(6,573
)
Borrowings on revolving lines of credit
 
—

 
—

 
—

 
6,000

 
—

 
6,000

Repayments on revolving lines of credit
 
—

 
—

 
—

 
(6,000
)
 
—

 
(6,000
)
Debt issuance costs and other refinancing costs
 
—

 
—

 
—

 
(156
)
 
—

 
(156
)
Dividends/distributions
 
(340
)
 
(6,500
)
 
(8,000
)
 
(5,100
)
 
19,600

 
(340
)
Transactions with Parent/affiliates
 
(22,106
)
 
(16
)
 
2,255

 
4,076

 
15,791

 
—

Net cash provided by (used in) financing activities
 
(22,446
)
 
(6,516
)
 
(6,465
)
 
(6,213
)
 
35,391

 
(6,249
)
Net increase (decrease) in cash and cash equivalents
 
(24,473
)
 
262

 
1,336

 
11,509

 
20,608

 
9,242

Cash and cash equivalents, beginning of period
 
14,836

 
4,545

 
5,362

 
6,867

 
—

 
31,610

Cash and cash equivalents, end of period
 
$
(9,637
)
 
$
4,807

 
$
6,698

 
$
18,376

 
$
20,608

 
$
40,852

____________________
(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.


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


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

CONSOLIDATING BALANCE SHEETS
March 31, 2014
(In thousands)

Assets
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
28,759

 
$
4,043

 
$
27,267

 
$
1,831

 
$
—

 
$
61,900

Receivables:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
—

 
12,456

 
52,259

 
—

 
—

 
64,715

Contractual third-party reclamation receivables
 
—

 
—

 
8,213

 
—

 
—

 
8,213

Intercompany receivable/payable
 
(15,366
)
 
—

 
1,729

 
(19,073
)
 
32,710

 
—

Other
 
567

 
208

 
589

 
42

 
(31
)
 
1,375

 
 
(14,799
)
 
12,664

 
62,790

 
(19,031
)
 
32,679

 
74,303

Inventories
 
—

 
1,845

 
33,602

 
—

 
—

 
35,447

Restricted investments and bond collateral
 
16,900

 
—

 
—

 
—

 
—

 
16,900

Other current assets
 
7,073

 
425

 
8,723

 
421

 
1

 
16,643

Total current assets
 
37,933

 
18,977

 
132,382

 
(16,779
)
 
32,680

 
205,193

Property, plant and equipment:
 
 
 
 
 
 
 
 
 
 
 
 
Land and mineral rights
 
—

 
1,395

 
276,803

 
—

 
—

 
278,198

Plant and equipment
 
4,000

 
220,932

 
448,257

 
—

 
—

 
673,189

 
 
4,000

 
222,327

 
725,060

 
—

 
—

 
951,387

Less accumulated depreciation, depletion and amortization
 
2,784

 
74,177

 
384,794

 
—

 
(1
)
 
461,754

Net property, plant and equipment
 
1,216

 
148,150

 
340,266

 
—

 
1

 
489,633

Advanced coal royalties
 
—

 
—

 
7,263

 
—

 
—

 
7,263

Reclamation deposits
 
—

 
—

 
75,315

 
—

 
—

 
75,315

Restricted investments and bond collateral
 
469,385

 
—

 
54,098

 
—

 
—

 
523,483

Contractual third-party reclamation receivables
 
—

 
—

 
88,036

 
—

 
—

 
88,036

Intangible assets
 
—

 
871

 
228

 
—

 
—

 
1,099

Investment in subsidiaries
 
252,832

 
—

 
—

 
3,770

 
(256,602
)
 
—

Other assets
 
15,563

 
—

 
1,562

 
3,500

 
(3,500
)
 
17,125

Total assets
 
$
776,929

 
$
167,998

 
$
699,150

 
$
(9,509
)
 
$
(227,421
)
 
$
1,407,147


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

CONSOLIDATING BALANCE SHEETS
March 31, 2014
(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
 
$
22,785

 
$
—

 
$
25,801

 
$
—

 
$
—

 
$
48,586

Accounts payable and accrued expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
11,003

 
6,331

 
44,577

 
688

 
(1
)
 
62,598

Production taxes
 
—

 
405

 
43,732

 
2,657

 
—

 
46,794

Workers’ compensation
 
712

 
—

 
—

 
—

 
—

 
712

Postretirement medical benefits
 
12,042

 
—

 
773

 
1,139

 
1

 
13,955

SERP
 
390

 
—

 
—

 
—

 
—

 
390

Deferred revenue
 
—

 
9,581

 
6,453

 
—

 
—

 
16,034

Asset retirement obligations
 
—

 
—

 
22,227

 
—

 
—

 
22,227

Other current liabilities
 
19,196

 
5,053

 
172

 
—

 
(31
)
 
24,390

Total current liabilities
 
66,128

 
21,370

 
143,735

 
4,484

 
(31
)
 
235,686

Long-term debt, less current installments
 
677,385

 
—

 
77,760

 
—

 
(3,500
)
 
751,645

Workers’ compensation, less current portion
 
6,680

 
—

 
—

 
—

 
—

 
6,680

Excess of black lung benefit obligation over trust assets
 
9,376

 
—

 
—

 
—

 
—

 
9,376

Postretirement medical benefits, less current portion
 
185,447

 
—

 
67,724

 
18,104

 
—

 
271,275

Pension and SERP obligations, less current portion
 
12,921

 
98

 
10,264

 
241

 
—

 
23,524

Deferred revenue, less current portion
 
—

 
38,325

 
4,974

 
—

 
—

 
43,299

Asset retirement obligations, less current portion
 
—

 
909

 
258,127

 
—

 
—

 
259,036

Intangible liabilities
 
—

 
5,339

 
—

 
—

 
—

 
5,339

Other liabilities
 
6,440

 
—

 
467

 
596

 
—

 
7,503

Intercompany receivable/payable
 
18,768

 
—

 
(13,502
)
 
14,654

 
(19,920
)
 
—

Total liabilities
 
983,145

 
66,041

 
549,549

 
38,079

 
(23,451
)
 
1,613,363

Shareholders’ deficit
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
121

 
—

 
—

 
—

 
—

 
121

Common stock
 
37,155

 
5

 
110

 
132

 
(247
)
 
37,155

Other paid-in capital
 
134,953

 
52,842

 
158,051

 
(124
)
 
(210,770
)
 
134,952

Accumulated other comprehensive loss
 
(63,369
)
 
(162
)
 
6,512

 
(3,077
)
 
(3,273
)
 
(63,369
)
Accumulated earnings (deficit)
 
(315,076
)
 
49,272

 
(15,072
)
 
(44,519
)
 
10,320

 
(315,075
)
Total equity (deficit)
 
(206,216
)
 
101,957

 
149,601

 
(47,588
)
 
(203,970
)
 
(206,216
)
Total liabilities and shareholders’ deficit
 
$
776,929

 
$
167,998

 
$
699,150

 
$
(9,509
)
 
$
(227,421
)
 
$
1,407,147


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


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


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

CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2014
(In thousands)
 
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$
—

 
$
22,012

 
$
158,197

 
$
(7
)
 
$
—

 
$
180,202

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
(224
)
 
16,454

 
122,345

 
55

 
—

 
138,630

Depreciation, depletion and amortization
77

 
2,524

 
13,458

 
—

 
—

 
16,059

Selling and administrative
4,965

 
894

 
7,862

 
(390
)
 
—

 
13,331

Heritage health benefit expenses
3,326

 
—

 
—

 
218

 
—

 
3,544

Loss (gain) on sales of assets
—

 
—

 
38

 
—

 
—

 
38

Restructuring charges
—

 
397

 
—

 
—

 
—

 
397

Other operating income
—

 
—

 
150

 
—

 
—

 
150

 
8,144

 
20,269

 
143,853

 
(117
)
 
—

 
172,149

Operating income (loss)
(8,144
)
 
1,743

 
14,344

 
110

 
—

 
8,053

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(18,673
)
 
(44
)
 
(2,088
)
 
—

 
7

 
(20,798
)
Interest income
123

 
4

 
175

 
7

 
(7
)
 
302

Loss on foreign exchange
(6,790
)
 
—

 
—

 
—

 
—

 
(6,790
)
Other income
1

 
—

 
93

 
(1
)
 
—

 
93

 
(25,339
)
 
(40
)
 
(1,820
)
 
6

 
—

 
(27,193
)
Income (loss) before income taxes and income of consolidated subsidiaries
(33,483
)
 
1,703

 
12,524

 
116

 
—

 
(19,140
)
Equity in income of subsidiaries
14,315

 
—

 
—

 
—

 
(14,315
)
 
—

Income (loss) before income taxes
(19,168
)
 
1,703

 
12,524

 
116

 
(14,315
)
 
(19,140
)
Income tax expense (benefit)
(138
)
 
—

 
5,115

 
—

 
(5,087
)
 
(110
)
Net income (loss)
(19,030
)
 
1,703

 
7,409

 
116

 
(9,228
)
 
(19,030
)
Less net loss attributable to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

Net income (loss) attributable to the Parent company
$
(19,030
)
 
$
1,703

 
$
7,409

 
$
116

 
$
(9,228
)
 
$
(19,030
)

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

CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2013
(In thousands)

 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$
—

 
$
19,336

 
$
139,738

 
$
11,350

 
$
(8,976
)
 
$
161,448

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
(398
)
 
16,954

 
109,777

 
13,064

 
(8,976
)
 
130,421

Depreciation, depletion and amortization
94

 
2,531

 
11,801

 
—

 
—

 
14,426

Selling and administrative
3,949

 
855

 
7,448

 
(365
)
 
—

 
11,887

Heritage health benefit expenses
3,689

 
—

 
—

 
262

 
—

 
3,951

Gain on sales of assets
—

 
—

 
(234
)
 
—

 
—

 
(234
)
Other operating income
—

 
—

 
(4,737
)
 
—

 
—

 
(4,737
)
 
7,334

 
20,340

 
124,055

 
12,961

 
(8,976
)
 
155,714

Operating income (loss)
(7,334
)
 
(1,004
)
 
15,683

 
(1,611
)
 
—

 
5,734

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(7,584
)
 
(10
)
 
(2,569
)
 
(5
)
 
8

 
(10,160
)
Interest income
30

 
10

 
261

 
4

 
(8
)
 
297

Other income (loss)
—

 
—

 
70

 
—

 
—

 
70

 
(7,554
)
 
—

 
(2,238
)
 
(1
)
 
—

 
(9,793
)
Income (loss) before income taxes and income of consolidated subsidiaries
(14,888
)
 
(1,004
)
 
13,445

 
(1,612
)
 
—

 
(4,059
)
Equity in income of subsidiaries
10,801

 
—

 
—

 
—

 
(10,801
)
 
—

Income (loss) before income taxes
(4,087
)
 
(1,004
)
 
13,445

 
(1,612
)
 
(10,801
)
 
(4,059
)
Income tax expense (benefit)
—

 
—

 
3,319

 
—

 
(3,291
)
 
28

Net income (loss)
(4,087
)
 
(1,004
)
 
10,126

 
(1,612
)
 
(7,510
)
 
(4,087
)
Less net loss attributable to noncontrolling interest
(1,702
)
 
—

 
—

 
—

 
—

 
(1,702
)
Net income (loss) attributable to the Parent company
$
(2,385
)
 
$
(1,004
)
 
$
10,126

 
$
(1,612
)
 
$
(7,510
)
 
$
(2,385
)



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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended March 31, 2014
(In thousands)
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income (loss)
$
(19,030
)
 
$
1,703

 
$
7,409

 
$
116

 
$
(9,228
)
 
$
(19,030
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
359

 
2

 
122

 
6

 
(130
)
 
359

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
5

 
—

 
(36
)
 
5

 
31

 
5

Tax effect of other comprehensive income gains
(138
)
 
—

 
—

 
—

 
—

 
(138
)
Other comprehensive income (loss)
226

 
2

 
86

 
11

 
(99
)
 
226

Comprehensive income (loss) attributable to the Parent company
$
(18,804
)
 
$
1,705

 
$
7,495

 
$
127

 
$
(9,327
)
 
$
(18,804
)


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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended March 31, 2013
(In thousands)
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income (loss)
$
(4,087
)
 
$
(1,004
)
 
$
10,126

 
$
(1,612
)
 
$
(7,510
)
 
$
(4,087
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
741

 
6

 
180

 
13

 
(199
)
 
741

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
1,001

 
—

 
144

 
69

 
(213
)
 
1,001

Other comprehensive income (loss)
1,742

 
6

 
324

 
82

 
(412
)
 
1,742

Comprehensive income (loss) attributable to the Parent company
$
(2,345
)
 
$
(998
)
 
$
10,450

 
$
(1,530
)
 
$
(7,922
)
 
$
(2,345
)



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

CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2014
(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)
 
$
(19,030
)
 
$
1,703

 
$
7,409

 
$
116

 
$
(9,228
)
 
$
(19,030
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
(14,315
)
 
—

 
—

 
—

 
14,315

 
—

Depreciation, depletion, and amortization
 
77

 
2,524

 
13,458

 
—

 
—

 
16,059

Accretion of asset retirement obligation and receivable
 
—

 
18

 
3,461

 
—

 
—

 
3,479

Non-cash tax benefits
 
(138
)
 
—

 
—

 
—

 
—

 
(138
)
Amortization of intangible assets and liabilities, net
 
—

 
146

 
7

 
—

 
—

 
153

Share-based compensation
 
569

 
7

 
66

 
86

 
—

 
728

Loss (gain) on sales of assets
 
—

 
—

 
36

 
2

 
—

 
38

Amortization of deferred financing costs
 
149

 
—

 
105

 
17

 
—

 
271

Loss on foreign exchange
 
6,790

 
—

 
—

 
—

 
—

 
6,790

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
1,049

 
480

 
(2,597
)
 
4,736

 
1,534

 
5,202

Inventories
 
—

 
4,316

 
209

 
—

 
—

 
4,525

Excess of black lung benefit obligation over trust assets
 
701

 
—

 
—

 
—

 
—

 
701

Accounts payable and accrued expenses
 
4,955

 
(3,386
)
 
13,923

 
(4,522
)
 
(11
)
 
10,959

Deferred revenue
 
—

 
(2,415
)
 
1,113

 
—

 
—

 
(1,302
)
Income tax payable
 
—

 
—

 
28

 
—

 
—

 
28

Accrual for workers’ compensation
 
(69
)
 
—

 
—

 
—

 
—

 
(69
)
Asset retirement obligations
 
—

 
—

 
(1,352
)
 
—

 
—

 
(1,352
)
Accrual for postretirement medical benefits
 
(374
)
 
—

 
1,248

 
32

 
—

 
906

Pension and SERP obligations
 
83

 
1

 
(379
)
 
2

 
—

 
(293
)
Other assets and liabilities
 
(183
)
 
(309
)
 
(2,880
)
 
(1,621
)
 
6,986

 
1,993

Distributions received from subsidiaries
 
42,500

 
—

 
—

 
—

 
(42,500
)
 
—

Net cash provided by (used in) operating activities
 
22,764

 
3,085

 
33,855

 
(1,152
)
 
(28,904
)
 
29,648

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
38

 
(35
)
 
(3,053
)
 
—

 
—

 
(3,050
)
Change in restricted investments and bond collateral and reclamation deposits
 
(471,151
)
 
5,998

 
(391
)
 
—

 
—

 
(465,544
)

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

Receivable from customer for property and equipment purchases
 
—

 
—

 
(10
)
 
—

 
—

 
(10
)
Other
 
—

 
—

 
(60
)
 
—

 
—

 
(60
)
Net cash provided by (used in) investing activities
 
(471,113
)
 
5,963

 
(3,514
)
 
—

 
—

 
(468,664
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 
—

 
—

 
(315
)
 
—

 
—

 
(315
)
Borrowings from long-term debt
 
454,219

 
—

 
—

 
—

 
—

 
454,219

Repayments of long-term debt
 
—

 
—

 
(6,232
)
 
(7
)
 
—

 
(6,239
)
Debt issuance costs and other refinancing costs
 
(7,598
)
 
—

 
—

 
—

 
—

 
(7,598
)
Dividends/distributions
 
(261
)
 
(8,500
)
 
(34,000
)
 
—

 
42,500

 
(261
)
Transactions with Parent/affiliates
 
5,422

 
154

 
10,022

 
(2,002
)
 
(13,596
)
 
—

Net cash provided by (used in) financing activities
 
451,782

 
(8,346
)
 
(30,525
)
 
(2,009
)
 
28,904

 
439,806

Net increase (decrease) in cash and cash equivalents
 
3,433

 
702

 
(184
)
 
(3,161
)
 
—

 
790

Cash and cash equivalents, beginning of period
 
25,326

 
3,341

 
27,451

 
4,992

 
—

 
61,110

Cash and cash equivalents, end of period
 
$
28,759

 
$
4,043

 
$
27,267

 
$
1,831

 
$
—

 
$
61,900


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

CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 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)
 
$
(4,087
)
 
$
(1,004
)
 
$
10,126

 
$
(1,612
)
 
$
(7,510
)
 
$
(4,087
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
(10,801
)
 
—

 
—

 
—

 
10,801

 
—

Depreciation, depletion, and amortization
 
94

 
2,531

 
11,801

 
—

 
—

 
14,426

Accretion of asset retirement obligation and receivable
 
—

 
16

 
3,164

 
—

 
—

 
3,180

Amortization of intangible assets and liabilities, net
 
—

 
156

 
8

 
—

 
—

 
164

Share-based compensation
 
796

 
10

 
1,581

 
(1
)
 
—

 
2,386

Gain on sales of assets
 
—

 
—

 
(234
)
 
—

 
—

 
(234
)
Amortization of deferred financing costs
 
771

 
—

 
163

 
(1
)
 
—

 
933

Loss on sales of investment securities
 
—

 
—

 
7

 
—

 
—

 
7

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
205

 
2,885

 
(3,837
)
 
(2,141
)
 
3,008

 
120

Inventories
 
—

 
(2,181
)
 
(507
)
 
1

 
—

 
(2,687
)
Excess of black lung benefit obligation over trust assets
 
83

 
—

 
—

 
—

 
—

 
83

Accounts payable and accrued expenses
 
(8,388
)
 
5,959

 
5,524

 
1,630

 
(1,480
)
 
3,245

Deferred revenue
 
—

 
(1,927
)
 
2,087

 
—

 
—

 
160

Income tax payable
 
—

 
—

 
27

 
—

 
—

 
27

Accrual for workers’ compensation
 
(191
)
 
—

 
—

 
—

 
—

 
(191
)
Asset retirement obligations
 
—

 
—

 
(3,206
)
 
(1
)
 
—

 
(3,207
)
Accrual for postretirement medical benefits
 
(100
)
 
—

 
1,941

 
144

 
—

 
1,985

Pension and SERP obligations
 
320

 
4

 
400

 
18

 
—

 
742

Other assets and liabilities
 
(187
)
 
465

 
3,650

 
236

 
—

 
4,164

Distributions received from subsidiaries
 
19,600

 
—

 
—

 
—

 
(19,600
)
 
—

Net cash provided by (used in) operating activities
 
(1,885
)
 
6,914

 
32,695

 
(1,727
)
 
(14,781
)
 
21,216

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Additions to property, plant and equipment
 
(183
)
 
(134
)
 
(4,988
)
 
4

 
—

 
(5,301
)
Change in restricted investments and bond collateral and reclamation deposits
 
(398
)
 
(3
)
 
(6,033
)
 
(1
)
 
—

 
(6,435
)
Net proceeds from sales of assets
 
—

 
—

 
441

 
—

 
—

 
441

Proceeds from the sale of investments
 
—

 
—

 
5,619

 
—

 
—

 
5,619


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

Receivable from customer for property and equipment purchases
 
—

 
—

 
(49
)
 
—

 
—

 
(49
)
Net cash provided by (used in) investing activities
 
(581
)
 
(137
)
 
(5,010
)
 
3

 
—

 
(5,725
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 
—

 
—

 
820

 
—

 
—

 
820

Repayments of long-term debt
 
—

 
—

 
(6,565
)
 
(8
)
 
—

 
(6,573
)
Borrowings on revolving lines of credit
 
—

 
—

 
6,000

 
—

 
—

 
6,000

Repayments on revolving lines of credit
 
—

 
—

 
(6,000
)
 
—

 
—

 
(6,000
)
Debt issuance costs and other refinancing costs
 
—

 
—

 
(156
)
 
—

 
—

 
(156
)
Dividends/distributions
 
(340
)
 
(6,500
)
 
(13,100
)
 
—

 
19,600

 
(340
)
Transactions with Parent/affiliates
 
(1,059
)
 
(15
)
 
4,212

 
1,681

 
(4,819
)
 
—

Net cash provided by (used in) financing activities
 
(1,399
)
 
(6,515
)
 
(14,789
)
 
1,673

 
14,781

 
(6,249
)
Net increase (decrease) in cash and cash equivalents
 
(3,865
)
 
262

 
12,896

 
(51
)
 
—

 
9,242

Cash and cash equivalents, beginning of period
 
14,836

 
4,545

 
10,236

 
1,993

 
—

 
31,610

Cash and cash equivalents, end of period
 
$
10,971

 
$
4,807

 
$
23,132

 
$
1,942

 
$
—

 
$
40,852



46