e424b3
Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-174723
PROSPECTUS
WESTMORELAND COAL COMPANY
WESTMORELAND PARTNERS
Offer to Exchange
$150,000,000 10.75% Senior Secured Notes due 2018
for $150,000,000 10.75% Senior Secured Notes due 2018
that have been registered under the Securities Act of 1933
Terms of the Exchange Offer
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We are offering to exchange up to $150,000,000 of our outstanding unregistered
10.75% Senior Notes due 2018 (Restricted Notes) for Exchange Notes with substantially
identical terms that have been registered under the Securities Act of 1933, as amended
(Exchange Notes). |
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The exchange offer expires at 5:00 p.m., New York City
time, on August 29, 2011, unless we decide to extend the expiration date. |
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We will exchange for an equal principal amount of Exchange Notes all Restricted
Notes that you validly tender and do not validly withdraw before the exchange offer
expires. |
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Tenders of Restricted Notes may be withdrawn at any time prior to the
expiration date of the exchange offer. |
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The exchange of Exchange Notes for Restricted Notes should generally not be a
taxable event for U.S. federal income tax purposes. |
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The terms of the Exchange Notes are identical to the terms of the Restricted
Notes, except that the Exchange Notes will be registered under the Securities Act of
1933, as amended (the Securities Act) and there are certain differences relating to
transfer restrictions, registration rights and payment of additional interest in case
of non-registration. We will not list the Exchange Notes on any securities exchange. |
You should carefully consider the risk factors beginning on page 7 of this prospectus before
participating in the exchange offer.
Each broker-dealer that receives Exchange Notes for its own account pursuant to the exchange
offer must acknowledge that it will deliver a prospectus in connection with any resale of such
Exchange Notes. The letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Restricted Notes where such Restricted Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities if such broker-dealer indicates in
the letter of transmittal that it will do so. We have agreed to make this prospectus available
until the earlier of 180 days from the completion date of this exchange offer or such time as such
broker-dealers no longer hold any Restricted Notes, to any broker-dealer for use in connection with
any such resale. See Plan of Distribution.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
Prospectus dated July 29, 2011
TABLE OF CONTENTS
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PROSPECTUS SUMMARY |
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1 |
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RISK FACTORS |
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SELECTED HISTORICAL FINANCIAL DATA |
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RATIO OF EARNINGS TO FIXED CHARGES |
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29 |
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USE OF PROCEEDS |
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29 |
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THE EXCHANGE OFFER |
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29 |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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37 |
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BUSINESS, PROPERTIES AND LEGAL PROCEEDINGS |
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38 |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
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47 |
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CHANGE IN AUDITORS |
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67 |
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DESCRIPTION OF THE EXCHANGE NOTES |
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS |
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131 |
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PLAN OF DISTRIBUTION |
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131 |
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LEGAL MATTERS |
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132 |
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EXPERTS |
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132 |
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WHERE YOU CAN FIND MORE INFORMATION |
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133 |
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INDEX TO FINANCIAL STATEMENTS |
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134 |
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You should rely only on the information contained in this prospectus. We have not authorized
anyone to provide you with different information. The information contained in this prospectus is
accurate only as of its date. We are not making this exchange offer to, nor will we accept
surrenders for exchange from, holders of restricted Notes in any jurisdiction in which the exchange
offer would violate securities or blue sky laws or where it is otherwise unlawful.
In order to ensure timely delivery of the requested documents, requests should be made no
later than five business days before the expiration date of this exchange offer. In the event that
we extend the exchange offer, we urge you to submit your request at least five business days before
the expiration date, as extended. You will not be charged for any of the documents that you
request.
Industry and Market Data
The industry and market data contained in this offering memorandum is based either on our
managements own estimates or on independent industry publications, reports by market research
firms or other published independent sources that we believe to be reliable. However, certain
industry and market data is subject to change and cannot always be verified with complete certainty
due to limits on the availability and reliability of raw data, the voluntary nature of the data
gathering process and other limitations and uncertainties inherent in any statistical survey.
Accordingly, you should be aware that the industry and market data contained in this offering
memorandum, and estimates and beliefs based on such data, may not be reliable. Unless otherwise
indicated, all information contained in this offering memorandum concerning the industry in general
is based on managements estimates using internal data, data from industry related publications,
consumer research and marketing studies and other externally obtained data. Industry ranking and
market data involve risks and uncertainties and are subject to change based on various factors,
including those discussed in Risk Factors.
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Cautionary Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements, as that term is defined in the Private
Securities Litigation Reform Act of 1995. The use of any statements containing the words
anticipate, intend, believe, estimate, project, expect, plan, should or similar
expressions are intended to identify such statements. Forward-looking statements included in this
prospectus relate to, among other things, the percentage of 2011 coal tons under currently-existing
contracts that will remain under contract through 2019, the estimated life of permitted reserves at
each of our mines, expected tons of coal to be delivered pursuant to specified contracts and
company-wide, the matters discussed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2010 under the heading Managements Discussion and Analysis of Financial Condition
and Results of OperationSignificant Anticipated Variances Between 2010 and 2011 and Related
Uncertainties, and statements concerning future cash flows from operations and liquidity. Although
we believe that the expectations reflected in such forward-looking statements are reasonable, those
expectations may prove to be incorrect. Disclosure of important factors that could cause actual
results to differ materially from our expectations, or cautionary statements, are included under
the heading Risk Factors in this prospectus, in our Annual Report on Form 10-K for the year ended
December 31, 2010, a document we refer to as our 2010 10-K. Certain cautionary statements are also
included elsewhere in this prospectus including, without limitation, in conjunction with the
forward-looking statements. All forward-looking statements speak only as of the date of this
prospectus. All forward-looking statements attributable to us, or persons acting on our behalf,
including subsequent written and oral forward-looking statements, are expressly qualified in their
entirety by the cautionary statements. Except as required by law, we undertake no obligation to
update any forward-looking statement. Factors that could cause actual results to differ materially
from our expectations include, among others, those factors referenced in the Risk Factors section
of this prospectus, our 2010 10-K and such things as:
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changes in our postretirement medical benefit and pension obligations and the
impact of the recently enacted healthcare legislation; |
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changes in our black lung obligations, changes in our experience related to
black lung claims, and the impact of the recently enacted healthcare legislation; |
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our potential inability to expand or continue current coal operations due to
limitations in obtaining bonding capacity for new mining permits; |
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our potential inability to maintain compliance with debt covenant and waiver
agreement requirements; |
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the potential inability of our subsidiaries to pay dividends to us due to
restrictions in our debt arrangements, reductions in planned coal deliveries or other
business factors; |
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risks associated with the structure of ROVAs contracts with its lenders, coal
suppliers and power purchaser, which could dramatically affect the overall
profitability of ROVA; |
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the effect of Environmental Protection Agency inquiries and regulations on the
operations of ROVA; |
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the effect of prolonged maintenance or unplanned outages at our operations or
those of our major power generating customers, including the effects of the dispatch of
other forms of power, such as hydro; |
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future legislation and changes in regulations, governmental policies and taxes,
including those aimed at reducing emissions of elements such as mercury, sulfur
dioxides, nitrogen oxides, particulate matter or greenhouse gases; and |
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other factors, many of which are beyond our control. |
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PROSPECTUS SUMMARY
The following summary contains basic information about us and this exchange offer. It is
likely that this summary does not contain all of the information that is important to you. You
should read the entire prospectus, including the risk factors and the financial statements and
related notes included elsewhere herein, before making an investment decision. In addition, certain
statements include forward-looking information that involves risks and uncertainties. In this
prospectus, Westmoreland, the company, we, our and us refer to Westmoreland Coal Company
and its subsidiaries collectively, unless otherwise indicated or the context otherwise requires.
Our Company
We are an energy company employing approximately 1,100 employees with operations that include
five surface coal mines in Montana, North Dakota and Texas and two coal-fired power generating
units with a total gross capacity of 230 megawatts, or MW, in North Carolina. On a consolidated
basis, we generated sales and Adjusted EBITDA of $506.1 million and $81.6 million, respectively,
for the twelve months ended December 31, 2010, and $127.8 million and $23.3 million, respectively,
for the three months ended March 31, 2011. For a reconciliation of Adjusted EBITDA to net income
(loss), see Selected Historical Financial Data.
Our four segments include two principal operating segments, coal and power, and two
non-operating segments, heritage and corporate:
Coal Segment: For the twelve months ended December 31, 2010, we sold 25.4 million tons of coal and,
as of December 31, 2010, we owned or controlled approximately 389.9 million tons of proven or
probable coal reserves. We generated revenue of $418.1 million and Adjusted EBITDA of $81.7 million
related to the sale of coal for the twelve months ended December 31, 2010, and generated revenue of
$104.1 million and Adjusted EBITDA of $21.3 million related to the sale of coal for the three
months ended March 31, 2011. We conduct our coal operations primarily through Westmoreland
Resources Inc., or WRI, and Westmoreland Mining LLC, or WML, and their respective subsidiaries. We
sell substantially all of the coal that we produce to plants that generate electricity. Our mines
and coal reserves are strategically located in close proximity to our customers, which reduces
transportation costs and thus provides us with a significant competitive advantage with respect to
those customers. Three of our five mines are mine mouth operations (where our mine is adjacent to
the customers property) with conveyor belt delivery systems direct to the customers facilities.
The remaining two mines utilize efficient rail and truck delivery, on a Free On Board, or FOB,
basis. We typically enter into long-term contracts that provide for sales to customers for periods
that range from three to 35 years. Our current coal sales contracts have a weighted average
remaining term of six years. For the twelve months ended December 31, 2010, approximately 99% of
our tons of coal sold were sold under long-term contracts.
Power Segment: For the twelve months ended December 31, 2010, we produced 1.6 million MW hours at
our Roanoke Valley facilities and had an average capacity factor of 88%. We generated revenues of
$88.0 million and Adjusted EBITDA of $22.7 million related to power sales for the twelve months
ended December 31, 2010 and generated revenue of $23.6 million and Adjusted EBITDA of $7.4 million
related to power sales for the three months ended March 31, 2011. We conduct our power operations
through our subsidiary Westmoreland Energy LLC, or WELLC, and its subsidiaries, which we refer to
collectively as ROVA. We purchase coal for ROVA under long-term contracts from coal suppliers
located in Central Appalachia that expire in 2014 and 2015. We supply power to Dominion Virginia
Power, or Dominion, under long-term contracts that expire in 2019 and 2020. We can extend, by
mutual consent, the contracts with Dominion for an additional five-year period on terms to be
mutually agreed upon. For the twelve months ended December 31, 2010, the sale of power to Dominion
accounted for substantially all of the revenues in our power segment.
Heritage and Corporate Segments: Our heritage segment primarily includes the costs of benefits we
provide to former mining operation employees. These costs consist primarily of payments for medical
benefits to our retired workers, workers compensation benefits, black lung benefits and combined
benefit fund premiums to plans for United Mine Workers of America, or UMWA, retirees required by
statute. These obligations are funded by Westmoreland Coal Company through distributions it
receives from our operating subsidiaries. We have been working over the past several years to
reduce our heritage obligations and corresponding expenses. In 2009, we changed our health provider
network for our retiree population, resulting in substantial savings and corresponding reduction in
heritage liability, eliminated postretirement medical benefits for our non-represented retiree
population and entered into an agreement with the UMWA to modernize the method by which
prescription drugs are provided to retirees of our former operations. Our efforts to reduce our
heritage obligations have resulted, as of the end of fiscal year 2009, in substantial reductions in
our postretirement medical benefit obligation.
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Our corporate segment consists primarily of corporate expenses. In addition, the corporate
segment contains our captive insurance company through which we have elected to retain some of our
operating risks. Westmoreland Risk Management Ltd., a Bermuda corporation, or WRM, provides our
primary layer of property and casualty insurance. By using this insurance subsidiary, we have
reduced the cost of our property and casualty insurance premiums and retained some economic
benefits due to our excellent loss record. We reduce our major exposure by insuring for losses in
excess of our retained limits with a number of third-party insurance companies.
Our Executive Offices
We are a corporation organized under the laws of the State of Delaware in 1910. Our principal
executive offices are located at 2 North Cascade Avenue, 2nd Floor, Colorado Springs, Colorado
80903. The telephone number of our principal executive offices is (719) 442-2600. Our Internet
address is http://www.westmoreland.com. Information on our website or available by hyperlink from
our website does not constitute part of this prospectus.
Summary of the Terms of the Exchange Offer
We are offering to exchange $150 million aggregate principal amount of our Exchange Notes for
$150 million aggregate principal amount of our Restricted Notes. The following is a brief summary
of the terms and conditions of the exchange offer. For a more complete description of the exchange
offer, you should read the discussion under the heading The Exchange Offer.
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Exchange Offer
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We are offering to exchange $1,000 principal amount of our 10.75% Senior Secured
Notes due 2018 registered under the Securities Act, which we refer to as Exchange
Notes, for each $1,000 principal amount of our outstanding 10.75% Senior Secured
Notes due 2018 issued on February 4, 2011 in a private offering, which we refer to
as Restricted Notes. In order to exchange a Restricted Note, you must follow the
required procedures and we must accept the Restricted Note for exchange. We will
exchange all Restricted Notes validly offered for exchange, or tendered, and not
validly withdrawn. As of the date of this prospectus, there is $150,000,000
aggregate principal amount of Restricted Notes outstanding. |
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Expiration Date
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The exchange offer expires at 5:00
p.m. New York City time, on August 29, 2011, unless we decide to extend the expiration date. |
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Resale of the Exchange Notes
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Based on an interpretation by the staff of the Securities and Exchange Commission
(the SEC) set forth in no-action letters issued to third parties, we believe
that, as long as you are not a broker-dealer, the Exchange Notes issued pursuant to
the exchange offer in exchange for Restricted Notes may be offered for resale,
resold and otherwise transferred by you (unless you are our affiliate within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that: |
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you are acquiring the Exchange Notes in the ordinary course of your
business; |
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at the time of the commencement and consummation of the exchange offer, you
have not entered into any arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of the
Exchange Notes in violation of the provisions of the Securities Act; and |
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you are not acting on behalf of any person who could not truthfully make
the foregoing representations. |
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If you are a broker-dealer and receive Exchange Notes for your own account in
exchange for Restricted Notes that you acquired as a result of market-making
activities or other trading activities, you must acknowledge that you will deliver
this prospectus in connection with any resale of the Exchange Notes. See Plan of
Distribution. However, by so acknowledging and by delivering this prospectus, you
will not be deemed to admit that you are an underwriter within the meaning of the
Securities Act. During the period ending 180 days after the consummation of the
exchange offer, subject to extension in limited circumstances, you may use this
prospectus for an offer to sell, a resale or other retransfer of Exchange Notes
received in exchange for Restricted Notes that you acquired through market-making
activities or other trading activities if you indicate in the letter of transmittal
that you will do so. |
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Any holder of Restricted Notes who: |
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is our affiliate; |
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does not acquire Exchange Notes in the ordinary course of its business; or |
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tenders its Restricted Notes in the exchange offer with the intention to
participate, or for the purpose of participating, in a distribution of Exchange
Notes; |
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cannot rely on the position of the staff of the SEC enunciated in Morgan Stanley &
Co. Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the SECs letter to Shearman & Sterling
(available July 2, 1993), or similar no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Exchange
Notes. |
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Consequences If You Do Not
Exchange Your Restricted
Notes
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As a result of the making of, and upon acceptance for exchange of all validly
tendered Restricted Notes pursuant to the terms of the exchange offer, we and the
guarantors will have fulfilled a covenant under the registration rights agreement.
Accordingly, there will be no increase in the interest rate on the Restricted Notes
under the circumstances described in the registration rights agreement. If you do
not tender your Restricted Notes in the exchange offer, you will continue to be
entitled to all of the rights and limitations applicable to the Restricted Notes as
set forth in the Indenture, except we and the guarantors will not have any further
obligation to you to provide for the exchange and registration of the Restricted
Notes under the registration rights agreement. |
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All untendered Restricted Notes will continue to be subject to the restrictions on
transfer set forth in the Restricted Notes and in the Indenture. In general, the
Restricted Notes may not be offered or sold unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Other than in connection with
the exchange offer, we and the guarantors do not currently anticipate that we will
register the outstanding Notes under the Securities Act. If you do not participate
or properly tender your Restricted Notes in the exchange offer, upon completion of
the exchange offer, the liquidity of the market for your Restricted Notes could be
adversely affected. |
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Conditions
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The exchange offer is subject to certain customary conditions, which we may waive,
as described below under The Exchange OfferConditions to the Exchange Offer. |
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Procedures for Tendering
Restricted Notes
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If you wish to accept the exchange offer, the following must be delivered to the
exchange agent: |
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your Restricted Notes by timely confirmation of book-entry transfer through The
Depository Trust Company (the DTC); |
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an agents message from the DTC, stating that the tendering participant agrees to
be bound by the letter of transmittal and the terms of the exchange offer; and |
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all other documents required by the letter of transmittal. |
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These actions must be completed before the expiration of the exchange offer. |
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You must comply with DTCs standard procedures for electronic tenders, by which you
will agree to be bound by the letter of transmittal. |
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Withdrawal of Tenders
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You may withdraw your tender of Restricted Notes under the exchange offer at any
time prior to the expiration date. |
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Fees and Expenses
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We will bear all expenses related to the exchange offer. Please refer to the
section in this prospectus entitled The Exchange OfferFees and Expenses. |
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Use of Proceeds
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The issuance of the Exchange Notes will not provide us with any new proceeds. We
are making this exchange offer solely to satisfy our obligations under the
registration rights agreement. |
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Tax Consequences
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The exchange of Exchange Notes for Restricted Notes in the exchange offer should
generally not be a taxable event for U.S. federal income tax purposes. Please read
Material U.S. Federal Income Tax Consequences. |
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Exchange Agent
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Wells Fargo Bank, N.A. is serving as exchange agent in connection with the exchange
offer. You should direct questions and requests for assistance, for additional
copies of this prospectus or the letter of transmittal to the exchange agent
addressed as follows: Attn: Wells Fargo Bank, National Association, Corporate Trust
Operations, MAC N 9303-121, Sixth & Marquette Ave. Minneapolis Minnesota, 52479,
telephone number 800-334-5128. |
Summary of the Terms of the Exchange Notes
This exchange offer applies to any and all outstanding Restricted Notes. The terms of the
Exchange Notes will be essentially the same as the Restricted Notes, except that (1) the Exchange
Notes will not be subject to the restrictions on transfer that apply to the Restricted Notes, (2)
the Exchange Notes will not be subject to the registration rights relating to the Restricted Notes,
and (3) the Exchange Notes will not contain provisions for payment of additional interest in case
of non-registration. The Exchange Notes issued in this exchange offer will evidence the same debt
as the Restricted Notes and both series of Notes will be entitled to the benefits of the same
indenture and treated as a single class of debt securities. In this document, we sometimes refer to
the Restricted Notes and the Exchange Notes together as the Notes.
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Issuers
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Westmoreland Coal Company; Westmoreland Partners. |
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Securities
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$150,000,000 in aggregate principal amount of 10.750% Senior Secured Notes due 2018. |
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Maturity
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February 1, 2018. |
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Interest
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We will pay interest in cash on the principal amount of the Notes semiannually at the
rate of 10.750% per year, on February 1st and August 1st of each year, beginning on
August 1, 2011. |
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Guarantees
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The Exchange Notes will be fully and unconditionally guaranteed, jointly and
severally, on a senior secured basis by WELLC and WRI, their respective subsidiaries
(other than Absaloka Coal, LLC, or Absaloka Coal) and by certain of our other
subsidiaries. Not all of our subsidiaries will be subsidiary guarantors. In
particular, WML and its subsidiaries, Absaloka Coal and WRM will be restricted
subsidiaries, but do not guarantee the Notes. Basin Resources, Inc. will be an
unrestricted subsidiary, but the indenture governing the Notes contains a covenant
limiting its activities. Westmoreland Terminal Co., Eastern Coal & Coke Co. and
Criterion Coal Co. are unrestricted subsidiaries. These entities have no or nominal
assets, conduct no operations and are in the process of dissolution. |
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Security
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The Exchange Notes and the guarantees will be secured by (i) first-priority liens
on substantially all of our, the guarantors and Absaloka Coals tangible and
intangible assets, (ii) a first-priority lien on certain amounts paid by WML to us,
and (iii) a first-priority lien on the equity of WRM, in each case subject to
permitted liens and certain exclusions. Subject to certain conditions, we will have
the ability to
enter into a new revolving credit facility, which we refer to as the Revolving Credit
Facility, without the consent of holders of the Notes following this offering (see
Revolving Credit Facility). If we do so, the Revolving Credit Facility will be
secured by a first-priority lien on our, the guarantors and Absaloka Coals
inventory, accounts receivable and proceeds thereof, or the Revolving Facility
First-Priority Collateral, and the Notes will then be secured by a second priority
lien on that collateral. Some of our assets are excluded from the collateral as
described in Description of the Notes Security. |
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Ranking
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The Exchange Notes and the guarantees will be our and the guarantors senior
secured obligations and: |
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will rank equally in right of payment with all of our and the guarantors
respective existing and future senior indebtedness; |
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will rank effectively senior in right of payment to all of our, the
guarantors and Absaloka Coals respective existing and future unsecured
indebtedness; |
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will be effectively subordinated to indebtedness under the Revolving Credit
Facility, if we enter into such a facility, to the extent of the value of the
Revolving Facility First-Priority Collateral; and |
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will be structurally subordinated to all of the existing and future
liabilities (including trade payables but excluding intercompany liabilities) of each
of our subsidiaries that does not guarantee the Notes.
As of March 31, 2011, we had (i) $125.0 million of outstanding indebtedness under
WMLs existing credit agreements, including its term debt agreement, and (ii) $23.1
million of undrawn availability under WMLs revolving credit facility. |
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Optional Redemption
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On or after February 1, 2015, we may redeem the Exchange Notes, in whole or in part,
at the redemption prices set forth under Description of the Exchange Notes. |
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Prior to February 1, 2015, we may redeem up to 35% of the aggregate principal amount
of Exchange Notes at the redemption price set forth under Description of the
Exchange Notes with the net cash proceeds of certain equity offerings. |
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Change of Control Offer
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If we experience a change of control (as defined in the indenture), the holders of
the Exchange Notes will have the right to require us to purchase their Exchange Notes
at a price in cash equal to 101% of the principal amount thereof, together with
accrued and unpaid interest and additional interest, if any, to the date of purchase.
See Description of the Exchange Notes. |
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Asset Sale Offer or Event of Loss
Offer
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We may be required to offer to use a portion of the net proceeds of certain asset
sales and events of loss to purchase some of the Exchange Notes at 100% of the
principal amount thereof, together with accrued and unpaid interest and additional
interest, if any, to the date of purchase. See Description of the Exchange Notes. |
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Excess Cash Flow Offer
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We may be required to offer to use 75% of our Excess Cash Flow, as defined under
Description of the Exchange Notes, for each fiscal year, beginning with the fiscal
year ended December 31, 2011, to purchase some of the Exchange Notes at 100% of the
principal amount thereof, together with accrued and unpaid interest, if any, to the
date of purchase. See Description of the Exchange Notes. |
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Rights Offering
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After June 30, 2015, if the Total Leverage Ratio (as defined in Description of the
Exchange Notes) equals or exceeds 3.5 to 1.0, we will be required, subject to
certain conditions, to provide holders of the Exchange Notes with the right to
purchase additional Notes, with the proceeds of such sales to be used to repurchase
and/or redeem WMLs term debt. |
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Certain Covenants
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The indenture governing the Exchange Notes contains covenants that will restrict our
ability and the ability of the co-issuer and our restricted subsidiaries to, among
other things: |
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incur additional indebtedness and issue preferred stock; |
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pay dividends on or make distributions in respect of capital stock or make
certain other restricted payments or investments; |
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enter into agreements that restrict distributions from restricted
subsidiaries; |
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enter into transactions with affiliates; |
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create or incur liens; |
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sell or otherwise dispose of assets; |
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enter into sale and leaseback transactions; |
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sell or issue capital stock of the co-issuer or the restricted subsidiaries;
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merge or consolidate with or into other companies. |
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These covenants are subject to important exceptions and qualifications that are
described in Description of the Exchange Notes. |
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Absence of a Public Market for
the Exchange Notes
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The Exchange Notes generally will be freely transferable, but will also be new
securities for which there will not initially be a market. There can be no assurance
as to the development or liquidity of any market for the Exchange Notes. We do not
intend to apply for listing of the Exchange Notes on any securities exchange or for
the quotation of the Exchange Notes in any automated dealer quotation system. |
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Risk Factors
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You should refer to the section of this prospectus entitled Risk Factors for a
discussion of the factors you should carefully consider before deciding to invest in
the Notes, including factors affecting forward-looking statements. |
6
RISK FACTORS
In addition to the other information set forth elsewhere in this prospectus the following
factors relating to the exchange offer and the Notes should be considered carefully in deciding
whether to participate in the exchange offer.
Risks Related to the Exchange Offer
If you fail to exchange the Restricted Notes, they will remain subject to transfer restrictions,
and it may be harder for you to resell and transfer your Restricted Notes.
The Restricted Notes were not registered under the Securities Act or under the securities laws
of any state. Any Restricted Notes that remain outstanding after this exchange offer will continue
to be subject to restrictions on their transfer. Thus, you may not resell the Restricted Notes,
offer them for resale or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and applicable state
securities laws. If you do not exchange your Restricted Notes for Exchange Notes by this exchange
offer, or if you do not properly tender your Restricted Notes in this exchange offer, you will not
be able to resell, offer to resell or otherwise transfer your Restricted Notes unless they are
registered under the Securities Act or unless you resell them, offer to resell or otherwise
transfer them under an exemption from the registration requirements of, or in a transaction not
subject to, the Securities Act. After this exchange offer, holders of Restricted Notes will not
have any further rights to have their Restricted Notes exchanged for Exchange Notes registered
under the Securities Act. The liquidity of the market for Restricted Notes that are not exchanged
could be adversely affected by this exchange offer and you may be unable to sell your Restricted
Notes.
Late deliveries of Restricted Notes and other required documents could prevent a holder from
exchanging its Restricted Notes.
Holders are responsible for complying with all exchange offer procedures. The issuance of
Exchange Notes in exchange for Restricted Notes will only occur upon completion of the procedures
described in this prospectus under The Exchange Offer. Therefore, holders of Restricted Notes who
wish to exchange them for exchange Notes should allow sufficient time for completion of the
exchange procedure. Neither we nor the exchange agent is obligated to extend the offer or notify
you of any failure to follow the proper procedure or waive any defect if you fail to follow the
proper procedure.
Certain persons who participate in the exchange offer must deliver a prospectus in connection with
resales of the Exchange Notes.
We have not requested, and do not intend to request, an interpretation by the staff of the SEC
as to whether the Exchange Notes issued pursuant to our exchange offer in exchange for the
outstanding Notes may be offered for resale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the Securities Act. Instead,
based on interpretations of the staff of the SEC contained in Exxon Capital Holdings Corp., SEC
no-action letter (May 13, 1988), Morgan Stanley & Co. Inc., SEC no-action letter (June 5, 1991) and
Shearman & Sterling, SEC no-action letter (July 2, 1993), we believe that you may offer for resale,
resell or otherwise transfer the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act except that broker-dealers receiving the
Exchange Notes in the exchange offer will be subject to a prospectus delivery requirement with
respect to their resale. We cannot guarantee that the SEC would make a similar decision about our
exchange offer. If our belief is wrong, or if you cannot truthfully make the representations
mentioned in the section. The Exchange OfferTerms of the Exchange Offer below, and you transfer
any Exchange Note issued to you in the exchange offer without meeting the registration and
prospectus delivery requirements of the Securities Act, or without an exemption from such
requirements, you could incur liability under the Securities Act. Additionally, in some instances
described in this prospectus under Plan of Distribution, certain holders of Exchange Notes will
remain obligated to comply with the registration and prospectus delivery requirements of the
Securities Act to transfer the Exchange Notes. If such a holder transfers any Exchange Notes
without delivering a prospectus meeting the requirements of the Securities Act or without an applicable exemption from registration
under the Securities Act, such a holder may incur liability under the Securities Act. We do not and
will not assume, or indemnify such a holder against, this liability.
7
There may not be a public market for the Exchange Notes, and you may find it difficult to sell your
Notes.
You may find it difficult to sell your Notes because an active trading market for the Notes
may not develop. We do not intend to apply for listing on any securities exchange for the Exchange
Notes. We do not know the extent to which investor interest will lead to the development of a
trading market or how liquid that market might be.
If a market for the Exchange Notes does develop, it is possible that you will not be able to
sell your Notes at a particular time or that the prices that you receive when you sell will be
unfavorable. It is also possible that any trading market that does develop for the Notes will not
be liquid. Future trading prices of the Notes will depend on many factors, including:
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our operating performance, financial condition and prospects, or the operating
performance, financial condition and prospects of companies in the coal and power
industries generally; |
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our ability to complete the offer to exchange the Restricted Notes for the Exchange
Notes; |
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the interest of securities dealers in making a market for the Notes; |
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prevailing interest rates; and |
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the market for similar securities. |
Historically, the market for non-investment grade debt has been subject to disruptions that
have caused volatility in prices. If a market for the Exchange Notes develops, it is possible that
the market for the Exchange Notes will be subject to disruptions and price volatility. Any
disruptions may have a negative effect on holders of the Exchange Notes, regardless of our
operating performance, financial condition and prospects.
Risks Related to the Notes and the Collateral
We have a substantial amount of indebtedness, which may adversely affect our cash flow, our ability
to operate our business and our ability to satisfy our obligations under the restricted Notes and
the exchange Notes.
We have a significant amount of indebtedness. As of March 31, 2011, we had $294.4 million of
indebtedness outstanding and had approximately $23.1 million available for borrowings under WMLs
revolving credit facility. Our substantial amount of indebtedness could have important consequences
for you. For example, it could:
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increase our vulnerability to adverse economic, industry or competitive
developments; |
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result in an event of default if we fail to satisfy our obligations with respect to
the Notes or other debt or fail to comply with the financial and other restrictive
covenants contained in the indenture governing the Notes or agreements governing our
other indebtedness, which event of default could result in all of our debt becoming
immediately due and payable and could permit our lenders to foreclose on our assets
securing such debt; |
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require a substantial portion of cash flow from operations to be dedicated to the
payment of principal and interest on our indebtedness, therefore reducing our ability
to use our cash flow to fund our operations, capital expenditures and future business
opportunities; |
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make it more difficult for us to satisfy our obligations with respect to the Notes; |
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increase our cost of borrowing; |
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restrict us from making strategic acquisitions or causing us to make non-strategic
divestitures; |
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limit our ability to service our indebtedness, including the Notes; |
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limit our ability to obtain additional financing for working capital, capital
expenditures, debt service requirements, acquisitions and general corporate or other
purposes; |
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limit our flexibility in planning for, or reacting to, changes in our business or
the industry in which we operate, placing us at a competitive disadvantage compared to
our competitors who are less highly leveraged and who therefore may be able to take
advantage of opportunities that our leverage prevents us from exploiting; and
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prevent us from raising the funds necessary to repurchase all Notes tendered to us upon
the occurrence of certain changes of control, which failure to repurchase would constitute
a default under the indenture governing the Notes. |
The occurrence of any one of these events could have a material adverse effect on our business,
financial condition, results of operations, prospects or ability to satisfy our obligations under
the Notes.
We may not be able to generate sufficient cash to service the Notes or our other indebtedness, and
may be forced to take other actions to satisfy our obligations under our indebtedness, which may
not be successful.
Our ability to make scheduled payments on our indebtedness, including the Notes, and to fund
our operations will depend on our ability to generate cash in the future. Our historical financial
results have been, and our future financial results are expected to be, subject to substantial
fluctuations, and will depend upon general economic conditions and financial, competitive,
legislative, regulatory and other factors that are beyond our control. We may not be able to
maintain a level of cash flows from operating activities sufficient to permit us to pay the
principal and interest on the Notes or our other indebtedness.
If our cash flows and capital resources are insufficient to meet our indebtedness service
obligations or to fund our other liquidity needs, we may need to refinance all or a portion of our
debt, including the Notes, before maturity, seek additional equity capital, reduce or delay
scheduled expansions and capital expenditures or sell material assets or operations. We cannot
assure you that we would be able to refinance or restructure our indebtedness, obtain equity
capital or sell assets or operations on commercially reasonable terms or at all. In addition, the
terms of existing or future debt instruments, including the indenture governing the Notes, may
limit or prevent us from taking any of these actions. Our inability to take these actions and to
generate sufficient cash flow to satisfy our debt service and other obligations could have a
material adverse effect on our business, results of operation and financial condition, as well as
on our ability to satisfy our obligations in respect of the Notes.
The Notes will be structurally subordinated to indebtedness and other liabilities of our
non-guarantor subsidiaries.
Our operating subsidiaries owned by WML have not guaranteed the Notes. Those non-guarantor
subsidiaries had $414.0 million in total assets as of March 31, 2011, representing approximately
53% of our consolidated total assets, $344.6 million in net sales for the year ended December 31,
2010, representing 68% of our consolidated net sales. As of March 31, 2011, those non-guarantor
subsidiaries had $446.1 million of indebtedness and other liabilities. Claims of creditors of our
non-guarantor subsidiaries, including trade creditors, effectively rank senior and have priority
with respect to the assets and earnings of such subsidiaries over our claims or those of our
creditors, including holders of the Notes. In the event of a bankruptcy, liquidation or
reorganization of any of our non-guarantor subsidiaries, holders of their indebtedness will
generally be entitled to payment of their claims from the assets of those subsidiaries before any
assets are made available for distribution to us. In addition, the indenture under which the
exchange Notes will be issued permits WML to incur additional debt under its existing revolver.
You generally will be required to accrue taxable income attributable to original issue discount on
the Notes before you receive cash attributable to such original issue discount. You may be required
to continue to accrue such taxable income even if we become unable to satisfy our payment
obligations under the Notes. Additionally, in the event we enter into bankruptcy, you may not have
a claim for all or a portion of any unamortized amount of the original issue discount on the Notes.
The restricted Notes were issued with original issue discount for U.S. federal income tax
purposes. Accordingly, if you are an individual or entity subject to U.S. tax, you will be required
to accrue interest in the form of original issue discount on a current basis in respect of the
Notes, including such accrued interest in income and pay tax accordingly, even before you receive
cash attributable to that income and regardless of your method of accounting. Additionally, a
bankruptcy court may not allow a claim for all or a portion of any unamortized amount of the
original issue discount on the Notes.
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We are a holding company, and therefore our ability to repay our indebtedness, including the Notes,
is dependent on the cash flow generated by our subsidiaries and their ability to make distributions
to us.
We are a holding company with no significant operations or material assets other than the
capital stock of our subsidiaries. As a result, our ability to repay our indebtedness, including
the Notes, is dependent on the generation of cash flow by our subsidiaries and their ability to
make such cash available to us, by dividend, debt repayment or otherwise.
The indenture governing the Notes contains various covenants limiting the discretion of our
management in operating our business and could prevent us from capitalizing on business
opportunities and taking some corporate actions.
The indenture governing the Notes imposes significant operating and financial restrictions on
us. These restrictions limit or restrict, among other things, our ability and the ability of our
subsidiaries to:
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incur additional indebtedness; |
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issue certain preferred stock or redeemable stock; |
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pay dividends on, repurchase or make distributions in respect of our capital stock
or make other restricted payments; |
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make certain investments; |
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sell, transfer or otherwise convey certain assets; |
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create or incur liens; |
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designate our subsidiaries as unrestricted subsidiaries; |
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consolidate, merge, sell or otherwise dispose of all or substantially all of our
assets; |
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enter into a new or different line of business; and |
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enter into certain transactions with our affiliates. |
A breach of any of the foregoing covenants under our indenture could result in a default. In
addition, any debt agreements we enter into in the future may further limit our ability to enter
into certain types of transactions.
The covenants described above are subject to important exceptions and qualifications and, with
respect to the Notes, are described under the heading Description of the Exchange Notes in this
prospectus. Our ability to comply with these covenants may be affected by events beyond our
control, including those described in this Risk Factors section. As a result, we cannot assure
you that we will be able to comply with these covenants.
Notwithstanding our current indebtedness levels and restrictive covenants, we may still be able to
incur substantial additional debt or make certain restricted payments, which could exacerbate the
risks described above.
We may be able to incur additional debt in the future. Although the indenture governing the
Notes contains restrictions on our ability to incur indebtedness, those restrictions are subject to
a number of exceptions. In particular, we may be able to borrow up to $20.0 million from time to
time under the Revolving Credit Facility permitted by the Indenture, and expect that WML may be
able to borrow up to $25.0 million under its revolving credit facility. Also, we expect to be able
to issue additional Notes under the indenture in some circumstances. In addition, if we are able to
designate some of our restricted subsidiaries under the indenture as unrestricted subsidiaries,
those unrestricted subsidiaries would be permitted to borrow beyond the limitations specified in
the indenture governing the Notes and engage in other activities in which restricted subsidiaries
may not engage. We may also consider investments in joint ventures or acquisitions that may
increase our indebtedness. Also, although the indenture contains restrictions on our ability to
make restricted payments, we will be able to make restricted payments in certain circumstances.
Adding new debt to current debt levels or making otherwise restricted payments could intensify the
related risks that we and our subsidiaries now face.
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Certain of our assets may be subject to senior priority security interests on collateral that
secure the Notes on a junior basis. Therefore, your ability to receive payments on the Notes would
be subject to the prior satisfaction of all such obligations, to the extent of the value of such
collateral.
Subject to certain conditions, we have the ability to enter into a new revolving credit
facility, which we refer to as the Revolving Credit Facility, without the consent of holders of the
Notes. If we do so, the Revolving Credit Facility will be secured by a first-priority lien on our,
the guarantors and Absaloka Coals inventory, accounts receivable and proceeds thereof, and the
Notes will then be secured by a second priority lien on that collateral. See Description of the
Exchange NotesSecurity for the Notes. Should we enter into the Revolving Credit Facility, any
rights to payment and claims by the holders of the Notes will, therefore, be subject to the rights
to payment or claims by our lenders under the Revolving Credit Facility with respect to
distributions of such collateral. Only when our obligations under the Revolving Credit Facility are
satisfied in full will the proceeds of certain assets be available to repay the Notes. As a result,
the Notes are effectively subordinated in right of payment to indebtedness under the Revolving
Credit Facility, to the extent of the realizable value of such collateral. Furthermore, the
collateral securing the Notes and the guarantees will be subject to liens permitted under the terms
of the indenture governing the Notes, whether arising before or after the date the Notes are
issued. The existence of any permitted liens could adversely affect the value of the collateral
securing the Notes and the guarantees, as well as the ability of the collateral trustee to realize
or foreclose on such collateral.
There may not be sufficient collateral to pay all or any of the Notes.
The exchange Notes and the guarantees will be secured by (i) first-priority liens on
substantially all of our, the guarantors and Absaloka Coals tangible and intangible assets, (ii)
a first-priority lien on certain amounts paid by WML to us, and (iii) a first-priority lien on the
equity of WRM, in each case subject to permitted liens and certain exclusions. Subject to certain
conditions, we will have the ability to enter into a new revolving credit facility without the
consent of holders of the Notes. If we do so, the Revolving Credit Facility will be secured by a
first-priority lien on our, the guarantors and Absaloka Coals inventory, accounts receivable and
proceeds thereof, or the Revolving Facility First-Priority Collateral, and the Notes will then be
secured by a second priority lien on that collateral.
In the event of a foreclosure on the Revolving Facility First-Priority Collateral (or a
distribution in respect thereof in a bankruptcy or insolvency proceeding), the proceeds from such
Revolving Facility First-Priority Collateral on which the Notes have a second priority lien may not
be sufficient to satisfy the Notes because such proceeds would, under an intercreditor agreement,
first be applied to satisfy our obligations under the Revolving Credit Facility. Only after all of
our obligations under the Revolving Credit Facility have been satisfied will proceeds from the
Revolving Facility First-Priority Collateral on which the Notes have a second priority lien be
applied to satisfy our obligations under the Notes. To prevent foreclosure, we may be motivated to
commence voluntary bankruptcy proceedings, or the holders of the Notes and/or various other
interested persons may be motivated to institute bankruptcy proceedings against us. The
commencement of such bankruptcy proceedings would expose the holders of the Notes to additional
risks, including additional restrictions on exercising rights against collateral. Furthermore, the
collateral securing the Notes are subject to liens permitted under the terms of the credit
agreement governing the Revolving Credit Facility and the indenture governing the Notes. The
existence of any permitted liens (whether senior to or on parity with the liens securing the Notes)
could adversely affect the value of the collateral securing the Notes, as well as the ability of
the collateral trustee to realize or foreclose on such collateral. In addition, not all of our and
the guarantors assets secure the Notes. See Description of the Exchange NotesSecurity for the
Notes. To the extent that the claims of the holders of the Notes exceed the value of the assets
securing those Notes and other liabilities, those claims will rank equally with the claims of the
holders of our outstanding unsecured indebtedness and other obligations ranking pari passu with the
Notes. As a result, if the value of the assets pledged as security for the Notes and other
liabilities is less than the value of the claims of the holders of the Notes and other liabilities,
those claims may not be satisfied in full.
The collateral may be subject to exceptions, defects, encumbrances, liens and other
imperfections. Further, we have not conducted appraisals of all of our or the guarantors assets
constituting collateral securing the Notes to determine if the value of such collateral upon
foreclosure or liquidation equals or exceeds the amount of the Notes or such other obligations
secured by such collateral. Accordingly, we cannot assure you that the remaining proceeds from the
sale of the collateral would be sufficient to repay holders of Notes all amounts owed under the
Notes. The fair market value of the collateral is subject to fluctuations based on factors that
include, among others, the condition of our industry, the ability to sell the collateral in an
orderly
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sale, general economic conditions, the availability of buyers, our failure to implement our
business strategy and similar factors. The amount received upon a sale of the collateral would be
dependent on numerous factors, including but not limited to the actual fair market value of the
collateral at such time and the timing and the manner of the sale. By its nature, portions of the
collateral may be illiquid and may have no readily ascertainable market value. In the event of a
foreclosure, liquidation, bankruptcy or similar proceeding, we cannot assure you that the proceeds
from any sale or liquidation of the collateral securing our obligations under the Revolving Credit
Facility on a first priority basis will be sufficient to pay our obligations under the Notes, in
full or at all, after first satisfying our obligations in full under the Revolving Credit Facility.
In such an event, we cannot assure you that the collateral securing our obligations with respect to
the Notes on a first priority basis, either alone or with any remaining collateral securing our
obligations under the Revolving Credit Facility after satisfying the obligations thereunder, will
be sufficient to pay our obligations under the Notes in full. There also can be no assurance that
the collateral will be saleable, and, even if saleable, the timing of its liquidation would be
uncertain. Accordingly, there may not be sufficient collateral to pay all or any of the amounts due
on the Notes.
Noteholders cannot rely on assets of WML and its subsidiaries to satisfy obligations under the
Notes.
If we repay or refinance the WML term debt (the debt represented by the WML Notes) prior to
its scheduled maturity in March 2018 and at a time when the Notes are outstanding, we will be
required under the terms of the indenture governing the Notes to cause WML and its subsidiaries to
become guarantors of the Notes and to pledge their assets to secure the Notes on a first-priority
basis. This requirement will not apply to the WML revolving credit agreement, which WML is
permitted to refinance by any means otherwise permitted under the indenture governing the Notes;
indebtedness under the WML revolving credit agreement will continue to be secured on a
first-priority basis by all of the assets of WML and its subsidiaries. Since the WML term debt
matures after the Notes, holders of the Notes will not have access to the WML assets as collateral
for the Notes unless the WML term debt is refinanced or repaid prior to its maturity and at a time
when the Notes are outstanding. Neither we nor WML has any obligation to prepay the WML term debt
prior to its maturity, and we currently have no intention of doing so. Further, such a prepayment
would require a make-whole payment to the holders of the WML term debt. Accordingly, holders of the
Notes should not rely on the availability of WML assets to satisfy obligations under the Notes.
We may be unable to repay or repurchase the Notes at maturity.
At maturity, the entire principal amount of the Notes, together with accrued and unpaid
interest, will become due and payable. We may not have the ability to repay or refinance these
obligations. If the maturity date occurs at a time when other arrangements prohibit us from
repaying the Notes, we would try to obtain waivers of such prohibitions from the lenders and
holders under those arrangements, or we could attempt to refinance the borrowings that contain the
restrictions. If we could not obtain the waivers or refinance these borrowings, we would be unable
to repay the Notes.
Some of our indebtedness is subject to floating interest rates, which would result in our interest
expense increasing if interest rates rise.
Indebtedness under WMLs revolving credit facility bears interest at floating interest rates,
as may indebtedness under the Revolving Credit Facility if we enter into such a facility.
Accordingly, we may experience a negative impact on earnings as a result of interest rate
fluctuations. The actual impact of those fluctuations would depend on the amount of floating rate
debt outstanding, which will vary from time to time. Changes in economic conditions could result in higher interest rates, thereby increasing
our interest expense and reducing funds available for operations or other purposes.
If we are unable to enter into the Revolving Credit Facility at a time when we require additional
financing, our business, financial position, results of operations and liquidity could be
negatively impacted.
The indenture governing the Notes permits us, subject to certain conditions, to enter into the
Revolving Credit Facility without the consent of holders of the Notes. The maximum borrowing
availability under such facility as permitted by the indenture governing the Notes is $20.0
million. There can be no assurance that we will be able to obtain such a facility on terms
acceptable to us or at all. Our ability to enter into the Revolving Credit Facility on acceptable
terms would be dependent upon a number of factors, including our future operating performance,
general economic and competitive conditions, our ability to provide adequate collateral to secure
the facility and financial, business, and other factors, many of which we
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cannot control or predict. Also, in order to enter into the Revolving Credit Facility, either (i) the lender(s) under
the facility would be required to enter into an intercreditor agreement in the form described in
Description of the Notes Security Intercreditor Agreement to be Entered into in Connection
with a Future Revolving Credit Facility in all material respects or (ii) we would be required to
obtain the approval of at least a majority of the holders of the Notes for changes to the form as
described, and it is possible that we will not be able to satisfy either condition at the time we
seek to enter into such a facility. If we are unable to enter into the Revolving Credit Facility at
a time when we require additional financing, our operations, financial condition and liquidity
could be materially adversely impacted, and we would be forced to attempt to secure other types of
financing. In addition, our borrowing availability under the Revolving Credit Facility may be
substantially less than the maximum amount permitted under the indenture governing the Notes and
could decline if the value of our borrowing base (which we expect would be calculated based on a
percentage of our inventory and accounts receivable) declines. The borrowing base could decline if
the value of our inventory or accounts receivable declines due to economic or market conditions,
working capital practices or otherwise. If our borrowing availability is less than our outstanding
borrowings under the Revolving Credit Facility, we could be required to repay borrowings and/or
cash collateralize letters of credit sufficient to eliminate the deficit. A reduction in the
borrowing base under the Revolving Credit Facility would adversely affect our liquidity. Also, our
liquidity would also be adversely affected if the lender under the Revolving Credit Facility became
unwilling or unable to fund amounts under that facility. A similar issue would arise for WML and us
if lenders under WMLs revolving credit facility became unwilling or unable to fund amounts under
that facility.
U.S. federal and state fraudulent transfer laws may permit a court to void, subordinate or limit
the Notes, the guarantees and/or the grant of collateral and, if that occurs, you may not receive
any payments on the Notes.
U.S. federal and state fraudulent transfer and conveyance statutes may apply to the issuance
of the Notes and the incurrence of the guarantees of the Notes. Under U.S. federal bankruptcy law
and comparable provisions of state fraudulent transfer or conveyance laws, which may vary from
state to state, the Notes or the guarantees thereof (or the grant of collateral securing any such
obligations) could be voided, subordinated or limited as a fraudulent transfer or conveyance if we
or any of the guarantors, as applicable, (i) issued the Notes or incurred the guarantees with the
intent of hindering, delaying or defrauding creditors, or (ii) received less than reasonably
equivalent value or fair consideration in return for either issuing the Notes or incurring the
guarantees and, in the case of (ii) only, one of the following is also true at the time thereof:
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we or any of the guarantors, as applicable, were insolvent or rendered
insolvent by reason of the issuance of the Notes or the incurrence of the guarantees; |
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the issuance of the Notes or the incurrence of the guarantees left us or
any of the guarantors, as applicable, with an unreasonably small amount of capital or
assets to carry on its business; |
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we or any of the guarantors intended to, or believed that we or such
guarantor would, incur debts beyond our or such guarantors ability to pay as they
mature; or |
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we or any of the guarantors were a defendant in an action for money
damages, or had a judgment for money damages docketed against us or such guarantor if,
in either case, after final judgment, the judgment is unsatisfied. |
As a general matter, value is given for a transfer or an obligation if, in exchange for the
transfer or obligation, property is transferred or a valid antecedent debt is secured or satisfied.
A court would likely find that a subsidiary guarantor did not receive reasonably equivalent value
or fair consideration for its guarantee to the extent such guarantor did not obtain a reasonably
equivalent tangible benefit directly or indirectly from the issuance of the Notes.
We cannot be certain as to the standards a court would use to determine whether or not we or
the guarantors were insolvent at the relevant time or, regardless of the standard that a court
uses, whether the Notes or the guarantees would be subordinated to our or any of our guarantors
other debt. In general, however, a court would deem an entity insolvent if:
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the sum of its debts, including contingent and unliquidated liabilities,
was greater than the fair saleable value of all of its assets; |
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the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature; or |
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it could not pay its debts as they became due. |
If a court were to find that the issuance of the Notes, the incurrence of a guarantee or the
grant of security was a fraudulent transfer or conveyance, the court could void the payment
obligations under the Notes or such guarantee or void the grant of collateral or subordinate or
limit the Notes or such guarantee to presently existing and future indebtedness of ours or of the
related guarantor, or require the holders of the Notes to repay any amounts received with respect
to such guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, you
may not receive any repayment on the Notes or guarantees. Further, the avoidance of the Notes could
result in an event of default with respect to our and our subsidiaries other debt that could
result in acceleration of such debt.
Each guarantee will contain a provision intended to limit the guarantors liability to the
maximum amount that it could incur without causing the incurrence of obligations under its
guarantee to be a fraudulent transfer. This provision may not be effective to protect the
guarantees from being avoided under applicable fraudulent transfer laws or may reduce the
guarantors obligation to an amount that effectively makes the guarantee worthless.
Finally, as a court of equity, a bankruptcy court may subordinate the claims in respect of the
Notes to other claims against us under the principle of equitable subordination, if the court
determines that: (i) the holder of Notes engaged in some type of inequitable conduct, (ii) such
inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon
the holder of Notes and (iii) equitable subordination is not inconsistent with the provisions of
the bankruptcy code.
We may not be able to repurchase the Notes upon a change of control.
Upon the occurrence of specific kinds of change of control events, we are required to offer to
repurchase all of the outstanding Notes at 101% of their principal amount, plus accrued and unpaid
interest to the purchase date. The Revolving Credit Facility, and other future debt agreements may
contain restrictions on our ability to comply with this requirement. In addition, we may have
insufficient financial resources to allow us to repurchase the Notes at the required time. Any
failure to comply with the repurchase requirement would constitute a default under the indenture
governing the Notes, which, in turn, could result in amounts outstanding under other debt
agreements being declared due and payable. In the event a change of control occurs at a time when we are prohibited from, or otherwise unable
to, offer to purchase the Notes, we could seek consent to offer to purchase the Notes or attempt to
refinance the borrowings that contain the relevant prohibition, but such efforts may be
unsuccessful. In order to avoid the obligation to repurchase the Notes, we may have to avoid
certain change of control transactions that would otherwise be beneficial to us.
The definition of Change of Control under the indenture governing the Notes includes certain
events defined as Prepayment Events in the WML credit agreements. Those agreements require WML to
offer to prepay indebtedness under the agreements in specified circumstances, including events
relating to a change of control of us, WML or WMLs subsidiaries. The offer price for the
indebtedness would be the principal amount of such indebtedness plus, in the case of the WML term
debt, a make-whole amount determined in accordance with the terms of the agreement governing that
debt. To the extent accepted, such an offer would reduce the amount of assets available to us to
satisfy our obligations with respect to a change of control offer or our other obligations under
the indenture governing the Notes.
In addition, certain important corporate events, such as acquisitions, reorganizations and
leveraged recapitalizations, may not, under the indenture governing the Notes, constitute a change
of control that would require us to repurchase the Notes, notwithstanding the fact that such
corporate events could increase the level of our indebtedness or otherwise adversely affect our
ability to satisfy our obligations under the Notes.
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In addition, in a recent decision, the Chancery Court of Delaware raised the possibility that
a change of control put right occurring as a result of a failure to have continuing directors
comprising a majority of a board of directors might be unenforceable on public policy grounds.
Holders of the Notes may not be able to determine when a change of control giving rise to their
right to have the Notes repurchased has occurred following a sale of substantially all of our
assets.
The definition of change of control in the indenture governing the Notes includes a phrase
relating to the sale of all or substantially all of our assets. There is no precise, established
definition of the phrase substantially all under applicable law. Accordingly, the ability of a
holder of Notes to require us to repurchase its Notes as a result of a sale of less than all our
assets to another person may be uncertain.
In the event of a bankruptcy of us or any of the guarantors, holders of the Notes may be deemed to
have an unsecured claim to the extent that our obligations in respect of the Notes exceed the fair
market value of the collateral securing the Notes.
In any bankruptcy proceeding with respect to us or any of the guarantors, it is possible that
the bankruptcy trustee, the debtor-in-possession, competing creditors or other parties in interest
will assert that the fair market value of the collateral with respect to the Notes is less than the
then-current principal amount of the Notes. Upon a finding by the bankruptcy court that the Notes
are under-collateralized, the claims in the bankruptcy proceeding with respect to the Notes would
be bifurcated between a secured claim in an amount equal to the collateral and an unsecured claim
in an amount equal to the excess of the principal amount of the Notes over the value of the
collateral, and the unsecured claim would not be entitled to the benefits of security in the
collateral. Other consequences of a finding of under-collateralization would be, among other
things, a lack of entitlement on the part of holders of the Notes to receive post-petition interest
and a lack of entitlement on the part of the unsecured portion of the Notes to receive certain or
any adequate protection under U.S. federal bankruptcy laws. In addition, if any payments of
post-petition interest had been made at the time of such a finding of under-collateralization,
those payments could be recharacterized by the bankruptcy court as a reduction of the principal
amount of the secured claim with respect to the Notes.
The collateral securing the Notes may be diluted under certain circumstances.
Some of the collateral that will secure the Notes will also secure our obligations under the
Revolving Credit Facility if we enter into such a facility. This and other collateral may also
secure additional senior indebtedness, including additional Notes, that we incur in the future,
subject to restrictions on our ability to incur debt and liens under the indenture governing the
Notes and other debt obligations. Your rights to the collateral would be diluted by any increase in
the indebtedness secured by this collateral.
If we enter into the Revolving Credit Facility, the rights of holders of the Notes to the Revolving
Facility First-Priority Collateral, in which such holders will have a second-priority lien, will be
materially limited by an intercreditor agreement.
If we enter into the Revolving Credit Facility, the rights of the holders of the Notes with
respect to the Revolving Facility First-Priority Collateral will be reduced from a first-priority
lien to a second-priority lien on such collateral and will be limited pursuant to the terms of an
intercreditor agreement between the collateral agent on behalf of the holders of the Notes and a
representative of the holders of a majority of the principal amount outstanding under the Revolving
Credit Facility. Under an intercreditor agreement with the terms contemplated in Description of
the Notes Security Intercreditor Agreement to be Entered into in Connection with a Future
Revolving Credit Facility, any actions that could be taken in respect of the Revolving Facility
First-Priority Collateral (including the ability to commence enforcement proceedings against the
Revolving Facility First-Priority Collateral and to control the conduct of such proceedings, and to
approve amendments to, releases of that collateral from the lien of, and waivers of past defaults
under, the collateral documents) would be at the direction of the holders of a majority of the
principal amount outstanding under the Revolving Credit Facility. Under those circumstances, the
collateral agent on behalf of the holders of the Notes, with limited exceptions, would not have the
ability to control or direct such actions, even if an event of default under the indenture
governing the Notes has occurred or if the rights of the holders of the Notes were adversely
affected.
Under an intercreditor agreement with the terms contemplated in Description of the Notes
Security Intercreditor Agreement to be Entered into in Connection with a Future Revolving Credit
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Facility, any release by the lender(s) under the Revolving Credit Facility of the Revolving
Facility First-Priority Collateral (other than a termination of the Revolving Credit Facility) on a
first-priority basis would also release the second-priority lien securing the Notes on the same
collateral (subject to the interest of the holders of the Notes in the proceeds of that
collateral), and holders of the Notes would have no control over such release. In addition, because
the holders of the indebtedness secured by first-priority liens control the disposition of such
collateral, such holders could decide not to proceed against such collateral, regardless of whether
there is a default under the documents governing such indebtedness or under the indenture governing
the Notes. In such event, the only remedy available to the holders of the Notes would be recourse
to collateral for the Notes which is secured on a first-priority basis and to sue for payment on
the Notes and the related guarantees. In addition, the proposed intercreditor agreement would give
the holders of first-priority liens on the Revolving Facility First-Priority Collateral the right
to access and use such collateral to allow those holders to protect such collateral and to process,
store and dispose of such collateral.
The waiver in the proposed intercreditor agreement of rights of marshaling may adversely affect the
recovery rates of holders of the Notes in a bankruptcy or foreclosure scenario.
If we enter into the Revolving Credit Facility, the Notes and the guarantees will be secured
on a second-priority lien basis by the Revolving Facility First-Priority Collateral. An
intercreditor agreement with the terms contemplated in Description of the Notes Security
Intercreditor Agreement to be Entered into in Connection with a Future Revolving Credit Facility
would provide that, at any time holders of the Notes hold a second-priority lien on the Revolving
Facility First-Priority Collateral where a first-priority lien on such collateral exists, the
trustee under the indenture governing the Notes and the Notes collateral agent may not assert or
enforce any right of marshaling accorded to a junior lienholder as against the holders of such
indebtedness secured by first-priority liens in the Revolving Facility First-Priority Collateral.
Without this waiver of the right of marshaling, holders of such indebtedness secured by
first-priority liens in the Revolving Facility First-Priority Collateral would likely be required
to liquidate collateral on which the Notes did not have a lien, if any, prior to liquidating the
Revolving Facility First-Priority Collateral, thereby maximizing the proceeds of the Revolving Facility First-Priority
Collateral that would be available to repay our obligations under the Notes. As a result of this
waiver, the proceeds of sales of the Revolving Facility First-Priority Collateral could be applied
to repay any indebtedness secured by first-priority liens in the Revolving Facility First-Priority
Collateral before applying proceeds of other collateral securing such indebtedness, and the holders
of Notes may recover less than they would have if such proceeds were applied in the order most
favorable to the holders of the Notes.
Certain assets will be excluded from the collateral. In order to grant a security interest in
certain collateral, the consents of third parties (including the Crow Tribe) may be required and we
may be unable to obtain those consents.
Certain assets will be excluded from the collateral securing the Notes as described under
Description of the Notes Collateral including, among other things, any assets held by non-U.S.
subsidiaries, as well as other typical exclusions, such as a contract or license if the grant of a
lien would violate a contract, license or agreement. Furthermore, in certain instances, in order to
grant a security interest in certain collateral to the collateral agent for the benefit of the
holders of the Notes, we may be required to obtain the consent of third parties. While we have
agreed to attempt to obtain such consents, we may not be able to do so. Failure to obtain such a
consent may result in the failure to create a security interest in the relevant collateral by the
collateral agent on your behalf, or the inability to enforce such security interest.
We currently lease, and in the future we may lease certain new facilities or coal estates, or
portions thereof, from third party lessors (including the Crow Tribe). The invalidity of, or
default or termination under, any such leases may interfere with our ability to use and operate all
or a portion of certain of our facilities or mines, which may have an adverse impact on our
operations and results.
Your rights in the collateral may be adversely affected by the failure to perfect security
interests in certain collateral acquired in the future.
Applicable law requires that certain property and rights acquired after the grant of a general
security interest, such as rights in real property, can only be perfected at the time such property
and rights are acquired and identified. There can be no assurance that the trustee or the
collateral agent will monitor, or that we will inform the trustee or the collateral agent of, the
future acquisition of property and rights that constitute collateral, and that the necessary action
will be taken to properly perfect the security interest in such after-
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acquired collateral. The collateral agent for the Notes has no obligation to monitor the acquisition of additional property
or rights that constitute collateral or the perfection of any security interest in favor of the
Notes against third parties. Failure to perfect any such security interest could result in the loss
of such security interest or the priority of the security interest in favor of the Notes against
third parties. In addition, under certain circumstances, we may not be required to grant or perfect
security interests in assets acquired after the issue date that are excluded from the collateral
securing the Notes as described under Description of the Notes Collateral.
Rights of holders of the Notes in the collateral may be adversely affected by the failure to create
or perfect security interests in certain collateral on a timely basis, and a failure to create or
perfect such security interests on a timely basis or at all may result in a default under the
indenture and other agreements governing the Notes. Furthermore, certain liens may be avoidable by
a trustee in bankruptcy.
We have agreed to secure the Notes and the guarantees by granting first-priority liens,
subject to permitted liens and certain excluded property, on our, Absaloka Coals and the
subsidiary guarantors principal assets, and to take other steps to assist in perfecting the
security interests granted in the collateral. See Description of the Notes Collateral. A
failure, for any reason, that is not permitted or contemplated under the security agreement and
related documents, to perfect the security interest in the properties included in the collateral
package may result in a default under the indenture and other agreements governing the Notes.
Additionally, if we, Absaloka Coal or any subsidiary guarantor were to become subject to a
bankruptcy proceeding, any liens recorded or perfected after the issue date would face
a greater risk of being invalidated than if they had been recorded or perfected on the issue
date. Liens recorded or perfected after the issue date may be treated under bankruptcy law as if
they were delivered to secure previously existing indebtedness. In bankruptcy proceedings commenced
within 90 days of lien perfection, a lien given to secure previously existing debt is materially
more likely to be avoided as a preference by a bankruptcy court than if delivered and promptly
recorded on the issue date. Accordingly, if we or a subsidiary guarantor were to file for
bankruptcy protection, or if an involuntary bankruptcy proceeding were brought against us or a
subsidiary guarantor, after the issue date of the outstanding Notes and the liens had been
perfected less than 90 days before commencement of such bankruptcy proceeding, or not yet perfected
at all, the liens securing the Notes may be especially subject to challenge as a result of having
not been perfected before the issue date. To the extent that such challenge succeeded, you would
lose the benefit of the security that the collateral was intended to provide and the Notes and the
guarantees will effectively rank equally with the unsecured unsubordinated indebtedness of us and
the guarantors.
There are circumstances other than repayment or discharge of the Notes under which the collateral
securing the Notes and guarantees will be released automatically, without your consent or the
consent of the trustee.
Under various circumstances, collateral securing the Notes will be released automatically,
including:
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a sale, transfer or other disposal or liquidation of such collateral in a
transaction not prohibited under the indenture governing the Notes; |
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with respect to collateral held by a guarantor, upon the release of such
guarantor from its guarantee (and its guarantee of any other indebtedness secured
equally and ratably with the Notes) in accordance with the indenture governing the
Notes, and |
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with respect to collateral that will secure the Revolving Credit Facility
on a first-priority basis (if we enter into such a facility), upon any release, sale
or disposition (other than in connection with a cancellation or termination of the
Revolving Credit Facility) of such collateral pursuant to the terms of the Revolving
Credit Facility resulting in the release of the lien on such collateral securing the
Revolving Credit Facility. |
In addition, the guarantee of a subsidiary guarantor will be automatically released in
connection with a sale of such subsidiary guarantor in a transaction permitted under the indenture
governing the Notes. The indenture also permits us to designate one or more of our restricted
subsidiaries that is a guarantor of the Notes as an unrestricted subsidiary. If we designate a
subsidiary guarantor as an unrestricted subsidiary for purposes of the indenture, all of the liens
on any collateral owned by such subsidiary or any of its subsidiaries and any guarantees of the
Notes by such subsidiary or any of its subsidiaries will be automatically released under the
indenture governing the Notes. Designation of an unrestricted subsidiary will reduce the aggregate
value of the collateral securing the Notes to the extent that liens on the assets of the
unrestricted subsidiary and its
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subsidiaries are released. In addition, the creditors of the
unrestricted subsidiary and its subsidiaries will have a senior claim on the assets of such
unrestricted subsidiary and its subsidiaries. See Description of the Notes.
We will in most cases have control over the collateral, and the sale of particular assets by us
could reduce the pool of assets securing the Notes and the guarantees.
The indenture governing the Notes and/or the security documents will allow us to remain in
possession of, retain exclusive control over, and to freely operate the collateral securing the
Notes and the guarantees. Furthermore, so long as no default or event of default under the
indenture or other loan agreement to which we may become a party would result therefrom and such
transaction would not violate the Trust Indenture Act, we may, among other things, without any
release or consent by the collateral agents, conduct ordinary course activities with respect to
collateral, such as selling, abandoning or otherwise disposing of collateral and making ordinary
course cash payments (including for the scheduled repayment of indebtedness). With respect to such
releases, we must deliver to the collateral agents from time to time an officers certificate to the effect that all releases and withdrawals
occurring during the preceding six-month period (or since the issue date, in the case of the first
such certificate) were not prohibited by the indenture governing the Notes.
The collateral is subject to condemnation risks, which may limit the ability of the holders of the
Notes to recover as secured creditors for losses to the collateral consisting of real property, and
which may have an adverse impact on our operations and results.
It is possible that all or a portion of the real property securing the Notes and the
guarantees may become subject to a condemnation proceeding. In such event, we may be compensated
for any total or partial loss of property but it is possible that such compensation will be
insufficient to fully compensate us for our losses. In addition, a total or partial condemnation
may interfere with our ability to use and operate all or a portion of the affected mine or other
operation, which may have an adverse impact on our operations and results.
The collateral is subject to casualty risks and potential environmental liabilities.
We intend to maintain insurance or otherwise insure against hazards in a manner appropriate
and customary for our business. There are, however, certain losses that may be either uninsurable
or not economically insurable, in whole or in part. For example, some types of environmental losses
are generally not insurable. In addition, insurance proceeds may not compensate us fully for our
losses. If there is a complete or partial loss of any of the pledged collateral, the insurance
proceeds may not be sufficient to satisfy all of the secured obligations, including the Notes and
the guarantees.
Moreover, the collateral agent may need to evaluate the impact of potential liabilities before
determining to foreclose on collateral consisting of real property because secured creditors that
hold a security interest in real property may be held liable under environmental laws for the costs
of remediating or preventing the release or threatened release of hazardous substances at such real
property. Consequently, the collateral agent may decline to foreclose on such collateral or
exercise remedies available in respect thereof if it does not receive indemnification to its
satisfaction from the holders of the Notes.
Rights of holders of the Notes in the collateral may be adversely affected by bankruptcy
proceedings.
The ability of holders of the Notes to repossess, dispose of and realize upon the collateral
securing the Notes will be subject to certain bankruptcy law limitations in the event of our
bankruptcy. Under applicable U.S. federal bankruptcy laws, upon the commencement of a bankruptcy
case, an automatic stay goes into effect which, among other things, stays:
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the commencement or continuation of any action or proceeding against the
debtor that was or could have been commenced before the commencement of the bankruptcy
case to recover a claim against the debtor that arose before the commencement of the
bankruptcy case; |
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any act to obtain possession of, or control over, property of the
bankruptcy estate or the debtor; |
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any act to create, perfect or enforce any lien against property of the
bankruptcy estate; and |
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any act to collect or recover a claim against the debtor that arose
before the commencement of the bankruptcy case. |
Thus, upon the commencement of a bankruptcy case, secured creditors are prohibited from,
among other things, repossessing their collateral from a debtor, or from disposing of such
collateral repossessed from such a debtor, without bankruptcy court approval. Moreover, applicable
U.S. federal bankruptcy laws generally permit the debtor to continue to use, sell or lease
collateral (and the proceeds, products, rents or profits thereof) in the ordinary course of its
business even though the debtor is in default under the applicable debt instruments. Upon request
from a secured creditor, the bankruptcy court will prohibit or condition such use, sale or lease of
collateral as is necessary to provide adequate protection of the secured creditors interest in the
collateral. Furthermore, as part of a bankruptcy plan, under certain circumstances, a bankruptcy
court may, over the objection of secured creditors, alter the post-bankruptcy timing of payments on
account of creditors secured claims, and the rate of interest thereon, upon a finding that holders
would realize the indubitable equivalent of their secured claims and that such treatment would be
fair and equitable and would not discriminate unfairly against secured creditors.
The meaning of the term adequate protection may vary according to the circumstances, but is
intended generally to protect the value of the secured creditors interest in the collateral at the
commencement of the bankruptcy case and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines any diminution in the
value of the collateral occurs as a result of the debtors use, sale or lease of the collateral
during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term
adequate protection and the broad discretionary powers of a U.S. bankruptcy court, we cannot
predict whether payments under the Notes would be made following commencement of and during a
bankruptcy case, whether or when the trustee or collateral agent under the indenture governing the
Notes could foreclose upon or sell the collateral or whether or to what extent holders of Notes
would be compensated for any delay in payment or loss of value as a result of the use, sale or
lease of their collateral through the requirement of adequate protection. Furthermore, in the event
the bankruptcy court determines that the value of the collateral is not sufficient to repay all
amounts due on the Notes, the holders of the Notes would have unsecured deficiency claims as to
the difference. Upon a showing of cause, a creditor may seek relief from the stay from the
bankruptcy court to take any of the acts described above that would otherwise be prohibited by the
automatic stay. The U.S. bankruptcy court has broad discretionary powers in determining whether to
grant a creditor relief from the stay.
The value of the collateral securing the Notes may not be sufficient to secure post-petition interest.
In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding
against us, holders of the Notes will only be entitled to post-petition interest under the
bankruptcy code to the extent that the value of their security interest in the collateral is
greater than their pre-bankruptcy claim. Holders of the Notes that have a security interest in the
collateral with a value equal to or less than their pre-bankruptcy claim will not be entitled to
post-petition interest under the bankruptcy code. We cannot assure you that the value of the
holders interest in the collateral equals or exceeds the principal amount of the Notes.
Risks Related to our Business
Risks associated with being highly leveraged.
We have outstanding indebtedness of approximately $294.4 million as of March 31, 2011. We may
incur additional indebtedness in the future, including indebtedness under our existing revolving
credit facility at WML and/or enter into a parent-level revolver collateralized by the accounts
receivable and inventory of ROVA and the Absaloka Mine. As a result of our significant
indebtedness, we are highly leveraged. Westmorelands leverage position may, among other things:
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limit our ability to obtain additional debt financing in the future for working
capital, capital expenditures, acquisitions, or other general corporate purposes; |
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require us to dedicate a substantial portion of our cash flow from operations to
debt service, reducing the availability of cash flow for other purposes; or |
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increase our vulnerability to economic downturns, limit our ability to capitalize
on significant business opportunities, and restrict our flexibility to react to
changes in market or industry conditions. |
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In addition, there can be no assurance that rating agencies will not downgrade the credit
rating on the Notes, which could impede our ability to refinance existing debt or secure new debt
or otherwise increase our future cost of borrowing and could create additional concerns on the part
of our customers, partners, investors and employees about our financial condition and results of
operations.
We may not generate sufficient cash flow at our operating subsidiaries to pay our operating
expenses, meet our debt service costs and pay our heritage and corporate costs.
As a result of significant increases in our operating profits, a decrease in our heritage
health benefit costs and the receipt of proceeds from the Notes, we anticipate that our cash from
operations, cash on hand and available borrowing capacity through the WML revolver and a potential
parent-level revolver will be sufficient to meet our cash requirements for the foreseeable future.
However, our expectations in this regard are subject to numerous uncertainties, including
uncertainties relating to our operating performance and general market conditions. In addition, our
capital needs may be greater than we currently expect if we were to pursue one or more significant
acquisitions.
WML, which owns the Rosebud, Jewett, Beulah and Savage Mines, is subject to a credit facility
that limits the ability of the subsidiary to dividend funds to us. Accordingly, WML may not be
able to pay dividends to us in the amounts and in the time required for us to pay our heritage
health benefit costs and corporate overhead expenses. Ultimately, if WMLs operating cash flows
are insufficient to support their operations and provide dividends to us in the amounts and time
required to pay our expenses, we would be required to expend cash on hand or further leverage our
operations through a parent-level revolver to fund our heritage liabilities and corporate overheard
and, if necessary, support activities at our Absaloka Mine. Should we be required to expend cash
on hand to fund such activities, such funds would be unavailable to grow the business through
strategic acquisitions or ventures or support the business through reclamation bonding, capital and
reserve acquisition.
Our dependence on a small group of customers could adversely affect our revenues if such customers
reduce or suspend their coal purchases or if they become unable to pay for our coal.
In 2010, approximately 65% of our total revenues were derived from coal sales to four power
plants: Colstrip Units 3&4 (24% of our 2010 revenues), Limestone Generating Station (16%) and
Colstrip Units 1&2 (13%) and Sherburne County Station (12%). Interruption in the purchases of coal
from our operations by our principal customers could significantly affect our revenues.
Unscheduled maintenance outages at our customers power plants, unseasonably moderate weather,
higher-than-anticipated hydro season or increases in the production of alternative clean-energy
generation such as wind power could cause our customers to reduce their purchases. In addition,
new environmental regulations could compel our customer of the Jewett Mine to purchase more
compliance coal, reducing or eliminating our sales to them. Four of our five mines are dedicated
to supplying customers located adjacent to or near the mines, and these mines may have difficulty
identifying alternative purchasers of their coal if their existing customers suspend or terminate
their purchases. The reduction in the sale of our coal would adversely affect our operating
results. In addition, if any of our major customers became unable to pay for contracted amounts of
coal, our results of operation and liquidity would be adversely affected.
Similarly, interruption in the purchase of power by Dominion could also negatively affect our
revenues. In 2010, the sale of power by ROVA to Dominion accounted for approximately 17% of our
consolidated revenues. Although ROVA supplies power to Dominion under long-term power purchase
agreements, if demand for electricity from Dominions customers was materially reduced or if
Dominion was to become insolvent or otherwise unable or unwilling to pay for the power produced by
ROVA in a timely manner, it could have a material adverse effect on our results of operations,
financial condition, and liquidity.
If our assumptions regarding our future expenses related to employee benefit plans are incorrect,
then expenditures for these benefits could be materially higher than we have assumed. In addition,
we may have exposure under those plans that extend beyond what our obligations would be with
respect to our own employees.
We provide various postretirement medical benefits, black lung and workers compensation
benefits to current and former employees and their dependents. We calculate the total accumulated
benefit obligations according to guidance provided by GAAP. We estimate the present value of our
postretirement medical, black lung and workers compensation benefit obligations to be $210.9
million, $14.1 million and $10.4 million,
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respectively, at December 31, 2010. We have estimated
these unfunded obligations based on actuarial assumptions described in the Notes to our
consolidated financial statements. If our assumptions do not materialize as expected, cash
expenditures and costs that we incur could be materially higher.
Moreover, regulatory changes could increase our obligations to provide these or additional
benefits. Certain of our subsidiaries participate in defined benefit multi-employer funds
that were established in connection with the Coal Industry Retiree Health Benefit Act of 1992,
or Coal Act, which provides for the funding of health and death benefits for certain UMWA retirees.
Our contributions to these funds totaled $3.1 million for the year ended December 31, 2009 and $3.0
million for the year ended December 31, 2010. Our contributions to these funds could increase as a
result of a shrinking contribution base due to the insolvency of other coal companies that
currently contribute to these funds, lower than expected returns on fund assets or other funding
deficiencies.
We could also have obligations under the Tax Relief and Health Care Act of 2006, or 2006 Act.
The 2006 Act authorized up to a maximum of $490 million in federal contributions to pay for certain
benefits, including the healthcare costs under certain funds created by the Coal Act for orphans,
i.e. retirees from companies that subsequently ceased operations, and their dependents. However, if
Congress were to amend or repeal the 2006 Act or if the $490 million authorization were
insufficient to pay for these healthcare costs, we, along with other contributing employers and
certain affiliates, would be responsible for the excess costs.
We also contribute to a multi-employer defined benefit pension plan, the Central Pension Fund
of the Operating Engineers, or Central Pension Fund, on behalf of employee groups at our Rosebud,
Absaloka and Savage mines that are represented by the International Union of Operating Engineers.
The Central Pension Fund is subject to certain funding rules contained in the Pension Protection
Act of 2006, or PPA. Under the PPA, if the Central Pension Plan fails to meet certain minimum
funding requirements, it would be required to adopt a funding improvement plan or rehabilitation
plan. If the Central Pension Fund adopted a funding improvement plan or rehabilitation plan, we
could be required to contribute additional amounts to the fund. As of January 31, 2011, its last
completed fiscal year, the Central Pension Fund reported that it was underfunded. If we were to
partially or completely withdraw from the fund at a time when the Central Pension Fund were
underfunded, we would be liable for a proportionate share the funds unfunded vested benefits, and
this liability could have a material adverse effect on our financial position.
Recent healthcare legislation contains amendments to the Black Lung Benefits Act that could
adversely affect our financial condition and results of operations.
In March 2010, the Patient Protection and Affordable Care Act, or PPACA, was enacted. PPACA
contains an amendment to the Black Lung Benefits Act, or BLBA, that has the effect of reinstating
provisions that were removed from the BLBA in 1981. The amendment provides that eligible miners
can be awarded total disability benefits if they can prove they worked 15 or more years in or
around coal mines and have a totally disabling respiratory impairment. In addition, the amendment
also provides for an automatic survivor benefit to be paid upon the death of a miner with an
awarded federal black lung claim without the requirement to prove that the miners death was due to
black lung disease. Both amendments are retroactive and applicable to claims filed as of January
1, 2005 and have and may continue to result in currently pending claimants being awarded benefits
back to a start date that may be as far back as January 2, 2005. Through the first nine months of
the amendments effectiveness, we have experienced an increase in black lung claims over similar
periods. However, at a minimum, it takes several months to several years for a claim to be awarded
or denied and any liability to be determined. In addition, through the first nine months, we have
accepted several survivors claims. Given the relatively small number of survivors claims and the
lack of final adjudication of black lung claims, we have very limited experience from which
to determine the overall effect, if any, this increase in claims will have on our costs and
liability. In addition, we have incomplete information to determine whether this increase in
claims constitutes a one-time spike in claims, or represents a future trend in black lung claims
and eventual awards. We believe these amendments could give rise to increases in liabilities for
claims from prior periods of time for retroactive costs, an increase in the number of claimants who
are awarded benefits resulting in an increase in future funding requirements and an increase in
administrative fees, including legal expenses, as a result of reviewing and defending an increased
number of benefit claims. In addition, while we periodically perform evaluations of our black lung
liability, using assumptions regarding rates of successful claims, discount factors, benefit
increases and mortality rates, among others, the limited claims experience from the first nine
months of amendment effectiveness is insufficient to determine the potential change in black lung
liability due to the application of these new amendments. If the number or severity of claims
increases, or we are required to accrue or pay additional amounts because the claims prove to be
more severe
21
than our current assumptions, our results of operations and liquidity could be
immediately impacted.
Inaccuracies in our estimates of our coal reserves could result in decreased profitability from
lower than expected revenues or higher than expected costs.
Our future performance depends on, among other things, the accuracy of our estimates of our
proven and probable coal reserves. Our reserve estimates are prepared by our engineers and
geologists or by third-party engineering firms and are updated periodically. There are numerous
factors and assumptions inherent in estimating the quantities and qualities of, and costs to mine,
coal reserves, including many factors beyond our control, including the following:
|
|
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quality of the coal; |
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|
geological and mining conditions, which may not be fully identified by available
exploration data and/or may differ from our experiences in areas where we currently mine; |
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the percentage of coal ultimately recoverable; |
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the assumed effects of regulation, including the issuance of required permits,
taxes, including severance and excise taxes and royalties, and other payments to governmental
agencies; |
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assumptions concerning the timing for the development of the reserves; and |
|
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assumptions concerning equipment and productivity, future coal prices, operating
costs, including for critical supplies such as fuel, tires and explosives, capital
expenditures and development and reclamation costs. |
As a result, estimates of the quantities and qualities of economically recoverable coal
attributable to any particular group of properties, classifications of reserves based on risk of
recovery, estimated cost of production, and estimates of future net cash flows expected from these
properties may vary materially due to changes in the above factors and assumptions. Any inaccuracy
in our estimates related to our reserves could result in decreased profitability from lower than
expected revenues and/or higher than expected costs.
If the assumptions underlying our reclamation and mine closure obligations are materially
inaccurate, we could be required to expend greater amounts than anticipated.
The Surface Mining Control and Reclamation Act of 1977, or SMCRA, establishes operational,
reclamation and closure standards for all aspects of surface mining as well as most aspects of deep
mining. We calculated the total estimated reclamation and mine-closing liabilities according to
the guidance provided by Generally Accepted Accounting Principles, or GAAP, and current industry
practice. Estimates of our total reclamation and mine-closing liabilities are based upon permit
requirements and our engineering expertise related to these requirements. If our estimates are
incorrect, we could be required in future periods to spend materially different amounts on
reclamation and mine-closing activities than we currently estimate. Likewise, if our customers,
some of whom are contractually obligated to pay certain reclamation costs, default on the unfunded
portion of their contractual obligations to pay for reclamation, we could be forced to make these
expenditures ourselves and the cost of reclamation could exceed any
amount we might recover in litigation.
We estimate that our gross reclamation and mine-closing liabilities, which are based upon
projected mine lives, current mine plans, permit requirements and our experience, were $241.6
million (on a present value basis) at December 31, 2010. Of these December 31, 2010 liabilities,
our customers have assumed $95.5 million by contract. In addition, we held final reclamation
deposits, received from customers, of approximately $72.3 million at December 31, 2010 to provide
for these obligations. We estimate that our obligation for final reclamation that was not the
contractual responsibility of others or covered by offsetting reclamation deposits was $73.9
million at December 31, 2010. This $73.9 million must be recovered in the price of coal sold.
Responsibility for the final reclamation amounts may change in certain circumstances.
Although our estimated costs are updated annually, our recorded obligations may prove to be
inadequate due to changes in legislation, standards and the emergence of new restoration
techniques. Furthermore, the expected timing of expenditure could change significantly due to
changes in commodity prices that might curtail the life of an operation. These recorded
obligations could prove insufficient compared to the actual cost of reclamation. Any underestimated
or unidentified close down, restoration and environmental rehabilitation costs could have an
adverse effect on our reputation as well as our asset values,
22
results of operations and liquidity.
If the cost of obtaining new reclamation bonds and renewing existing reclamation bonds continues to
increase or if we are unable to obtain additional bonding capacity, our operating results could be
negatively affected.
Federal and state laws require that we provide bonds to secure our obligations to reclaim
lands used for mining. We must post a bond before we obtain a permit to mine any new area. These
bonds are typically renewable on a yearly basis and have become increasingly expensive. Bonding
companies are requiring that applicants collateralize increasing portions of their obligations to
the bonding company. In 2010, we paid approximately $2.6 million in premiums for reclamation bonds
and were required to use $1.7 million in cash to collateralize 47% of the face amount of the new
bonds obtained in 2010. We anticipate that, as we permit additional areas for our mines in 2011
and 2012, our bonding and collateral requirements will increase significantly. Any capital that we
provide to collateralize our obligations to our bonding companies is not available to support our
other business activities. If the cost of our reclamation bonding premiums and collateral
requirements were to increase, our results of operations could be negatively affected.
Additionally, if we are unable to obtain additional bonding capacity due to cash flow constraints,
we will be unable to begin mining operations in newly permitted areas, which could hamper our
ability to efficiently meet our current customer contract deliveries, expand operations, and
increase revenues.
Our coal mining operations are subject to external conditions that could disrupt operations and
negatively affect our profitability.
Our coal mining operations are all surface mines. These mines are subject to conditions or
events beyond our control that could disrupt operations, affect production, and increase the cost
of mining at particular mines for varying lengths of time. These conditions or events include:
unplanned equipment failures, which could interrupt production and require us to expend significant
sums to repair our equipment, which is integral to the mining of coal; geological conditions such
as variations in the quality of the coal produced from a particular seam, variations in the
thickness of coal seams and variations in the amounts of rock and other natural materials that
overlie the coal that we are mining; and weather conditions. For example, in our recent past, we
have endured: a major blizzard at the Beulah Mine, which interrupted operations; a fire on the
trestle at the Beulah Mine that interrupted rail shipment of our coal; and an unanticipated
replacement of boom suspension cables on one of our draglines that caused a multi-week interruption
of mining. Major disruptions in operations at any of our mines over a lengthy period could
adversely affect the profitability of our mines.
In addition, unplanned outages of draglines and extensions of scheduled outages due to
mechanical failures or other problems occur from time to time and are an inherent risk of our coal
mining
business. Unplanned outages typically increase our operation and maintenance expenses and may
reduce our revenues as a result of selling fewer tons of coal. If properly maintained, a dragline
can operate for 40 years or longer. The average age of our draglines is 28 years. The dragline at
our Absaloka Mine was erected in 1980. As our draglines and other major equipment ages, we may
experience unscheduled maintenance outages or increased maintenance costs, which would adversely
affect our operating results.
Our operations are vulnerable to natural disasters, operating difficulties and infrastructure
constraints, not all of which are covered by insurance, which could have an impact on its
productivity.
Mining and power operations are vulnerable to natural events, including blizzards,
earthquakes, drought, floods, fire, storms and the possible effects of climate change. Operating
difficulties such as unexpected geological variations could affect the costs and viability of our
operations. Our operations also require reliable roads, rail networks, power sources and power
transmission facilities, water supplies and IT systems to access and conduct operations. The
availability and cost of infrastructure affects our capital expenditures, operating costs, and
planned levels of production and sales. Our insurance does not cover every potential risk
associated with our operations. Adequate coverage at reasonable rates is not always obtainable.
In addition, our insurance may not fully cover our liability or the consequences of any business
interruptions such as equipment failure or labor dispute. The occurrence of a significant event
not fully covered by insurance could have an adverse effect on our business, results of operations,
financial condition and prospects.
23
Health, safety, environment and other regulations, standards and expectations evolve over time and
unforeseen changes could have an adverse effect on our results of operations and liquidity.
We operate in an industry that is subject to numerous health, safety and environmental laws,
regulations and standards as well as community and stakeholder expectations. We are subject to
extensive governmental regulations in all jurisdictions in which we operate. Operations are
subject to general and specific regulations governing mining and processing, land tenure and use,
environmental requirements (including site-specific environmental licenses, permits and statutory
authorizations), workplace health and safety and taxation. Evolving regulatory standards and
expectations can result in increased litigation and/or increased costs, all of which can have an
adverse effect on our results of operations and liquidity.
Should our Indian Coal Tax Credit transaction be audited by the Internal Revenue Service, or IRS,
and the tax results contemplated thereby disallowed, the financial benefits of the transaction
would be reduced and we may be required to return payments received from a third party investor.
In 2008, WRI entered into a series of transactions with an unaffiliated investor, including
the formation of Absaloka Coal, in order to take advantage of certain available tax credits for the
production of coal on Indian lands and the sale of that coal. We requested and have received a
private letter ruling, or PLR, from the IRS providing that certain requirements for the
availability of the tax credits have been met under the specific scenario described in the PLR.
Even though we have received the PLR, there are certain issues that may be raised by the IRS in a
subsequent audit of tax returns of Absaloka Coal. In the event that a subsequent audit results in
the disqualification of the tax credits or the disallowance of the allocations of the tax credits,
various remedies would minimize the financial benefits of the transaction and we could be required
to return to the investor previously received payments. We pay to the Crow Tribe 33% of the
expected payments we receive from the investor. The Crow Tribe is only required to reimburse us
under very limited circumstances. As a result, in the event that the IRS disallows or disqualifies
the tax credits, we would likely be unable to recoup payments already paid to the Crow Tribe.
Furthermore, the transactions described above will expire in 2012 unless renewed. Renewal
would require, among other things, an amendment to the relevant section of the Internal Revenue
Code. While we expect to seek to renew the transactions if the relevant section of the Internal
Revenue Code is amended, there can be no assurance that we will be successful in doing so or that
the relevant section of the Internal Revenue Code will be amended.
Our future success depends upon our ability to continue acquiring and developing coal reserves that
are economically recoverable and to raise the capital necessary to fund our expansion.
Our recoverable reserves will decline as we produce coal. We have not yet applied for the
permits required or developed the mines necessary to use all of the coal deposits under our mineral
rights, and those permits may not be granted in a timely manner or at all. Furthermore, we may not
be able to mine all of our coal deposits as efficiently as we do at our current operations. Our
future success depends upon conducting successful exploration and development activities and
acquiring properties containing economically recoverable coal deposits. Our current strategy
includes increasing our coal reserves through acquisitions of other mineral rights, leases, or
producing properties and continuing to use our existing properties. Our ability to further expand
our operations may be dependent on our ability to obtain sufficient working capital, either through
cash flows generated from operations, or financing activities, or both. As mines become depleted,
replacement reserves may not be available when required or, if available, may not be capable of
being mined at costs comparable to those characteristic of the depleting mines. These factors
could have a material adverse affect on our mining operations and costs, and our customers ability
to use the coal we mine.
Union represented labor creates an increased risk of work stoppages and higher labor costs.
At December 31, 2010, either the International Union of Operating Engineers Local 400 or the
UMWA represented approximately 52% of our total workforce. Our unionized workforce is spread out
amongst four of our surface mines. As a majority of our workforce is unionized, there may be
an increased risk of strikes and other labor disputes, and our ability to alter labor costs is
subject to collective bargaining. In March 2009, during negotiation over a collective bargaining
agreement, our employees at the Rosebud Mine imposed a sixteen-day work stoppage. In April 2009,
we entered into a new four-year agreement with the union and the Rosebud Mine resumed full
operation. The impact on our operations was minimal as we
24
continued to make most of our scheduled
coal deliveries. If our Jewett Mine operations were to become unionized, we could be subject to
additional risk of work stoppages, other labor disputes and higher labor costs, which could
adversely affect the stability of production and our results of operations. The collective
bargaining agreement relating to the represented workforce at the Absaloka Mine expires in
mid-2011. When the collective bargaining agreement expired in 2008, the represented workforce at
Absaloka imposed a 10-day work stoppage before accepting a new agreement. It is possible that a
work stoppage could occur in connection with these negotiations with the represented workforce.
While strikes are generally a force majeure event in long-term coal supply agreements, thereby
exempting the mine from its delivery obligations, the loss of revenue for even a short time could
have a material adverse effect on our financial results.
Legislation has been proposed to enact a law allowing workers to choose union representation
solely by signing election cards, which would eliminate the use of secret ballots to elect union
representation. While the impact is uncertain, if this proposal is enacted into law, it will be
administratively easier for unions to unionize coal mines and may lead to more coal mines becoming
unionized.
Our revenues could be affected by unscheduled outages or if scheduled maintenance outages last
longer than anticipated.
Unplanned outages of and extensions of scheduled outages due to mechanical failures or other
problems at our mines, our power plants, or the power plants of our customers occur from
time-to-time and are an inherent risk of our business. Unplanned outages typically increase our
operation and maintenance expenses and may reduce our revenues as a result of selling less tons of
coal or fewer megawatt hours. While we maintain insurance, the proceeds of such insurance may not
be adequate to cover our lost revenues, increased expenses or liquidated damages payments should we
experience equipment breakdown. Any unexpected failure, including failure associated with
breakdowns, forced outages or any unanticipated capital expenditures could have an adverse affect
on our results of operations and liquidity.
The profitability of ROVA could be severely affected beginning in 2014 due to differences in the
termination dates of our coal supply agreements and power purchase agreements.
We entered into a coal supply agreement for our larger plant on June 21, 1993, and a coal
supply agreement for our smaller plant on December 1, 1993, which provide for ROVAs coal needs for
a twenty-year period, terminating on May 29, 2014 and June 1, 2015, respectively. We also entered
into power sales agreements with Dominion Virginia Power that provide for the sale of power for a
twenty-five year term through May 29, 2019, for our larger ROVA plant and June 1, 2020, for the
smaller ROVA plant. The coal supply agreements provide for coal at a price per ton that is
significantly less than todays open market price for Central Appalachia coal. Upon the
termination of the coal supply agreements beginning in 2014, we will be required to renegotiate our
current contract or find a substitute supply of coal, more than likely at a cost per ton far
greater than the price we are paying today. However, the power sales agreements do not provide for
a price increase related to an increase in the cost per ton of delivered coal and Dominion Virginia
Powers payment for power after 2014 will not escalate with our increased coal costs. Due to the
change in the economics of ROVA at such time, it is projected that ROVA will begin incurring losses
in 2014 and may be unable to pay its obligations as they become due. Should ROVA renegotiate its
future coal supply contracts prior to 2014 in a manner that results in higher coal prices, reduced
margins and an inability to pay obligations could be accelerated.
Permitting issues in Central Appalachia could put ROVAs coal supply at risk.
ROVA purchases coal under long-term contracts from coal suppliers with identified reserves
located in Central Appalachia. While our coal supply has been relatively stable since the
inception of the contracts, potential permitting issues pertaining to the reserves identified as our source of
coal in our coal contracts could prove problematic in the coming years. Should regulatory/legal
action prevent our coal supplier from continuing to mine the reserves identified as our source of
coal or to mine other reserves that could be identified as potential sources of coal, we could be
forced to find an alternative source of coal at higher prices. While the cost of cover for
substitute coal should be covered by our coal contracts, we would be forced to initially incur the
higher costs to secure a coal supply to provide for the continued operations at ROVA. In addition,
should issues arise under our coal contracts relating to the cost of cover for substitute coal, the
coal suppliers guarantee or any other issue, we could be forced to incur significant legal
expenses and, potentially, may never recoup our incremental coal or related legal costs.
25
We face intense competition to attract and retain employees. Further, managing Chief Executive
Officer and key executive succession and retention is critical to our success.
We are dependent on retaining existing employees and attracting additional qualified employees
to meet current and future needs and achieving productivity gains from our investments in
technology. We face intense competition for qualified employees, and there can be no assurance that
we will be able to attract and retain such employees or that such competition among potential
employers will not result in increasing salaries. An inability to retain existing employees or
attract additional employees could have a material adverse effect on our business, cash flows,
financial condition and results of operations.
We would be adversely affected if we fail to adequately plan for succession of our Chief
Executive Officer and senior management or fail to retain key executives. While we have succession
plans in place, these plans do not guarantee that we will not face operational risk upon the exit
of our Chief Executive Officer or members of our senior management.
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth our summary historical consolidated financial information as of
and for the periods ended on the dates indicated below. The historical financial information for
each of the years in the five-year period ended December 31, 2010 was derived from our audited
financial statements. The audited financial statements for each of the years in the three-year
period ended December 31, 2010 are included elsewhere in this prospectus.
The summary historical consolidated financial information as of March 31, 2011 and for the
three-month periods ended March 31, 2011 and 2010 has been derived from our unaudited condensed
consolidated financial statements contained in our Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2011, or the First Quarter 2011 10-Q, which is included elsewhere in this
prospectus. Our unaudited financial statements were prepared on the same basis as the audited
financial statements and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the information set forth
therein. Our historical results included below and elsewhere in this prospectus are not necessarily
indicative of our future performance, and our results of operations for the three-month period
ended March 31, 2011, are not necessarily indicative of the operating results to be expected for
the full 2011 fiscal year.
We urge you to read the selected financial information set forth below in conjunction with the
audited financial statements included in this prospectus and the information contained in
Managements Discussion and Analysis of Financial Condition and Results of Operations.
26
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
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|
|
|
|
|
|
|
|
|
Three Months Ended |
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|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal |
|
$ |
393,482 |
|
|
$ |
418,870 |
|
|
$ |
419,806 |
|
|
$ |
361,206 |
|
|
$ |
418,058 |
|
|
$ |
103,550 |
|
|
$ |
104,136 |
|
Power |
|
|
50,925 |
|
|
|
85,347 |
|
|
|
89,890 |
|
|
|
82,162 |
|
|
|
87,999 |
|
|
|
22,889 |
|
|
|
23,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
444,407 |
|
|
|
504,217 |
|
|
|
509,696 |
|
|
|
443,368 |
|
|
|
506,057 |
|
|
|
126,439 |
|
|
|
127,764 |
|
Cost and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
340,005 |
|
|
|
400,346 |
|
|
|
409,795 |
|
|
|
373,070 |
|
|
|
394,827 |
|
|
|
97,677 |
|
|
|
97,510 |
|
Depreciation, depletion, and amortization |
|
|
29,340 |
|
|
|
38,123 |
|
|
|
41,387 |
|
|
|
44,254 |
|
|
|
44,690 |
|
|
|
11,392 |
|
|
|
11,245 |
|
Selling and administrative |
|
|
42,409 |
|
|
|
44,813 |
|
|
|
40,513 |
|
|
|
40,612 |
|
|
|
39,481 |
|
|
|
9,976 |
|
|
|
9,305 |
|
Heritage health benefit expenses |
|
|
32,821 |
|
|
|
27,589 |
|
|
|
33,452 |
|
|
|
28,074 |
|
|
|
14,421 |
|
|
|
3,915 |
|
|
|
3,778 |
|
Restructuring charges |
|
|
|
|
|
|
4,523 |
|
|
|
2,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of assets |
|
|
(4,785 |
) |
|
|
(5,295 |
) |
|
|
(1,425 |
) |
|
|
191 |
|
|
|
226 |
|
|
|
71 |
|
|
|
83 |
|
Other operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,059 |
) |
|
|
(8,109 |
) |
|
|
(1,906 |
) |
|
|
(1,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
439,790 |
|
|
|
510,099 |
|
|
|
525,731 |
|
|
|
475,142 |
|
|
|
485,536 |
|
|
|
121,125 |
|
|
|
120,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
4,617 |
|
|
|
(5,882 |
) |
|
|
(16,035 |
) |
|
|
(31,774 |
) |
|
|
20,521 |
|
|
|
5,314 |
|
|
|
7,440 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(19,234 |
) |
|
|
(24,638 |
) |
|
|
(23,130 |
) |
|
|
(23,733 |
) |
|
|
(22,992 |
) |
|
|
(5,723 |
) |
|
|
(6,967 |
) |
Interest expense attributable to
beneficial conversion feature |
|
|
|
|
|
|
|
|
|
|
(8,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(5,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,030 |
) |
Interest income |
|
|
6,089 |
|
|
|
8,152 |
|
|
|
5,125 |
|
|
|
3,218 |
|
|
|
1,747 |
|
|
|
410 |
|
|
|
382 |
|
Other income (loss) |
|
|
73 |
|
|
|
243 |
|
|
|
(284 |
) |
|
|
5,991 |
|
|
|
(2,587 |
) |
|
|
(3,836 |
) |
|
|
(3,017 |
) |
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|
|
|
|
|
|
(13,072 |
) |
|
|
(16,243 |
) |
|
|
(31,613 |
) |
|
|
(14,524 |
) |
|
|
(23,832 |
) |
|
|
(9,149 |
) |
|
|
(26,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before
income taxes |
|
|
(8,455 |
) |
|
|
(22,125 |
) |
|
|
(47,648 |
) |
|
|
(46,298 |
) |
|
|
(3,311 |
) |
|
|
(3,835 |
) |
|
|
(19,192 |
) |
Income tax (benefit) expense from
continuing operations |
|
|
2,405 |
|
|
|
(8,895 |
) |
|
|
919 |
|
|
|
(17,136 |
) |
|
|
(141 |
) |
|
|
(90 |
) |
|
|
(460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(10,860 |
) |
|
|
(13,230 |
) |
|
|
(48,567 |
) |
|
|
(29,162 |
) |
|
|
(3,170 |
) |
|
|
(3,745 |
) |
|
|
(18,732 |
) |
Income from discontinued operations, net
of income tax expense |
|
|
406 |
|
|
|
1,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(10,454 |
) |
|
|
(11,505 |
) |
|
|
(48,567 |
) |
|
|
(29,162 |
) |
|
|
(3,170 |
) |
|
|
(3,745 |
) |
|
|
(18,732 |
) |
Less net income (loss) attributable to
noncontrolling interest |
|
|
2,244 |
|
|
|
1,194 |
|
|
|
|
|
|
|
(1,817 |
) |
|
|
(2,645 |
) |
|
|
(890 |
) |
|
|
(1,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Parent Company |
|
|
(12,698 |
) |
|
|
(12,699 |
) |
|
|
(48,567 |
) |
|
|
(27,345 |
) |
|
|
(525 |
) |
|
|
(2,855 |
) |
|
|
(17,611 |
) |
Less preferred stock dividend requirements |
|
|
1,585 |
|
|
|
1,360 |
|
|
|
1,360 |
|
|
|
1,360 |
|
|
|
1,360 |
|
|
|
340 |
|
|
|
340 |
|
Less premium on exchange of preferred
stock for common stock |
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders |
|
$ |
(15,074 |
) |
|
$ |
(14,059 |
) |
|
$ |
(49,927 |
) |
|
$ |
(28,705 |
) |
|
$ |
(1,885 |
) |
|
$ |
(3,195 |
) |
|
$ |
(17,951 |
) |
Other Consolidated Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
29,434 |
|
|
|
82,516 |
|
|
|
55,245 |
|
|
|
29,448 |
|
|
|
45,353 |
|
|
|
13,296 |
|
|
|
16,182 |
|
Investing activities |
|
|
(33,922 |
) |
|
|
(43,259 |
) |
|
|
(6,588 |
) |
|
|
(38,597 |
) |
|
|
(29,180 |
) |
|
|
(3,941 |
) |
|
|
(5,884 |
) |
Financing activities |
|
|
20,010 |
|
|
|
(46,259 |
) |
|
|
(28,452 |
) |
|
|
(20,273 |
) |
|
|
(20,917 |
) |
|
|
(2,114 |
) |
|
|
28,911 |
|
Capital expenditures |
|
|
20,852 |
|
|
|
(30,412 |
) |
|
|
(31,320 |
) |
|
|
(34,546 |
) |
|
|
(22,814 |
) |
|
|
(4,337 |
) |
|
|
(2,923 |
) |
Adjusted EBITDA(2) |
|
|
40,482 |
|
|
|
41,737 |
|
|
|
38,795 |
|
|
|
30,301 |
|
|
|
81,616 |
|
|
|
21,228 |
|
|
|
23,284 |
|
Ratio of Total Debt to Adjusted EBITDA |
|
|
7.6x |
|
|
|
6.5x |
|
|
|
6.9x |
|
|
|
8.4x |
|
|
|
3.0x |
|
|
|
11.9x |
|
|
|
12.6x |
|
Other Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold by mine: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Absaloka |
|
|
7,079 |
|
|
|
7,347 |
|
|
|
6,418 |
|
|
|
5,911 |
|
|
|
5,467 |
|
|
|
1,293 |
|
|
|
1,399 |
|
Rosebud |
|
|
12,430 |
|
|
|
12,583 |
|
|
|
13,026 |
|
|
|
10,332 |
|
|
|
12,231 |
|
|
|
3,139 |
|
|
|
2,361 |
|
Jewett |
|
|
6,798 |
|
|
|
6,781 |
|
|
|
6,494 |
|
|
|
5,080 |
|
|
|
4,203 |
|
|
|
906 |
|
|
|
918 |
|
Beulah |
|
|
2,702 |
|
|
|
2,946 |
|
|
|
3,046 |
|
|
|
2,585 |
|
|
|
2,898 |
|
|
|
832 |
|
|
|
782 |
|
Savage |
|
|
376 |
|
|
|
354 |
|
|
|
359 |
|
|
|
344 |
|
|
|
353 |
|
|
|
91 |
|
|
|
98 |
|
Power production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Megawatt hours (000s) |
|
|
1,639 |
|
|
|
1,590 |
|
|
|
1,641 |
|
|
|
1,486 |
|
|
|
1,620 |
|
|
|
435 |
|
|
|
435 |
|
Capacity Factor |
|
|
92 |
% |
|
|
86 |
% |
|
|
89 |
% |
|
|
81 |
% |
|
|
88 |
% |
|
|
95 |
% |
|
|
96 |
% |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
As of March 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
(Unaudited) |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
26,738 |
|
|
$ |
19,736 |
|
|
$ |
39,941 |
|
|
$ |
10,519 |
|
|
$ |
5,775 |
|
|
$ |
44,984 |
|
Working capital(3) |
|
|
(66,773 |
) |
|
|
(94,674 |
) |
|
|
(24,152 |
) |
|
|
(74,976 |
) |
|
|
(35,793 |
) |
|
|
(1,024 |
) |
Property, plant and
equipment, net |
|
|
431,452 |
|
|
|
442,426 |
|
|
|
443,400 |
|
|
|
456,184 |
|
|
|
416,955 |
|
|
|
408,381 |
|
Total assets |
|
|
761,382 |
|
|
|
782,528 |
|
|
|
812,967 |
|
|
|
772,728 |
|
|
|
750,306 |
|
|
|
787,987 |
|
Total debt(1) |
|
|
306,007 |
|
|
|
271,448 |
|
|
|
269,153 |
|
|
|
254,695 |
|
|
|
242,104 |
|
|
|
294,362 |
|
Shareholders deficit |
|
|
(180,431 |
) |
|
|
(177,257 |
) |
|
|
(217,598 |
) |
|
|
(141,799 |
) |
|
|
(162,355 |
) |
|
|
(173,927 |
) |
|
|
|
(1) |
|
Total debt includes revolving lines of credit, long-term debt and current maturities of
long-term debt excluding trade and other debt and is shown net of unamortized discounts. |
|
(2) |
|
Adjusted EBITDA is defined as net income (loss) before the items set forth in the table
below. We present Adjusted EBITDA because we consider it an important supplemental measure of
our performance and believe it is frequently used by securities analysts, investors, and other
interested parties in the evaluation of high yield issuers, many of which present Adjusted
EBITDA when reporting their operating results. This item should be considered in addition to,
but not as a substitute for or superior to, operating income, net income, operating cash flow
and other measures of financial performance prepared in accordance with GAAP. Management uses
Adjusted EBITDA as an internal measure of operating performance, to establish operational
goals, to allocate resources and to analyze business trends and financial performance. Other
companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure. |
|
(3) |
|
Working capital is current assets minus current liabilities. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Consolidated EBITDA and Adjusted EBITDA
Reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(10,454 |
) |
|
$ |
(11,505 |
) |
|
$ |
(48,567 |
) |
|
$ |
(29,162 |
) |
|
$ |
(3,170 |
) |
|
$ |
(3,745 |
) |
|
$ |
(18,732 |
) |
Income from discontinued operations,
net of income tax expense |
|
|
(406 |
) |
|
|
(1,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense from
continuing operations |
|
|
2,405 |
|
|
|
(8,895 |
) |
|
|
919 |
|
|
|
(17,136 |
) |
|
|
(141 |
) |
|
|
(90 |
) |
|
|
(460 |
) |
Other (income) loss |
|
|
(73 |
) |
|
|
(243 |
) |
|
|
284 |
|
|
|
(5,991 |
) |
|
|
2,587 |
|
|
|
3,836 |
|
|
|
3,017 |
|
Interest income |
|
|
(6,089 |
) |
|
|
(8,152 |
) |
|
|
(5,125 |
) |
|
|
(3,218 |
) |
|
|
(1,747 |
) |
|
|
(410 |
) |
|
|
(382 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
5,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,030 |
|
Interest expense attributable to
beneficial conversion feature |
|
|
|
|
|
|
|
|
|
|
8,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
19,234 |
|
|
|
24,638 |
|
|
|
23,130 |
|
|
|
23,733 |
|
|
|
22,992 |
|
|
|
5,723 |
|
|
|
6,967 |
|
Depreciation, depletion and amortization |
|
|
29,340 |
|
|
|
38,123 |
|
|
|
41,387 |
|
|
|
44,254 |
|
|
|
44,690 |
|
|
|
11,392 |
|
|
|
11,245 |
|
Accretion of ARO and receivable |
|
|
7,854 |
|
|
|
9,844 |
|
|
|
9,528 |
|
|
|
9,974 |
|
|
|
11,540 |
|
|
|
3,003 |
|
|
|
2,700 |
|
Amortization of intangible assets and
liabilities, net |
|
|
493 |
|
|
|
(2,043 |
) |
|
|
598 |
|
|
|
279 |
|
|
|
590 |
|
|
|
85 |
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
42,304 |
|
|
|
40,042 |
|
|
|
35,478 |
|
|
|
22,733 |
|
|
|
77,341 |
|
|
|
19,794 |
|
|
|
21,548 |
|
Restructuring charges |
|
|
|
|
|
|
4,523 |
|
|
|
2,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer reclamation claim(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain)/loss on sale of assets |
|
|
(4,785 |
) |
|
|
(5,295 |
) |
|
|
(1,425 |
) |
|
|
191 |
|
|
|
226 |
|
|
|
71 |
|
|
|
83 |
|
Share-based compensation |
|
|
2,963 |
|
|
|
2,467 |
|
|
|
2,733 |
|
|
|
2,552 |
|
|
|
4,049 |
|
|
|
1,363 |
|
|
|
1,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
40,482 |
|
|
$ |
41,737 |
|
|
$ |
38,795 |
|
|
$ |
30,301 |
|
|
$ |
81,616 |
|
|
$ |
21,228 |
|
|
$ |
23,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As a result of a contract dispute at Colstrip Unit 3&4 which occurred in 2008, in the fourth
quarter of 2009, we recorded a reduction in revenues by $6.5 million and an offsetting $1.7
million reduction in cost of sales for this claim. |
28
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for the periods
indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
2011 |
|
Deficiency of
Earnings to Fixed
Charges |
|
$ |
8,455 |
|
|
$ |
22,125 |
|
|
$ |
47,648 |
|
|
$ |
46,298 |
|
|
$ |
3,311 |
|
|
$ |
3,835 |
|
|
$ |
19,192 |
|
For purposes of calculating the ratio of earnings to fixed charges:
|
|
|
earnings consist of loss from continuing operations before income taxes and fixed
charges; and |
|
|
|
|
fixed charges consist of interest (expensed), amortization of premiums, discounts
and deferred financing costs, and an estimate of the interest expense within rental
expense. |
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration for issuing the
Exchange Notes, we will receive Restricted Notes from you in the same principal amount. The
Restricted Notes surrendered in exchange for the Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any change in
our indebtedness.
THE EXCHANGE OFFER
The following summary of the registration rights agreement and letter of transmittal is not
complete and is subject to, and is qualified in its entirety by, all of the provisions of the
registration rights agreement and the letter of transmittal, each of which is filed as an exhibit
to the registration statement of which this prospectus is part. We urge you to read the entire
registration rights agreement carefully.
Purpose and Effect of the Exchange Offer
In connection with the issuance of the Restricted Notes, we entered into a registration rights
agreement with respect to the Notes. Pursuant to the registration rights agreement, we and the
subsidiary guarantors agreed that we will, subject to certain exceptions,
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by June 4, 2011 (120 days after February 4, 2011), file a registration statement
(the exchange offer registration statement), with the SEC with respect to a
registered exchange offer to exchange each Restricted Note for a new Exchange Note
having terms substantially identical in all material respects to such Restricted Note; |
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use our commercially reasonable efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act by September 2, 2011 (210
days after February 4, 2011); |
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promptly after the effectiveness of the exchange offer registration statement,
offer the Exchange Notes in exchange for the Restricted Notes; and |
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keep the exchange offer open for not less than 20 business days (or longer if
required by applicable law) after the date notice of the exchange offer is mailed to
the holders of the Notes. |
We have also agreed to include in the exchange offer registration statement a prospectus for
use in any resales by any holder of Restricted Notes that is a broker-dealer and to keep such
exchange offer registration statement effective for a period beginning when Exchange Notes are
first issued in the exchange offer and ending upon the earlier of 180 days from the completion date
of this exchange offer or such time as such broker-dealers no longer hold any Restricted Notes.
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In the event that:
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any change in law or in applicable interpretations thereof by the staff of the SEC does
not permit us to effect the exchange offer; or |
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or if for any reason the exchange offer is not consummated within 255 calendar days
after February 4, 2011, |
then, we will, as promptly as practicable, cause to be filed a shelf registration statement under
the Securities Act on or prior to the earliest to occur of:
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the later of (in the case of change in law or interpretation) (x) the 60th day after
the date on which we are no longer permitted to file the exchange offer registration
statement and (y) July 4, 2011; |
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in the case the exchange offer is not consummated by October 18, 2011; and |
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in the case such holder is prohibited from participating in the exchange offer, such
holder may not resell the Exchange Notes acquired by it in the exchange offer to the
public without delivering a prospectus and that the prospectus contained in the exchange
offer registration statement is not appropriate or available for such resales, or such
holder is a broker-dealer and holds Restricted Notes acquired directly from us, the 45th
day after the date on which we receive notice from a holder. |
We will use our commercially reasonable efforts to cause the shelf registration statement to be
declared effective under the Securities Act on or prior to the later of the 75th day after the
shelf registration statement filing obligation arises and September 2, 2011. In addition, we will
use our commercially reasonable efforts to keep the shelf registration statement effective until
one year from February 4, 2011 (or such shorter period that will terminate when all the Notes
covered thereby have been sold pursuant thereto or in certain other circumstances).
We will pay, as liquidated damages, additional cash interest on the applicable Restricted
Notes and Exchange Notes, subject to certain exceptions:
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if the exchange offer registration statement is not filed with the SEC on or prior to
June 4, 2011; or |
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if the exchange offer registration statement is not declared effective on or prior to
September 2, 2011; or |
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if the exchange offer is not consummated on or prior to October 18, 2011; or |
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if a shelf registration statement is not filed or declared effective when required; or |
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if a registration statement is declared effective as required but thereafter fails to
remain effective or usable in connection with resales for more than 30 calendar days; or |
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holders are unable to sell under Rule 144 as a result of our failure to meet the
adequate current public information requirement of Rule 144(c)(1). |
The additional interest will accrue at a per annum rate of 0.25% for the first 90 days of the
registration default period, at a per annum rate of 0.50% for the second 90 days of the
registration default period, at a per annum rate of 0.75% for the third 90 days of the registration
default period and at a per annum rate of 1.0% thereafter for the remaining portion of the
registration default period. We will pay such additional interest on regular interest payment
dates.
We may require each person requesting to be named as a selling security holder to furnish to
us such information regarding the person and the distribution of the Notes by the person as we may
from time to time reasonably require for the inclusion of the person in the shelf registration
statement, including requiring the person to properly complete and execute such selling security
holder notice and questionnaires, and any amendments or supplements thereto, as we may reasonably
deem necessary or appropriate. We may refuse to name any person as a selling security holder who
fails to provide us with such information.
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Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus and the accompanying
letter of transmittal, for each $1,000 principal amount of Restricted Notes properly tendered and
not withdrawn before the expiration date of the exchange offer, we will issue $1,000 principal
amount of Exchange Notes. Holders may tender some or all of their Restricted Notes pursuant to the
exchange offer in denominations of $1,000 and integral multiples thereof. The exchange offer is not
conditioned upon any minimum aggregate principal amount of Restricted Notes being tendered.
The form and terms of the Exchange Notes will be the same as the form and terms of the
Restricted Notes except that:
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the Exchange Notes will have a different CUSIP number from the Restricted Notes; |
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the Exchange Notes will be registered under the Securities Act and, therefore, the
global securities representing the Exchange Notes will not bear legends restricting
the transfer of interests in the Exchange Notes; |
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the Exchange Notes will not be subject to the registration rights relating to the
Restricted Notes; and |
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the Exchange Notes will not contain provisions for payment of additional interest
in case of non-registration. |
The Exchange Notes will evidence the same indebtedness as the Restricted Notes they replace,
and will be issued under, and be entitled to the benefits of, the same indenture governing the
issuance of the Restricted Notes. As a result, the Restricted Notes and the Exchange Notes will be
treated as a single series of Notes under the indenture.
No interest will be paid in connection with the exchange. The Exchange Notes will accrue
interest from and including the last interest payment date on which interest has been paid on the
Restricted Notes or, if no interest has been paid on the Restricted Notes, from the date of
original issue of the Restricted Notes. Accordingly, the holders of Restricted Notes that are
accepted for exchange will not receive accrued but unpaid interest on Restricted Notes at the time
of tender. Rather, that interest will be payable on the Exchange Notes delivered in exchange for
the Restricted Notes on the first interest payment date after the expiration date.
Under existing SEC interpretations, the Exchange Notes would generally be freely transferable
after the exchange offer without further registration under the Securities Act, except that
broker-dealers receiving the Exchange Notes in the exchange offer will be subject to a prospectus
delivery requirement with respect to their resale. This view is based on interpretations by the
staff of the SEC in no-action letters issued to other issuers in exchange offers like this one. We
have not, however, asked the SEC to consider this particular exchange offer in the context of a
no-action letter. Therefore, the SEC might not treat it in the same way it has treated other
exchange offers in the past. You will be relying on the no-action letters that the SEC has issued
to third parties in circumstances that we believe are similar to ours. Based on these no-action
letters, you must meet the following conditions in order to receive freely transferable Exchange
Notes:
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you are not an affiliate of ours, as defined in Rule 405 of the Securities Act
(or if you are such an affiliate, you must comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable); |
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you are not engaged in and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of Exchange Notes to
be issued in the exchange offer; |
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you acquired the Exchange Notes issued in the exchange offer in the ordinary course
of your business; |
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you are not a broker-dealer that acquired the Restricted Notes from us or in
market-making transactions or other trading activities; and |
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you are not acting on behalf of any person who could not truthfully and completely
make the foregoing representations. |
By tendering your Restricted Notes as described in Procedures for Tendering, you will be
representing to us that you satisfy all of the above listed conditions. If you do not satisfy all
of the above listed conditions:
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you cannot rely on the position of the SEC set forth in the no-action letters
referred to above; and |
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you must comply with the applicable registration and prospectus delivery
requirements of the Securities Act in connection with a resale of the Exchange Notes. |
The SEC considers broker-dealers that acquired Restricted Notes directly from us, but not as a
result of market-making activities or other trading activities, to be making a distribution of the
Exchange Notes if they participate in the exchange offer. Consequently, these broker-dealers must
comply with the registration and prospectus delivery requirements of the Securities Act in
connection with a resale of the Exchange Notes.
A broker-dealer that has bought Restricted Notes for market-making or other trading activities
must comply with the prospectus delivery requirements of the Securities Act in order to resell any
Exchange Notes it receives for its own account in the exchange offer. Broker-dealers may use this
prospectus to fulfill their prospectus delivery requirements with respect to the Exchange Notes if
they indicate in the letter of transmittal that they will do so. We have agreed in the registration
rights agreement to send a prospectus to any broker-dealer that requests copies in the notice and
questionnaire included in the letter of transmittal accompanying the prospectus until the earlier
of 180 days from the completion date of this exchange offer or such time as such broker-dealers no
longer hold any Restricted Notes.
Unless you are required to do so because you are a broker-dealer, you may not use this
prospectus for an offer to resell, resale or other retransfer of Exchange Notes. We are not making
this exchange offer to, nor will we accept tenders for exchange from, holders of Restricted Notes
in any jurisdiction in which the exchange offer or the acceptance of it would not be in compliance
with the securities or blue sky laws of that jurisdiction.
Holders of Notes do not have appraisal or dissenters rights under state law or under the
indenture in connection with the exchange offer. We intend to conduct the exchange offer in
accordance with the applicable requirements of Regulation 14E under the Securities Exchange Act of
1934, as amended (the Exchange Act).
Expiration Date
The
exchange offer will expire at 5:00 p.m. New York City time on
August 29, 2011, unless, in our sole discretion, we extend the expiration date. If we so extend the
expiration date, the term expiration date shall mean the latest date and time to which we extend
the exchange offer.
Extensions, Delays in Acceptance, Termination or Amendment
We reserve the right, in our sole discretion to:
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delay accepting for exchange any Restricted Notes, |
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extend the exchange offer, |
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terminate the exchange offer, or |
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to amend the terms of the exchange offer in any way we determine. |
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We will give oral or written notice of any delay, extension or termination to the
exchange agent. In addition, we will give, as promptly as practicable, oral or written notice
regarding any delay in acceptance, extension or termination of the offer to the registered holders
of Restricted Notes. If we amend the exchange offer in a manner that we determine to constitute a
material change, or if we waive a material condition, we will promptly disclose the amendment or
waiver in a manner reasonably calculated to inform the holders of Restricted Notes of the amendment
or waiver, and extend the offer if required by law.
We intend to make public announcements of any delay in acceptance, extension, termination,
amendment or waiver regarding the exchange offer prior to 9 a.m., Denver time, on the next business
day after the previously scheduled expiration date.
Conditions to the Exchange Offer
We will not be required to accept for exchange, or to exchange Exchange Notes for, any
Restricted Notes, and we may terminate the exchange offer as provided in this prospectus at or
before the expiration date, if:
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any law, statute, rule or regulation shall have been proposed, adopted or enacted,
or interpreted in a manner, which, in our reasonable judgment, would impair our
ability to proceed with the exchange offer; |
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any action or proceeding is instituted or threatened in any court or by or before
the SEC or any other governmental agency with respect to the exchange offer which, in
our reasonable judgment, would impair our ability to proceed with the exchange offer; |
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we have not obtained any governmental approval which we, in our reasonable
judgment, consider necessary for the completion of the exchange offer as contemplated
by this prospectus; |
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any change, or any condition, event or development involving a prospective change,
shall have occurred or be threatened in the general economic, financial, currency
exchange or market conditions in the United States or elsewhere that, in our
reasonable judgment, would impair our ability to proceed with the exchange offer; |
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any other change or development shall have occurred, including a prospective change
or development, that, in our reasonable judgment, has or may have a material adverse
effect on us, the market price of the Exchange Notes or the Restricted Notes or the
value of the exchange offer to us; or |
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there shall have occurred (i) any suspension or limitation of trading in securities
generally on the New York Stock Exchange or the over-the-counter market; (ii) a
declaration of a banking moratorium by United States federal or New York authorities;
or (iii) a commencement or escalation of a war or armed hostilities involving or
relating to a country where we do business or other international or national
emergency or crisis directly or indirectly involving the United States. |
The conditions listed above are for our sole benefit and we may assert them regardless of the
circumstances giving rise to any of these conditions. We may waive these conditions in our sole
discretion in whole or in part at any time and from time to time. A failure on our part to exercise
any of the above rights shall not constitute a waiver of that right, and that right shall be
considered an ongoing right which we may assert at any time and from time to time.
If we determine in our reasonable judgment that any of the events listed above has occurred,
we may, subject to applicable law:
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refuse to accept any Restricted Notes and return all tendered Restricted Notes to
the tendering holders and terminate the exchange offer; |
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extend the exchange offer and retain all Restricted Notes tendered before the
expiration of the exchange offer, subject, however, to the rights of holders to
withdraw these Restricted Notes; or |
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waive unsatisfied conditions relating to the exchange offer and accept all properly
tendered Restricted Notes which have not been withdrawn. If this waiver constitutes a
material change to the exchange offer, we will disclose this change by means of a
prospectus supplement that will be distributed to the registered holders of the
Restricted Notes. If the exchange offer would otherwise expire, we will extend the
exchange offer for five to ten business days, depending on how significant the waiver
is and the manner of disclosure to registered holders. |
Any determination by us concerning the above events will be final and binding.
In addition, we reserve the right in our sole discretion to:
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purchase or make offers for any Restricted Notes that remain outstanding subsequent
to the expiration date; and |
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purchase Restricted Notes in the open market, in privately negotiated transactions
or otherwise. |
The terms of any such purchases or offers may differ from the terms of the exchange offer.
Procedures for Tendering
Except in limited circumstances, only a participant with The Depository Trust Company (the
DTC) listed on a DTC securities position listing with respect to the Restricted Notes may tender
Restricted Notes in the exchange offer. To tender Restricted Notes in the exchange offer:
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you must instruct DTC and a DTC participant by completing the form Instructions to
DTC Participant From Beneficial Owner accompanying this prospectus of your intention
to tender your Restricted Notes for Exchange Notes; and |
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DTC participants in turn need to follow the procedures for book-entry transfer as
set forth below under Book-Entry Transfer and in the letter of transmittal. |
By tendering, you will make the representations described below under Representations on
Tendering Restricted Notes. In addition, each broker-dealer that receives Exchange Notes for its
account in the exchange offer, where the Restricted Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of the Exchange Notes. See Plan of
Distribution. The tender by a holder of Restricted Notes will constitute an agreement between that
holder and us in accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
The method of delivery of the form Instructions to DTC Participant From Beneficial Owner or
transmission of an agents message and all other required documents, as described under
"Book-Entry Transfer, to the exchange agent is at the election and risk of the tendering holder
of Restricted Notes. Instead of delivery by mail, we recommend that holders use an overnight or
hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery to
the exchange agent prior to the expiration date. Delivery of documents to DTC in accordance with
its procedures does not constitute delivery to the exchange agent.
We will determine in our sole discretion all questions as to the validity, form, eligibility,
including time of receipt, and acceptance and withdrawal of tendered Restricted Notes, and our
determination shall be final and binding on all parties. We reserve the absolute right to reject
any and all Restricted Notes not properly tendered or any Restricted Notes whose acceptance by us
would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to any particular Restricted Notes either before or after
the expiration date. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and binding on all parties.
Unless waived, holders must cure any defects or irregularities in connection with tenders of
Restricted Notes within a period we determine. Although we intend to request the exchange agent to
notify holders of defects or irregularities relating to tenders of Restricted Notes, neither we,
the exchange agent nor any other person will have any duty or incur any liability for failure to
give this notification. We will not consider tenders of Restricted Notes to have been made until
these defects or irregularities have been cured or
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waived. The exchange agent will return any Restricted Notes that are not properly tendered and
as to which the defects or irregularities have not been cured or waived to the tendering holders,
unless otherwise provided in the letter of transmittal, promptly following the expiration date.
Book-Entry Transfer
We understand that the exchange agent will make a request promptly after the date of this
prospectus to establish accounts with respect to the Restricted Notes at DTC for the purpose of
facilitating the exchange offer. Any financial institution that is a participant in DTCs system
may make book-entry delivery of Restricted Notes by causing DTC to transfer such Restricted Notes
into the exchange agents DTC account in accordance with DTCs electronic Automated Tender Offer
Program procedures for such transfer. The exchange of Exchange Notes for tendered Restricted Notes
will only be made after timely:
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confirmation of book-entry transfer of the Restricted Notes into the exchange
agents account; and |
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receipt by the exchange agent of an agents message and all other required
documents specified in the letter of transmittal. |
The confirmation, agents message and any other required documents must be received at the
exchange agents address listed below under Exchange Agent on or before 5:00 p.m., New York
City time, on the expiration date of the exchange offer.
As indicated above, delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.
The term agents message means a message, transmitted by DTC and received by the exchange
agent and forming part of the confirmation of a book-entry transfer, which states that DTC has
received an express acknowledgment from a participant in DTC tendering Restricted Notes stating:
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the aggregate principal amount of Restricted Notes that have been tendered by the
participant; |
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that such participant has received an appropriate letter of transmittal and agrees
to be bound by the terms of the letter of transmittal and the terms of the exchange
offer; and |
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that we may enforce such agreement against the participant. |
Delivery of an agents message will also constitute an acknowledgment from the tendering DTC
participant that the representations contained in the letter of transmittal and described below
under Representations on Tendering Restricted Notes are true and correct.
Representations on Tendering Restricted Notes
To exchange your Restricted Notes for transferable Exchange Notes in the exchange offer, you
will be required to represent to the effect that you:
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are not an affiliate of ours, as defined in Rule 405 of the Securities Act (or if
you are such an affiliate, you must comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable); |
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are not engaged in and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of Exchange Notes to
be issued in the exchange offer; |
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acquired the Exchange Notes issued in the exchange offer in the ordinary course of
your business; |
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are not a broker-dealer that acquired the Restricted Notes from us or in
market-making transactions or other trading activities; and |
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are not acting on behalf of any person who could not truthfully and completely make
the foregoing representations. |
If you are a broker-dealer and you will receive Exchange Notes for your own account in
exchange for Restricted Notes that were acquired as a result of market-making activities or other
trading activities, you will be required to acknowledge in the letter of transmittal that you will
comply with the prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes. The letter of transmittal states that, by complying with their
obligations, a broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. See also Plan of Distribution. If you fail to indicate in the
letter of transmittal or otherwise inform us that you are a broker-dealer, you will be deemed to
have represented to us that you are not a broker-dealer.
Withdrawal of Tenders
Your tender of Restricted Notes pursuant to the exchange offer is irrevocable except as
otherwise provided in this section. You may withdraw tenders of Restricted Notes at any time prior
to 5:00 p.m., New York City time, on the expiration date.
For a withdrawal to be effective for DTC participants, holders must comply with their
respective standard operating procedures for electronic tenders and the exchange agent must receive
an electronic notice of withdrawal from DTC.
Any notice of withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn Restricted Notes and otherwise comply with the procedures of DTC. We will
determine in our sole discretion all questions as to the validity, form and eligibility, including
time of receipt, for such withdrawal notices, and our determination shall be final and binding on
all parties. Any Restricted Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the exchange offer and no Exchange Notes will be issued with respect to them unless the
Restricted Notes so withdrawn are validly re-tendered. Any Restricted Notes which have been
tendered but which are withdrawn or not accepted for exchange will be returned to the holder
without cost to such holder promptly after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn Restricted Notes may be re-tendered by following the procedures
described above under Procedures For Tendering at any time prior to the expiration date.
Fees and Expenses
We will bear the expenses of soliciting tenders with respect to the exchange offer. The
principal solicitation is being made by mail; however, we may make additional solicitation by
telephone or in person by our officers and regular employees and those of our affiliates.
We have not retained any dealer manager in connection with the exchange offer and will not
make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We
will, however, pay the exchange agent reasonable and customary fees for its services and reimburse
it for its related reasonable out of pocket expenses.
We will pay the cash expenses to be incurred in connection with the exchange offer. They
include:
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fees and expenses of the exchange agent and trustee; |
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accounting and legal fees and printing costs; and |
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related fees and expenses. |
Transfer Taxes
Holders who tender their Restricted Notes for exchange will not be obligated to pay any
transfer taxes. If, however, a transfer tax is imposed for any reason other than the exchange of
Restricted Notes in
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connection with the exchange offer, then the tendering holder must pay the amount of any
transfer taxes due, whether imposed on the registered holder or any other persons. If the tendering
holder does not submit satisfactory evidence of payment of these taxes or exemption from them with
the letter of transmittal, the amount of these transfer taxes will be billed directly to the
tendering holder.
Accounting Treatment
We will record the Exchange Notes in our accounting records at the same carrying value as the
Restricted Notes. This carrying value is the aggregate principal amount of the Restricted Notes
less any bond discount, as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the
exchange offer.
Consequences of Failure to Properly Tender Restricted Notes in the Exchange
We will issue the Exchange Notes in exchange for Restricted Notes under the exchange offer
only after timely confirmation of book-entry transfer of the Restricted Notes into the exchange
agents account and timely receipt by the exchange agent of an agents message and all other
required documents specified in the letter of transmittal. Therefore, holders of the Restricted
Notes desiring to tender Restricted Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. We are under no duty to give notification of defects or
irregularities of tenders of Restricted Notes for exchange or waive any such defects or
irregularities. Restricted Notes that are not tendered or that are tendered but not accepted by us
will, following completion of the exchange offer, continue to be subject to the existing
restrictions upon transfer under the Securities Act.
Participation in the exchange offer is voluntary. In the event the exchange offer is
completed, we will generally not be required to register the remaining Restricted Notes. Remaining
Restricted Notes will continue to be subject to the following restrictions on transfer:
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holders may resell Restricted Notes only if an exemption from registration is
available or, outside the United States, to non-U.S. persons in accordance with the
requirements of Regulation S under the Securities Act; and |
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the remaining Restricted Notes will bear a legend restricting transfer in the
absence of registration or an exemption. |
To the extent that Restricted Notes are tendered and accepted in connection with the exchange
offer, any trading market for remaining Restricted Notes could be adversely affected.
Neither we nor our board of directors make any recommendation to holders of Restricted Notes
as to whether to tender or refrain from tendering all or any portion of their Restricted Notes
pursuant to the exchange offer. Moreover, no one has been authorized to make any such
recommendation. Holders of Restricted Notes must make their own decision whether to tender pursuant
to the exchange offer and, if so, the aggregate amount of Restricted Notes to tender, after reading
this prospectus and the letter of transmittal and consulting with their advisors, if any, based on
their own financial position and requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, which includes adverse changes in commodity prices and interest
rates.
Commodity Price Risk
We manage our price risk for coal sales, electricity and steam production through the use of
long-term agreements, rather than through the use of derivatives. We estimate that almost 100% of
our coal and our electricity production are sold under long-term agreements. These coal contracts
typically contain price escalation and adjustment provisions, pursuant to which the price for our
coal may be periodically revised. The price may be adjusted in accordance with changes in broad
economic indicators such as the consumer price index, commodity-specific indices such as the
PPI-light fuel oils index, and/or changes in our actual costs.
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For our contracts which are not cost plus, we have exposure to price risk for supplies that
are used in the normal course of production such as diesel fuel and explosives. We manage these
items through strategic sourcing contracts in normal quantities with our suppliers and may use
derivatives from time to time. At March 31, 2011, we had fuel supply contracts outstanding with a
minimum purchase requirement of 4.1 million gallons of diesel fuel per year. These contracts
qualify for the normal purchase normal sale exception under hedge accounting.
Interest Rate Risk
Our exposure to changes in interest rates results from our debt obligations shown in the table
below that are indexed to either the prime rate or LIBOR. Based on balances outstanding as of
March 31, 2011, a change of one percentage point in the prime interest rate or LIBOR would increase
or decrease interest expense on an annual basis by the amount shown below:
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Effect of 1% increase |
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or 1% decrease |
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(In thousands) |
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WMLs revolving line of credit |
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$ |
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BUSINESS, PROPERTIES AND LEGAL PROCEEDINGS
Overview
Westmoreland Coal Company began mining in Westmoreland County, Pennsylvania in 1854 as a
Pennsylvania corporation. In 1910, we incorporated in Delaware and continued our focus on
underground coal operations in Pennsylvania and the Appalachian Basin. We moved our headquarters
from Philadelphia, Pennsylvania to Colorado Springs, Colorado in 1995 and fully divested ourselves
of all Eastern coal operations.
Today, Westmoreland Coal Company is an energy company employing 1,081 employees whose
operations include five surface coal mines in Montana, North Dakota and Texas, and two coal-fired
power generating units with a total capacity of approximately 230 megawatts in North Carolina. We
sold 25.2 million tons of coal in 2010. Our two principal operating segments are our coal and power
segments. Our two non-operating segments are heritage and corporate. Our heritage segment
primarily includes the costs of benefits we provide to former mining operation employees and our
corporate segment consists primarily of corporate administrative expenses.
We are subject to two major debt arrangements: (1) $125.0 million senior secured notes at
Westmoreland Mining, LLC, or WML, that is collateralized by all assets of WML, Westmoreland Savage
Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC,
referred to herein as the WML Notes; and (2) $150.0 million senior secured notes (issued February
4, 2011) at the parent level that are largely collateralized by the assets of the parent, the
Absaloka Mine and the ROVA power facility, referred to herein as the Parent Notes.
Coal Segment
General
Our coal segments focus is on niche coal markets where we take advantage of customer
proximity and rail transportation advantages. Approximately two-thirds of our coal production is
mine mouth, governed by long-term coal contracts with neighboring power plants. The remaining coal
production is sold in the open market where we take advantage of being the closest coal producer to
our open market customers via rail transportation. Currently, two-thirds of our produced coal is
non-compliance sub-bituminous coal from the Northern Powder River Basin, while the remaining third
is lignite. We project that almost 50% of our contracted tons in 2011 will remain under contract
through 2019. Our relationship with the Crow Tribe allows us to, among other things, continue to
monetize certain Indian Coal Tax Credits as described below in Properties.
38
In 2010, we sold 25.2 million tons of coal compared to 24.3 million in 2009. Our increase in
tons sold resulted from 2009 customer shutdowns at our Rosebud and Beulah Mines, whereas comparable
shutdowns did not occur during 2010.
The following table provides summary information regarding our principal mining operations as
of December 31, 2010:
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Total Cost of |
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Tons Sold |
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Property, Plant and |
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Mining |
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(In thousands) |
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Equipment |
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Employees/Labor |
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Operation |
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Prior Operator |
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Manner of Transport |
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Machinery |
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2008 |
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2009 |
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2010 |
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($ in millions) |
|
Relations(1) |
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Coal Seam |
MONTANA |
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Rosebud |
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Entech, Inc., a |
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Conveyor belt |
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4 drag-lines |
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13,026 |
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10,332 |
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12,231 |
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$140.9 |
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383 employees; |
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Rosebud |
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subsidiary of |
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BNSF Rail |
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Load-out facility |
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297 represented |
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Montana Power, |
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Truck |
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by Local 400 of |
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Purchased 2001 |
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the IUOE |
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Absaloka |
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Washington Group |
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BNSF Rail |
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1 drag-line |
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6,418 |
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5,911 |
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5,467 |
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$135.1 |
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170 employees; 131 |
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Rosebud-McKay |
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International, Inc. |
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Truck |
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Load-out facility |
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represented by Local |
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as contract |
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400 of the IUOE |
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operator, Ended |
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contract in 2007 |
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Savage |
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Knife River |
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Truck |
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1 dragline |
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359 |
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344 |
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353 |
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$4.6 |
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13 employees; 11 |
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Pust |
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Corporation, a |
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represented by Local |
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subsidiary of MDU |
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400 of the IUOE |
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Resources Group, |
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Inc., Purchased |
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2001 |
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TEXAS |
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Jewett |
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Entech, Inc., a |
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Conveyor belt |
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4 drag-lines |
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6,494 |
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5,080 |
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4,203 |
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$32.1 |
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327 employees |
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Wilcox Group |
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subsidiary of |
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Montana Power, |
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Purchased 2001 |
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NORTH DAKOTA |
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Beulah |
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Knife River |
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Conveyor belt |
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2 drag-lines |
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3,046 |
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2,585 |
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2,898 |
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$61.8 |
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149 employees; 118 |
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Schoolhouse |
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Corporation, a |
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BNSF Rail |
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Load-out facility |
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represented by Local |
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Beulah-Zap |
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subsidiary of MDU |
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1101 of the UMWA |
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Resources Group, |
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Inc., Purchased |
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2001 |
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TOTALS |
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29,343 |
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24,252 |
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25,152 |
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$374.5 |
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1,042 employees |
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(1) |
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557 employees, or approximately 52% of our total employees, are represented by
collective bargaining agreements. The labor agreement at the Absaloka Mine, which covers 12%
of our workforce, expires during 2011. |
Properties
We had an estimated 389.9 million tons of proven and probable coal reserves as of December 31,
2010. Montana, Texas, and North Dakota each use a permitting process approved by the Office of
Surface Mining. Our mines have chosen to permit coal reserves on an incremental basis and given
the current rates of mining and demand, have sufficient permitted coal to meet production for the
periods shown in the table below. We secure all of our final reclamation obligations by bonds as
required by the respective state agencies. We perform contemporaneous reclamation activities at
each mine in the normal course of operations and coal production.
Our mines control coal reserves and deposits through long-term leases. Coal reserves are that
part of a mineral deposit that can be economically and legally extracted at the time of the reserve
determination. Coal deposits do not qualify as reserves until we conduct a final comprehensive
economic evaluation and conclude it is legally and economically feasible to mine the coal. We base
our estimate of the economic recoverability of our reserves upon a comparison of potential reserves
to reserves currently in production in a similar geologic setting to determine an estimated mining
cost. We compare these estimated mining costs to existing market
prices for the anticipated quality of coal. We only include reserves expected to be
economically mined in our reserve estimates.
39
Our engineers and geologists generally prepare our reserve estimates. We periodically engage
independent mining and geological consultants to review the models and procedures we use in
preparing our internal estimates of coal reserves according to standard classifications of
reliability. Norwest Corporation, a third-party consultant, was retained to provide an estimate of
our reserves as of September 30, 2010. Reserves shown in the table below reflect the conclusions
set forth in Norwests report, updated to reflect internal estimates of the effect of fourth
quarter 2010 activity and other adjustments. Total recoverable reserve estimates change over time
to reflect mining activity, analysis of new engineering and geological data, information obtained
from our ongoing drilling program, changes in reserve holdings and other factors. We compile data
from individual drill holes in a database from which the depth, thickness and the quality of the
coal are determined. We classify reserves as either proven or probable based on the density result
of the drill pattern.
The following table provides information about our mines as of December 31, 2010:
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Absaloka Mine |
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Rosebud Mine |
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Jewett Mine |
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Beulah Mine |
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Savage Mine |
Owned by |
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Westmoreland |
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Western Energy |
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Texas Westmoreland |
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Dakota Westmoreland |
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Westmoreland Savage |
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Resources, Inc. |
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Company |
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Coal Co. |
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Corporation |
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Corporation |
Location |
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Rosebud and |
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Leon, Freestone and |
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Treasure Counties, |
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Limestone Counties, |
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Mercer and Oliver |
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Big Horn County, MT |
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MT |
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TX |
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Counties, ND |
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Richland County, MT |
Coal reserves (thousands of tons)(1) |
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Proven |
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66,976 |
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200,333 |
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44,842 |
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45,248 |
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13,117 |
Probable |
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|
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19,394 |
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|
Permitted reserves (thousands of tons) |
|
61,290 |
|
115,642 |
|
44,842 |
|
21,682 |
|
1,023 |
2010 production (thousands of tons) |
|
5,466 |
|
12,254 |
|
4,171 |
|
2,895 |
|
352 |
Estimated life of permitted reserves(2) |
|
2020 |
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2019 |
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2022 |
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2015 |
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2013 |
Lessor |
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Crow Tribe |
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Federal Government |
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Private parties |
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Private parties |
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Federal Government |
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Private parties |
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State of MT |
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State of TX |
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State of ND |
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Private parties |
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Great Northern |
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Federal Government |
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Properties |
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Lease term |
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Through exhaustion |
|
Varies |
|
Varies |
|
Varies |
|
Varies |
Current production capacity (thousands of tons) |
|
7,500 |
|
13,300 |
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7,000 |
|
3,400 |
|
400 |
Coal type |
|
Sub-bituminous |
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Sub-bituminous |
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Lignite |
|
Lignite |
|
Lignite |
Major customers |
|
Xcel Energy |
|
Colstrip 1&2 owners |
|
NRG Texas Power LLC |
|
Otter Tail |
|
MDU |
|
|
Western Fuels Assoc. |
|
Colstrip 3&4 owners |
|
|
|
MDU |
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Sidney Sugars |
|
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Midwest Energy |
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|
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Minnkota |
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Rocky Mountain Power |
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Northwestern |
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Public Service |
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|
Delivery method |
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Rail / Truck |
|
Truck / Rail / Conveyor |
|
Conveyor |
|
Conveyor / Rail |
|
Truck |
Approx. heat content (BTU/lb.)(3) |
|
8,571 |
|
8,534 |
|
6,652 |
|
7,002 |
|
6,380 |
Approx. sulfur content (%)(4) |
|
0.66 |
|
0.64 |
|
0.78 |
|
0.76 |
|
0.50 |
Year current complex opened |
|
1974 |
|
1968 |
|
1985 |
|
1963 |
|
1958 |
Total tons mined since inception (thousands of
tons) |
|
172,602 |
|
431,931 |
|
183,263 |
|
102,251 |
|
14,493 |
|
|
|
(1) |
|
The SEC Industry Guide 7 defines reserves as that part of a mineral deposit, which could be
economically and legally extracted or produced at the time of the reserve determination.
Proven and probable coal reserves are defined by SEC Industry Guide 7 as follows: |
|
|
|
Proven (Measured) Reserves Reserves for which (a) quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from
the results of detailed sampling and (b) the sites for inspection, sampling and measurement are
spaced so close and the geographic character is so well defined that size, shape, depth and
mineral content of reserves are well-established. |
40
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|
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|
|
Probable (Indicated) Reserves Reserves for which quantity and grade and/or quality are
computed from information similar to that used for proven (measured) reserves, but the sites
for inspection, sampling and measurement are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for proven (measured) reserves, is
high enough to assume continuity between points of observation. |
|
(2) |
|
Approximate year in which permitted reserves would be exhausted, based on current mine plan
and production rates. Our Jewett Mines permit is expected to be renewed in 2011 while the
other permit expires in 2014, but effectively they cover all of the Mines reserves for the
entire life of the mine. The Absaloka Mine permits expire in 2013 and 2014. |
|
(3) |
|
Approximate heat content applies to the coal mined in 2010. |
|
(4) |
|
Approximate sulfur content applies to the tons mined in 2010. |
With the exception of the Jewett Mine, where we control some reserves through fee
ownership, we lease all of our coal properties. We are a party to coal leases with the federal
government, state governments, and private parties at our Rosebud, Beulah, Savage and Jewett Mines.
Each of the federal and state government leases continue indefinitely provided there is diligent
development of the property and continued operation of the related mines. Federal statute
generally sets production royalties on federal leases at 12.5% of the gross proceeds of coal mined
and sold for surface mines. At the Beulah and Savage Mines, we have received reductions in the
federal royalty rate due to the quality of the lignite coal mined. Our private leases run for an
average term of twenty years and have options for renewal. We believe that we have satisfied all
lease conditions in order to retain the properties and keep the leases in force.
We are a party to two leases with the Crow Tribe covering 18,406 acres of land at our Absaloka
Mine. In 2008, and in order to take advantage of certain available tax credits for the production
of coal on the leased Crow Tribe land, Westmoreland Resources, Inc., or WRI, entered into a series
of transactions, including the formation of Absaloka Coal, LLC with an unaffiliated investor. In
2010, the tax credit was equal to $2.20 per ton and will increase annually based on an
inflation-adjustment factor. We received a private letter ruling from the IRS providing that the
Indian Coal Tax Credits are available to us. As part of such transaction, WRI subleased its leases
with the Crow Tribe to Absaloka Coal, LLC, granting it the right to mine specified quantities of
coal through September 2013, with WRI as contract miner. We will pay to the Crow Tribe 33% of the
expected payments we will receive from the investor. All of WRIs property has been fully
encumbered by a first lien under the Parent Notes agreement completed in February 2011. The Parent
Notes allow us to enter into a revolving line of credit collateralized, in part, by the accounts
receivable and inventory at WRI. In addition, WML fully encumbered all of its property at our
Rosebud, Beulah and Savage mines pursuant to the WML Notes and revolving line of credit.
Customers
We sell almost all of the coal that we produce (99% in 2010) to plants that generate
electricity. In 2010, we derived approximately 65% of our total revenues from coal sales to four
power plants: Colstrip Units 3&4 (24% of our 2010 revenues), Limestone Generating Station (16%),
Colstrip Units 1&2 (13%) and Sherburne County Station (12%). We sell more than 80% of our tons
under contracts with remaining supply obligation terms of three years or more. We provide
transportation for our mine-mouth customers, but sell coal and lignite on a Free On Board, or FOB,
basis to our other customers. The purchaser of coal normally bears the cost of transportation and
risk of loss from load out to its final destination. Our coal revenues include amounts earned by
our coal sales company from sales of coal produced by mines other than ours. In 2010, 2009, and
2008, such amounts were $0.4 million, $0.8 million, and $1.2 million, respectively.
Rosebud. The Rosebud Mine has two contracts with the adjacent Colstrip Station power
generating facility. Effective January 1, 2010, a new cost-plus agreement commenced with Colstrip
Units 1&2 with a projected term through at least 2019 and expected tons of 3.0 million per year. A
second agreement at Units 3&4 covers approximately 7.0 million tons per year and is set to expire
at the end of 2019. This contract is also cost-plus, but with provisions for specific returns on
capital investment.
Absaloka. The Absaloka Mine operates primarily in the open market and has several three- to
five-year contracts with various parties that totaled roughly 5.5 million tons in 2010 and decline
to zero by the end of 2015. Approximately 80% of all tons sold in 2010 were to the rail-served
Sherburne County Station in Minnesota under multiple contracts.
Savage. The Savage Mine supplies approximately 0.3 million tons per year to the local Lewis &
Clark Station under an agreement that expires at the end of 2012. Prices under this agreement are
based upon certain actual mine costs and certain inflation indices for such items as diesel fuel.
41
Jewett. The Jewett Mine has a cost-plus agreement with NRG Texas Powers adjacent Limestone
Generating Station, which commenced January 1, 2008, and replaced various prior agreements in place
since 1985. NRG Texas Power is obligated to pay all mine costs of production plus a margin and the
mines capital and reclamation expenditures. The agreement has a term through 2018, which may be
extended by NRG Texas Power for up to an additional ten years or until the mines reserves are
exhausted. NRG has the option to determine volumes to be delivered, which currently average
approximately 4.2 million tons per year, and to terminate the agreement at its discretion.
Beulah. The Beulah Mine supplies approximately 2.5 million tons per year to the adjacent
Coyote Station via conveyor belt under an agreement that expires in May 2016. It also supplies
approximately 0.5 million tons per year to the rail-served Heskett Station under an agreement that
expires during 2011. Prices under these agreements are based upon certain actual mine costs and
certain inflation indices for such items as diesel fuel.
Competition
While the coal industry is intensely competitive, we focus on niche coal markets where we take
advantage of long-term coal contracts with neighboring power plants and rail transportation. For
our open market coal sales, we compete with many other suppliers of coal to provide fuel to power
plants. Additionally, coal competes for electrical power generation with other fuels such as
nuclear energy, natural gas, hydropower, petroleum and wind. Costs and other factors such as
safety, environmental and regulatory considerations relating to these alternative fuels affect the
overall demand for coal as a fuel.
We believe that our mines have a competitive advantage based on three factors:
|
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|
all of our mines are the most economic suppliers to each of their respective
principal customers, a result of a transportation advantage over our competitors in
that market; |
|
|
|
nearly all of the power plants we supply were specifically designed to use our
coal; and |
|
|
|
the plants we supply are among the lowest cost producers of electric power in their
respective regions and are among the cleaner producers of power from solid fossil
fuels. |
|
|
|
As a result of the foregoing, we believe that our current customers are more likely
to be dispatched to produce power and to continue purchasing coal extracted from our
mines. |
The principal customers of the Rosebud, Jewett, and Beulah Mines are located adjacent to the
mines; the coal for these customers is delivered by conveyor belt instead of more expensive means
such as truck or rail. The customers of the Savage Mine are located approximately 20 to 25 miles
from the mine so that coal can be transported most economically by truck.
The Absaloka Mine faces a different competitive situation. The Absaloka Mine sells its coal
in the rail market to utilities located in the northern tier of the United States that are served
by BNSF. These utilities may purchase coal from us or from other producers. We compete with other
producers on the basis of price and quality, with the purchasers also taking into account the cost
of transporting the coal to their plants. The Absaloka Mine enjoys an approximately 300-mile rail
advantage over its principal competitors from the Southern Powder River Basin in supplying
customers located in the northern tier. Rail rates have increased over the last several years by 50
to 100%, which increases our competitive advantage. We also believe that the next most economic
suppliers to Absalokas northern tier customers could be our other mines.
Material Effects of Regulation
We are subject to extensive regulation with respect to environmental and other matters by
federal, state and local authorities. Federal laws to which we are subject include the Surface
Mining Control and Reclamation Act of 1977, or SMCRA, the Clean Air Act, the Clean Water Act, the
Toxic Substances Control
Act, the Endangered Species Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Emergency Planning and Community Right to Know Act and the Resource Conservation
and Recovery Act. The United States Environmental Protection Agency, or EPA, and/or other
authorized federal or state agencies administer and enforce these laws. Non-compliance with these
laws and regulations could
42
subject us to material administrative, civil or criminal penalties or
other liabilities, including suspension or termination of operations. In addition, we may be
required to make large and unanticipated capital expenditures to comply with applicable laws. Our
reclamation obligations under applicable environmental laws will be substantial. Our coal sales
agreements contain government impositions provisions that allow the pass-through of compliance
costs in some circumstances. The following summarizes certain legal and regulatory matters that we
believe may significantly affect us.
Mine Safety and Health. One of our core values is uncompromised safety. We work towards this
core value through: constant training of employees in safe work practices; establishing, following
and improving safety standards; participating in mine rescue performance evaluations and other
company and industry-sponsored mine safety activities and conferences; and recording, reporting and
investigating all accidents, incidents and losses to avoid reoccurrence. A portion of the annual
performance incentives for mine supervisory employees at our mines is tied to their safety
performance.
We received state and industry safety awards during the year, including both the large
and small mine Governors Safety and Health Award from the state of Montana. During 2010, we
continued to maintain reportable and lost time incident rates significantly below national averages
as indicated in the table below.
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
Lost Time Rate |
|
|
Reportable Rate |
|
|
|
|
WCC Mines |
|
|
0.88 |
|
|
|
1.31 |
|
National Surface Mines |
|
|
1.23 |
|
|
|
1.83 |
|
Following passage of The Mine Improvement and New Emergency Response Act of 2006 (The
Miner Act), the U.S. Mine Safety and Health Administration (MSHA), significantly increased the
enforcement of safety and health standards and imposed safety and health standards on all aspects
of mining operations. There has also been a dramatic increase in the dollar penalties assessed for
citations issued over the past two years. Most of the states in which we operate have inspection
programs for mine safety and health. Collectively, federal and state safety and health regulations
in the coal mining industry are perhaps the most comprehensive and pervasive systems for protection
of employee health and safety affecting any segment of U.S. industry.
Surface Mining Control and Reclamation Act. SMCRA establishes minimum national operational,
reclamation and closure standards for all surface coal mines. SMCRA requires that comprehensive
environmental protection and reclamation standards be met during the course of and following
completion of coal mining activities. Permits for all coal mining operations must be obtained from
the Federal Office of Surface Mining Reclamation and Enforcement, or OSM, or, where state
regulatory agencies have adopted federally approved state programs under SMCRA, the appropriate
state regulatory authority. States that operate federally approved state programs may impose
standards that are more stringent than the requirements of SMCRA and OSMs regulations and, in many
instances, have done so. Permitting under SMCRA has generally become more difficult in recent
years, which adversely affect the cost and availability of coal purchased by ROVA, especially in
light of significant permitting issues affecting the Central Appalachia region. This difficulty in
permitting also affects the availability of coal reserves at our coal mines.
We do not believe there are any matters that pose a material risk to maintaining our existing
mining permits or materially hinder our ability to acquire future mining permits. It is our policy
to comply in all material respects with the requirements of the SMCRA and the state and tribal laws
and regulations governing mine reclamation.
Clean Air Act and Related Regulations. The federal Clean Air Act and similar state laws and
regulations affect coal mining, coal handling and processing and energy production primarily
through permitting and/or emissions control requirements. For example, regulations relating to
fugitive dust and coal combustion emissions could restrict our ability to develop new mines or
require us to modify our operations. The Clean Air Act also extensively regulates the air
emissions of coal fired electric power generating plants such as ROVA and plants operated by our
coal customers. Coal contains impurities, such as sulfur, mercury
and other constituents, many of which are released into the air when coal is burned. The Clean
Air Act and similar legislation regulate these emissions and therefore affect demand for our coal.
In particular, our mines do not produce compliance coal for purposes of the Clean Air Act.
Compliance coal is coal containing 1.2 pounds or less of sulfur dioxide per million British thermal
unit, or Btu. This restricts our ability to sell coal to
43
power plants that do not utilize sulfur
dioxide emission controls and otherwise leads to a price discount based, in part, on the market
price for sulfur dioxide emission allowances under the Clean Air Act. Our coal also contains about
fifty percent more ash content than our primary competitors, which can translate into a cost
disadvantage where post-combustion coal ash must be land filled.
While new regulations under the Clean Air Act or similar statutes could increase market prices
for sulfur dioxide emission allowances and therefore the price discount applied to our coal, they
could also cause power plants to retrofit sulfur dioxide emission controls, therefore expanding our
market potential. Higher costs for complying with coal ash regulations could also result in a
higher price discount for our open market coal.
We are at particular risk of changes in applicable environmental laws with respect to the
Jewett Mine, whose customer, the NRG Texas Power-Limestone Station, blends our lignite with
compliance coal from Wyoming. Tightened nitrogen oxide and new mercury emission standards could
result in an increased blend of the Wyoming coal to reduce emissions. Further, increased market
prices for sulfur dioxide emissions and increased coal ash costs could also favor an increased
blend of the lower ash Wyoming compliance coal. In such a case, NRG Texas Power has the option to
increase its purchases of other coal, reduce purchases of our coal, or to terminate our contract.
If NRG terminates the contact, sales of lignite would end and the Jewett Mine would commence final
reclamation activities. NRG would pay for all reclamation work plus a margin.
Bonding Requirements. Federal and state laws require mine operators to assure, usually through
the use of surety bonds, payment of certain long-term obligations, including the costs of mine
closure and the costs of reclaiming the mined land. The costs of these bonds have fluctuated in
recent years, and the market terms of surety bonds have generally become more unfavorable to mine
operators. Surety providers are requiring greater percentages of collateral to secure a bond, which
has required us to provide increasing quantities of cash to collateralize bonds to allow us to
continue mining. These changes in the terms of the bonds have been accompanied, at times, by a
decrease in the number of companies willing to issue surety bonds. As of December 31, 2010, we
have posted an aggregate of $230.4 million in surety bonds for reclamation purposes, with
approximately $27.5 million of cash collateral.
Resource Conservation and Recovery Act. We may generate wastes, including ''solid wastes and
''hazardous wastes that are subject to the federal Resource Conservation and Recovery Act, or
RCRA, and comparable state statutes, although certain mining and mineral beneficiation wastes and
certain wastes derived from the combustion of coal currently are exempt from regulation as
hazardous wastes under RCRA. The EPA has limited the disposal options for certain wastes that are
designated as hazardous wastes under RCRA. Furthermore, it is possible that certain wastes
generated by our operations that currently are exempt from regulation as hazardous wastes may in
the future be designated as hazardous wastes, and therefore be subject to more rigorous and costly
management, disposal and clean-up requirements.
Comprehensive Environmental Response, Compensation, and Liability Act. Under the Comprehensive
Environmental Response, Compensation, and Liability Act, also known as CERCLA or Superfund, and
similar state laws, responsibility for the entire cost of cleanup of a contaminated site, as well
as natural resource damages, can be imposed upon current or former site owners or operators, or
upon any party who released one or more designated ''hazardous substances at the site, regardless
of the lawfulness of the original activities that led to the contamination. CERCLA also authorizes
the EPA and, in some cases, third parties to take actions in response to threats to public health
or the environment and to seek to recover from the potentially responsible parties the costs of
such action. In the course of our operations, we may have generated and may generate wastes that
fall within CERCLAs definition of hazardous substances. We may also be an owner or operator of
facilities at which hazardous substances have been released by previous owners or operators. We
may be responsible under CERCLA for all or part of the costs of cleaning up facilities at which
such substances have been released and for natural resource damages. We have not, to our
knowledge, been identified as a potentially responsible party under CERCLA, nor are we aware of any
prior owners or operators of our properties that have been so identified with respect to their
ownership or operation of those properties. We also must comply with reporting requirements under
the Emergency Planning and Community Right-to-Know Act and the Toxic Substances Control Act.
Climate Change Legislation and Regulations. Numerous proposals for federal and state
legislation have been made relating to greenhouse gas, or GHG, emissions (including carbon dioxide)
and such legislation could result in the creation of substantial additional costs in the form of
taxes or required acquisition or trading of emission allowances. Many of the federal and state
climate change legislative proposals use a cap and
44
trade policy structure, in which GHG emissions
from a broad cross-section of the economy would be subject to an overall cap. Under the proposals,
the cap would become more stringent with the passage of time. The proposals establish mechanisms
for GHG sources such as power plants to obtain allowances or permits to emit GHGs during the
course of a year. The sources may use the allowances to cover their own emissions or sell them to
other sources that do not hold enough emissions for their own operations.
In addition, the EPA has issued a notice of finding and determination that emissions of carbon
dioxide, methane and other GHGs present an endangerment to human health and the environment, which
allows the EPA to begin regulating emissions of GHGs under existing provisions of the federal Clean
Air Act. The EPA has begun to implement GHG-related reporting and permitting rules.
The impact of GHG-related legislation and regulations, including a cap and trade structure,
on us will depend on a number of factors, including whether GHG sources in multiple sectors of the
economy are regulated, the overall GHG emissions cap level, the degree to which GHG offsets are
allowed, the allocation of emission allowances to specific sources and the indirect impact of
carbon regulation on coal prices. We may not recover the costs related to compliance with
regulatory requirements imposed on us from our customer due to limitations in our agreements.
Passage of additional state or federal laws or regulations regarding GHG emissions or other
actions to limit carbon dioxide emissions could result in fuel switching from coal to other fuel
sources by electricity generators and thereby reduce demand for our coal or indirectly the prices
we receive in general. In addition, political and regulatory uncertainty over future emissions
controls have been cited as major factors in decisions by power companies to postpone new
coal-fired power plants. If these or similar measures, such as controls on methane emissions from
coal mines, are ultimately imposed by federal or state governments or pursuant to international
treaties, our operating costs may be materially and adversely affected. In addition, alternative
sources of power, including wind, solar, nuclear and natural gas could become more attractive than
coal in order to reduce carbon emissions, which could result in a reduction in the demand for coal
and, therefore, our revenues. Similarly, some of our customers, in particular smaller, older power
plants, could be at risk of significant reduction in coal burn or closure as a result of imposed
carbon costs. The imposition of a carbon tax or similar regulation could, in certain situations,
lead to the shutdown of coal-fired power plants, which would materially and adversely affect our
coal and power plant revenues.
Power Segment
General
We own two coal-fired power-generating units in Weldon, North Carolina with a total capacity
of approximately 230 megawatts, which we refer to collectively as ROVA. ROVA, which commenced
operations in 1994, was built as a Public Utility Regulatory Policies Act co-generation facility
with long-term power purchase agreements with Dominion Virginia Power. While we initially
structured the project as a joint venture where we owned a 50% interest in the partnership that
owned ROVA, we acquired the other 50 percent partnership interest in ROVA in 2006, bringing our
ownership interest in the ROVA project to 100 percent. ROVA was reclassified as an Electric
Wholesale Generator, a Federal Energy Regulatory Commission classification created by the Energy
Policy Act of 1992. Westmoreland Partners has fully encumbered all property pursuant to the Parent
Notes. The Parent Notes also allow us to enter into a revolving line of credit collateralized, in
part, by the accounts receivable and inventory at ROVA.
The following table shows megawatt hours produced and average annual capacity factors achieved
at ROVA for the last three years:
|
|
|
|
|
|
|
|
|
Year |
|
Megawatt Hours |
|
|
Capacity Factor |
|
2010 |
|
|
1,620,000 |
|
|
|
88 |
% |
2009 |
|
|
1,486,000 |
|
|
|
81 |
% |
2008 |
|
|
1,641,000 |
|
|
|
89 |
% |
45
In 2009, ROVA experienced a planned major maintenance outage, which occurs every five
years.
Coal Supply
ROVA purchases coal under long-term contracts from coal suppliers with identified reserves
located in Central Appalachia, with contracts expiring in 2014 and 2015.
Customer
ROVA supplies power to Dominion Virginia Power under long-term contracts, which expire in 2019
and 2020. We can extend, by mutual consent, the contracts with Dominion Virginia Power for
five-year terms at mutually agreeable pricing. In 2010, the sale of power to Dominion Virginia
Power accounted for approximately 17% of our consolidated revenues.
Material Effects of Regulation
For a thorough discussion of the extensive regulation with respect to environmental and other
matters by federal, state and local authorities affecting our power segment, see Item 1 under Coal
Segment -Material Effects of Regulation.
With respect to our power segment, ROVA is among the newer and cleaner coal-fired power plants
in the United States. Under Title IV of the Clean Air Act, it is exempted from, but may opt-in to
receive allocations of sulfur dioxide emission allowances. The plants are among the lowest
coal-fired emitters of mercury in the country. We are evaluating whether ROVA could be a net
consumer or seller of mercury allowances under new and pending regulations. Currently, ROVA is a
consumer of sulfur dioxide allowances and nitrogen oxide credits, and we expect an increase in
costs associated with nitrogen oxide allowances at ROVA. With regard to coal ash regulations, ROVA
both remarkets and landfills its combustion waste. Landfills are lined and meet strict North
Carolina Department of Solid Waste regulations.
An important factor relating to the impact of GHG-related legislation and regulations on our
power segment will be our ability to recover the costs incurred to comply with any regulatory
requirements that are ultimately imposed. We may not recover the costs related to compliance with
regulatory requirements imposed on us due to limitations in our power purchase agreements. If we
are unable to pass through such costs incurred by ROVA to Dominion Virginia Power or recoup them in
another manner such as through allowances, it could have a material adverse effect on our results
of operations at ROVA.
Heritage Segment
Our heritage segment costs consist primarily of payments for various types of postretirement
medical benefits. Distributions from our operating subsidiaries fund these collective heritage
obligations.
As we modernized in 2010 how we provide prescription drug benefits to retirees, we
significantly reduced our heritage health benefit expenditures.
We continue to explore ways to further reduce or eliminate other portions of our benefits
costs incurred as a consequence of our former operations.
Corporate Segment
The corporate segment consists primarily of costs for our corporate administrative expenses.
In addition, the corporate segment contains our captive insurance company.
We have elected to retain some of the risks associated with operating our company through a
wholly owned, consolidated insurance subsidiary, Westmoreland Risk Management Ltd., or WRM. WRM, a
Bermuda corporation, provides our primary layer of property and casualty insurance. By using this
insurance subsidiary, we have reduced the cost of our property and casualty insurance premiums and
retained some economic benefits due to our excellent loss record. We reduce our major exposure by
insuring for losses in excess of our retained limits with a number of third-party insurance
companies. In January 2011, the board of
directors of the captive voted to redomesticate the captive to the state of Montana. We are
currently in the process of completing such redomestication.
46
Except for the assets of WRM, all of our assets are located in the United States. We had no
export sales and derived no revenues from outside the United States during the five-year period
ended December 31, 2010.
Legal Proceedings
We are subject, from time-to-time, to various proceedings, lawsuits, disputes, and claims
(Actions) arising in the ordinary course of our business. Many of these Actions raise complex
factual and legal issues and are subject to uncertainties. We cannot predict with assurance the
outcome of Actions brought against us. Accordingly, adverse developments, settlements, or
resolutions may occur and negatively impact income in the quarter of such development, settlement,
or resolution. However, we do not believe that the outcome of any current Action would have a
material adverse effect on our financial results.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical financial
statements and other financial information appearing elsewhere in this prospectus, including
Selected Historical Financial Data. The following discussion contains forward-looking statements
that reflect our plans, estimates, and beliefs. Our actual results could differ materially from
those discussed in the forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this prospectus, particularly in Risk
Factors. All references to years relate to the calendar year ended December 31 of the particular
year.
Overview
Westmoreland Coal Company is an energy company employing 1,081 employees whose operations
include five surface coal mines in Montana, North Dakota and Texas and two coal-fired
power-generating units with a total capacity of approximately 230 megawatts in North Carolina. We
sold 25.2 million tons of coal in 2010. Our two principal operating segments are our coal segment
and our power segment, in addition to two non-operating segments.
We are a holding company and conduct our operations through subsidiaries, which generally have
obtained separate financing. As a holding company, we have significant cash requirements to fund
our ongoing heritage health benefit costs, pension contributions, and corporate overhead expenses.
The principal sources of cash flow to us are distributions from our principal operating
subsidiaries. Following the Parent Notes offering discussed below, we now have cash on hand in
excess of $45 million. The Parent Notes offering permits us to enter into a revolving credit
facility at the Parent.
Recent Developments
In February 2011, we completed a private placement of $150.0 million of senior secured notes
due in 2018. The net proceeds from the offering of the Parent Notes were used to pay all dividend
arrearages on our Series A preferred stock, to repay all outstanding term and revolving line of
credit debt at ROVA and WRI, to retire approximately $2.5 million of the outstanding principal owed
on the senior secured convertible notes (the remaining principal balance of the senior secured
convertible notes was converted to common stock) and for general corporate purposes.
Legislation Enacted
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and
Consumer Protection Act. The legislation, among other matters, requires mining companies to
provide specific detailed information on health and safety violations on a mine-by-mine basis, and
will require disclosure of payments made to foreign governments and the Federal Government to
further the commercial development of minerals. Regulations regarding government payment
disclosures have not yet been adopted.
Healthcare Reform
In March 2010, the Patient Protection and Affordable Care Act, or PPACA was enacted,
potentially impacting our costs to provide healthcare benefits to our active and retired employees
and benefits related to
47
black lung. The PPACA has both short-term and long-term implications on healthcare benefit
plan standards. Implementation of this legislation is planned to occur in phases, with plan
standard changes taking effect beginning in 2010, but to a greater extent with the 2011 benefit
plan year and extending through 2018. Beginning in 2018, the PPACA will impose a 40% excise tax on
employers to the extent that the value of their healthcare plan coverage exceeds certain dollar
thresholds. As a result, we have increased our postretirement medical benefit obligation at
December 31, 2010 by $6.9 million with a corresponding increase in Accumulated other comprehensive
loss.
The PPACA reduces the tax benefits available to an employer that receives the Medicare Part D
subsidy beginning in years ending after December 31, 2010. As a result of the PPACA, employers
that receive the Medicare Part D subsidy will recognize the deferred tax effects of the reduced
deductibility of the postretirement prescription drug coverage in the period in which the PPACA was
enacted. Also in March 2010, a companion bill, the Reconciliation Act, was signed into law. The
Reconciliation Act reduces the effect of the PPACA on affected employers by deferring for two years
(until years ending after December 31, 2012) the reduced deductibility of the postretirement
prescription drug coverage. Accounting for income taxes requires that the effect of adjusting the
deferred tax asset for the elimination of this deduction be included in income from continuing
operations. However, entities that have a full valuation allowance for this deferred tax asset
would recognize a related decrease in the valuation allowance. As we have a full valuation
allowance against the related deferred tax asset, this change in tax law regarding the Medicare
Part D subsidy will not have an effect on our income from continuing operations. In addition, this
change in the tax deduction does not affect the pre-tax expense or corresponding liability for
postretirement prescription drug benefits.
The PPACA also amended previous legislation related to black lung disease, providing automatic
extension of awarded lifetime benefits to surviving spouses and providing changes to the legal
criteria used to assess and award claims. Since the legislation passed on March 23, 2010, we have
experienced a significant increase in claims filed compared to the corresponding period in prior
years. However, we have not been able to determine what, if any, additional impact may result from
these claims due to lack of claims experience under the new legislation and court rulings
interpreting the new provisions.
We will continue to evaluate the impact of the PPACA in future periods as additional information,
interpretations, guidance and claims experience becomes available.
Results of Operations Three Months Ended March 31, 2011 Compared to Three Months Ended March 31,
2010
Items that Affect Comparability of Our Results
For the three months ended March 31, 2011 and 2010, our results have included items that do
not relate directly to ongoing operations. The expense components of these items were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Loss on extinguishment of debt |
|
$ |
(17,030 |
) |
|
$ |
|
|
Fair value adjustment on derivatives and
related amortization of debt discount |
|
|
(3,215 |
) |
|
|
(4,824 |
) |
|
|
|
|
|
|
|
Impact |
|
$ |
(20,245 |
) |
|
$ |
(4,824 |
) |
|
|
|
|
|
|
|
Items recorded in the three months ended March 31, 2011
|
|
|
As a result of the Parent Notes offering, we recorded $17.0 million of loss
on extinguishment of debt. The loss included a $9.1 million make-whole payment for
ROVAs debt and $7.9
million of non-cash write-offs of unamortized discount on debt and related capitalized
debt costs and convertible debt conversion expense. |
|
|
|
|
Upon the retirement of our convertible debt, we recorded an expense of $3.1
million resulting from the mark-to-market accounting for the conversion feature in the
notes with $0.1 million of interest expense of a related debt discount. |
48
Items recorded in the three months ended March 31, 2010
|
|
|
We recorded an expense of $4.5 million resulting from the mark-to-market
accounting of the conversion feature in our convertible notes with $0.3 million of
interest expense of a related debt discount. |
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Summary
Our first quarter 2011 revenues increased to $127.8 million compared with $126.4 million in
the first quarter of 2010. This increase was partly driven by an increase in our coal segment
revenues due to stronger tonnage sales at our Absaloka Mine which offset the expiration of an
unprofitable coal contract at our Rosebud Mine. In addition, our power segment revenues increased
primarily from contractual price increases.
Our first quarter 2011 net loss applicable to common shareholders increased to $18.0 million
compared with a $3.2 million loss in the first quarter of 2010. Excluding $20.2 million of first
quarter 2011 expenses and $4.8 million of first quarter 2010 expenses discussed in Items that
Affect Comparability of Our Results, our net loss decreased by $0.6 million. The primary factors,
in aggregate, driving this decrease in net loss were:
|
|
|
|
|
|
|
Three Months |
|
|
Ended |
|
|
March 31, 2011 |
|
|
(In millions) |
Increase in our coal segment operating income primarily
driven by the expiration of an unprofitable coal contract at our
Rosebud Mine
|
|
$ |
1.5 |
|
|
|
|
|
|
Increase in interest expense primarily due to higher overall
debt levels resulting from the Parent Notes offering
|
|
|
(1.4 |
) |
|
|
|
|
|
Decrease in other income primarily due to gains on sales of
securities during the first quarter of 2010
|
|
|
(0.6 |
) |
|
|
|
|
|
Increase in our power segment operating income resulting primarily from contractual price increases
|
|
|
0.4 |
|
|
|
|
|
|
Increase in income tax benefit related to lower taxable income
|
|
|
0.4 |
|
|
|
|
|
|
Increase due to other factors
|
|
|
0.3 |
|
|
|
|
|
|
|
|
$ |
0.6 |
|
|
|
|
|
|
49
Coal Segment Operating Results
The following table shows comparative coal revenues, operating income (loss) and sales volume
and percentage changes between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
Revenues (in thousands) |
|
$ |
104,136 |
|
|
$ |
103,550 |
|
|
$ |
586 |
|
|
|
0.6 |
% |
Operating income (in thousands) |
|
|
8,819 |
|
|
|
7,352 |
|
|
|
1,467 |
|
|
|
20.0 |
% |
Adjusted EBITDA (in thousands)1 |
|
|
21,285 |
|
|
|
20,237 |
|
|
|
1,048 |
|
|
|
5.2 |
% |
Tons sold millions of equivalent tons |
|
|
5.6 |
|
|
|
6.3 |
|
|
|
(0.7 |
) |
|
|
(11.1 |
)% |
Operating income per ton sold |
|
$ |
1.57 |
|
|
$ |
1.17 |
|
|
$ |
0.40 |
|
|
$ |
34.9 |
% |
|
|
|
1) |
|
Adjusted EBITDA is defined and reconciled to net loss at the end of this Results of
Operations section. |
Our first quarter 2011 coal segment revenues increased to $104.1 million compared with
$103.6 million in the first quarter of 2010. This $0.6 million increase was primarily due to
stronger tonnage sales at our Absaloka Mine which offset the expiration of an unprofitable coal
contract at our Rosebud Mine.
Our coal segment operating income was $8.8 million in the first quarter of 2011 compared to
$7.4 million in the first quarter of 2010. This $1.5 million increase was primarily driven by the
expiration of an unprofitable coal contract at our Rosebud Mine discussed above.
We expect that coal tons delivered over the remainder of 2011 may decrease as a result of
favorable hydropower condition, which may displace our customers coal-generated power.
Power Segment Operating Results
The following table shows comparative power revenues, operating income, production and
percentage changes between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
23,628 |
|
|
$ |
22,889 |
|
|
$ |
739 |
|
|
|
3.2 |
% |
Operating income |
|
|
4,619 |
|
|
|
4,172 |
|
|
|
447 |
|
|
|
10.7 |
% |
Adjusted EBITDA1 |
|
|
7,352 |
|
|
|
6,881 |
|
|
|
471 |
|
|
|
6.8 |
% |
Megawatts hours |
|
|
435 |
|
|
|
435 |
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Adjusted EBITDA is defined and reconciled to net loss at the end of this Results of
Operations section. |
Our first quarter 2011 power segment revenues increased to $23.6 million compared to
$22.9 million in first quarter 2010. This $0.7 million increase is primarily from contractual
price increases.
Our power segment operating income increased to $4.6 million in the first quarter of 2011
compared to $4.2 million in the first quarter of 2010. This $0.4 million increase was primarily
from the contractual price increases discussed above.
50
Heritage Segment Operating Results
The following table shows comparative detail of the heritage segments operating expenses and
percentage changes between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
(In thousands) |
|
Health care benefits |
|
$ |
2,454 |
|
|
$ |
2,676 |
|
|
$ |
(222 |
) |
|
|
(8.3 |
)% |
Combined benefit fund payments |
|
|
686 |
|
|
|
756 |
|
|
|
(70 |
) |
|
|
(9.3 |
)% |
Workers compensation benefits |
|
|
158 |
|
|
|
136 |
|
|
|
22 |
|
|
|
16.2 |
% |
Black lung benefits |
|
|
480 |
|
|
|
347 |
|
|
|
133 |
|
|
|
38.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total heritage health benefit expenses |
|
|
3,778 |
|
|
|
3,915 |
|
|
|
(137 |
) |
|
|
(3.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative costs |
|
|
392 |
|
|
|
340 |
|
|
|
52 |
|
|
|
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Heritage segment operating loss |
|
$ |
4,170 |
|
|
$ |
4,255 |
|
|
$ |
(85 |
) |
|
|
(2.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Our first quarter 2011 heritage operating expenses of $4.2 million was comparable to $4.3
million in the first quarter of 2010.
Corporate Segment Operating Results
Our corporate segment operating expenses for the first quarter of 2011 of $1.8 million was
comparable to $1.9 million in the first quarter of 2010.
Nonoperating Results (including interest expense, other income (expense) and income tax
benefit)
Our interest expense for the first quarter of 2011 increased to $7.0 million compared with
$5.7 million for the first quarter of 2010. This increase was primarily due to the higher overall
debt levels resulting from the Parent Notes offering.
Our other expense for the first quarter of 2011 decreased to $3.0 million compared with $3.8
million of expense for the first quarter of 2010. Excluding the $1.4 million impact of the fair
value adjustment on derivatives discussed in Items that Affect Comparability of Our Results, our
other expense increased $0.6 million primarily due to gains on sales of securities during the first
quarter of 2010.
Our income tax benefit for the first quarter of 2011 increased to $0.5 million compared with
$0.1 million for the first quarter of 2010. This increase was due to lower taxable income.
Reconciliation of Adjusted EBITDA to Net Loss
The discussion in Results of Operations in 2011 and 2010 includes references to our Adjusted
EBITDA results. EBITDA and Adjusted EBITDA are supplemental measures of financial performance that
are not required by, or presented in accordance with, GAAP. EBITDA and Adjusted EBITDA are key
metrics used by us to assess our operating performance and we believe that EBITDA and Adjusted
EBITDA are useful to an investor in evaluating our operating performance because these measures:
|
|
|
are used widely by investors to measure a companys operating performance without
regard to items excluded from the calculation of such terms, which can vary
substantially from company to company depending upon accounting methods and book value
of assets, capital structure and the method by which assets were acquired, among other
factors; and |
|
|
|
|
help investors to more meaningfully evaluate and compare the results of our
operations from period to period by removing the effect of our capital structure and
asset base from our operating results. |
51
Neither EBITDA nor Adjusted EBITDA is a measure calculated in accordance with GAAP. The
items excluded from EBITDA and Adjusted EBITDA are significant in assessing our operating results.
EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in
isolation from, or as a substitute for, analysis of our results as reported under GAAP. For
example, EBITDA and Adjusted EBITDA:
|
|
|
do not reflect our cash expenditures, or future requirements for capital and major
maintenance expenditures or contractual commitments; |
|
|
|
|
do not reflect income tax expenses or the cash requirements necessary to pay income
taxes; |
|
|
|
|
do not reflect changes in, or cash requirements for, our working capital needs; and |
|
|
|
|
do not reflect the significant interest expense, or the cash requirements necessary
to service interest or principal payments, on certain of our debt obligations. |
In addition, although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted
EBITDA do not reflect any cash requirements for such replacements. Other companies in our industry
and in other industries may calculate EBITDA and Adjusted EBITDA differently from the way that we
do, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and
Adjusted EBITDA should not be considered as measures of discretionary cash available to us to
invest in the growth of our business. We compensate for these limitations by relying primarily on
our GAAP results and using EBITDA and Adjusted EBITDA only as supplemental data.
The tables below show how we calculate EBITDA and Adjusted EBITDA, including a breakdown by
segment for Adjusted EBITDA.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Reconciliation of Adjusted EBITDA to net loss |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(18,732 |
) |
|
$ |
(3,745 |
) |
|
|
|
|
|
|
|
|
|
Income tax benefit from continuing operations |
|
|
(460 |
) |
|
|
(90 |
) |
Other loss |
|
|
3,017 |
|
|
|
3,836 |
|
Interest income |
|
|
(382 |
) |
|
|
(410 |
) |
Loss on extinguishment of debt |
|
|
17,030 |
|
|
|
|
|
Interest expense |
|
|
6,967 |
|
|
|
5,723 |
|
Depreciation, depletion and amortization |
|
|
11,245 |
|
|
|
11,392 |
|
Accretion of ARO and receivable |
|
|
2,700 |
|
|
|
3,003 |
|
Amortization of intangible assets and liabilities |
|
|
163 |
|
|
|
85 |
|
|
|
|
|
|
|
|
EBITDA |
|
|
21,548 |
|
|
|
19,794 |
|
|
|
|
|
|
|
|
|
|
Loss on sale of assets |
|
|
83 |
|
|
|
71 |
|
Share-based compensation |
|
|
1,653 |
|
|
|
1,363 |
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
23,284 |
|
|
$ |
21,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Adjusted EBITDA by Segment |
|
|
|
|
|
|
|
|
Coal |
|
$ |
21,285 |
|
|
$ |
20,237 |
|
Power |
|
|
7,352 |
|
|
|
6,881 |
|
Heritage |
|
|
(4,170 |
) |
|
|
(4,255 |
) |
Corporate |
|
|
(1,183 |
) |
|
|
(1,635 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
23,284 |
|
|
$ |
21,228 |
|
|
|
|
|
|
|
|
52
Results of Operations Years Ended December 31, 2010, 2009 and 2008
Items that Affect Comparability of Our Results
For 2010 and each of the prior two years, our results have included items that do not relate
directly to ongoing operations. The income (expense) components of these items were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Fair value adjustment on derivative and related amortization
of debt discount |
|
$ |
(4,840 |
) |
|
$ |
5,076 |
|
|
$ |
|
|
Heritage legal claim settlement |
|
|
|
|
|
|
756 |
|
|
|
|
|
Reclamation claim |
|
|
|
|
|
|
(4,825 |
) |
|
|
|
|
Beneficial conversion feature interest expense |
|
|
|
|
|
|
|
|
|
|
(8,146 |
) |
Loss on extinguishment of WML debt |
|
|
|
|
|
|
|
|
|
|
(3,834 |
) |
Loss on extinguishment of ROVA debt |
|
|
|
|
|
|
|
|
|
|
(1,344 |
) |
Settlement of coal royalty dispute |
|
|
|
|
|
|
|
|
|
|
(2,635 |
) |
Gain on sale of interest in Ft. Lupton power project |
|
|
|
|
|
|
|
|
|
|
876 |
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
(2,009 |
) |
|
|
|
|
|
|
|
|
|
|
Impact (pre-tax) |
|
$ |
(4,840 |
) |
|
$ |
1,007 |
|
|
$ |
(17,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect of other comprehensive income gains |
|
$ |
|
|
|
$ |
17,062 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Items recorded in 2010
|
|
|
We recorded expense of $3.4 million resulting from the mark-to-market
accounting of the conversion feature in our convertible notes, primarily due to an
increase in our stock price during 2010, with $1.4 million of interest expense of a
related debt discount. |
Items recorded in 2009
|
|
|
We recorded an income tax benefit of $17.1 million related to a tax effect of
other comprehensive income gains, primarily related to a decrease in our
postretirement medical obligations. |
|
|
|
|
We recorded income of $6.1 million resulting from the mark-to-market
accounting of the conversion feature in our convertible notes and a decrease in the
value of our warrant offset with $1.0 million of interest expense of a related debt
discount. |
|
|
|
|
We recorded a gain of $0.8 million related to a settlement of past heritage
claims, as a result of efforts to reduce our heritage costs. |
|
|
|
|
We recorded $4.8 million in net expense related to the settlement of the
reclamation claim at our Rosebud Mine. This included a $6.5 million reduction in
revenue, offset with a $1.7 million reduction in cost of sales. |
Items recorded in 2008
|
|
|
We recorded $8.1 million of expense related to the beneficial conversion
feature in the convertible notes we issued in March 2008, as the conversion price was
lower than the fair market value of our common stock at the time of issuance. |
|
|
|
|
We refinanced both our WML and ROVA debt during 2008 and as a result recorded
losses of $3.8 million and $1.3 million, respectively, for the extinguishment of debt. |
|
|
|
|
We recorded $2.6 million in net expense related to two coal royalty claims as
we reached an agreement with the U.S. Minerals Management Service and the Montana
Department of Revenue |
53
|
|
|
to settle two long-standing disputes. This included $12.8 million of cost of sales,
offset with $10.2 million of revenue. |
|
|
|
|
On July 2, 2008, we received $0.9 million for our royalty interest in the
gas-fired Ft. Lupton project and recognized a gain of $0.9 million on the sale. |
|
|
|
|
In 2007, we initiated a restructuring plan in order to reduce the overall
cost structure of the Company. As a result, in 2008 we recorded restructuring charges
of $2.0 million. Most of the restructuring charges related to termination benefits,
outplacement costs, and lease costs related to the consolidation of corporate office
space. |
2010 Compared to 2009
Summary
Our revenues for 2010 increased to $506.1 million compared with $443.4 million in 2009. This
increase was primarily driven by a $56.9 million increase in our coal segment revenues due to price
increases under existing coal supply agreements and the commencement of new agreements including
the new cost-plus contract with our Rosebud Mines Unit 1&2 buyers. Additionally in 2009, we
experienced customer shutdowns at our Rosebud and Beulah Mines, whereas comparable shutdowns did
not occur during 2010. We refer to these shutdowns as the 2009 customer shutdowns. In addition,
our power segment revenues increased $5.8 million related to an increase in megawatt hours sold as
a result of a planned major maintenance outage, which occurs every five years, and a significant
unplanned outage, both of which occurred in 2009. No comparable outages occurred in 2010.
Our net loss applicable to common shareholders for 2010 decreased to $1.9 million compared
with a $28.7 million loss in 2009. Excluding the $4.8 million of expense in 2010 and the $18.1
million of income in 2009 discussed in Items that Affect Comparability of Our Results, our net loss
decreased by $49.7 million during 2010. The primary factors, in aggregate, driving this decrease
in net loss were:
|
|
|
|
|
|
|
2010 |
|
|
|
(In millions) |
|
Increase in coal segment operating income driven by price
increases, new agreements, 2009 customer shutdowns, and
strong cost management performance at several mines |
|
$ |
27.6 |
|
Decrease in heritage segment operating costs primarily due
to the agreement we entered into to modernize how we provide
prescription drug benefits to retirees |
|
|
16.6 |
|
Increase in our power segment operating income due to
increased megawatt hours sold and decreased maintenance
expenses due to planned and unplanned maintenance outages,
with no comparable outages occurring in 2010 |
|
|
4.0 |
|
Increase in the noncontrolling interest adjustment to reduce
losses from a partially owned consolidated coal segment
subsidiary |
|
|
0.8 |
|
Gain on sale of securities |
|
|
0.7 |
|
|
|
|
|
Total |
|
$ |
49.7 |
|
|
|
|
|
54
Coal Segment Operating Results
The following table shows comparative coal revenues, operating income and sales volume, and
percentage changes between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
418,058 |
|
|
$ |
361,206 |
|
|
$ |
56,852 |
|
|
|
15.7 |
% |
Operating income |
|
|
32,922 |
|
|
|
476 |
|
|
|
32,446 |
|
|
|
6816.4 |
% |
Adjusted EBITDA(1) |
|
|
81,681 |
|
|
|
51,207 |
|
|
|
30,474 |
|
|
|
59.5 |
% |
Tons sold millions of equivalent tons |
|
|
25.2 |
|
|
|
24.3 |
|
|
|
0.9 |
|
|
|
3.7 |
% |
Operating income per ton sold |
|
$ |
1.31 |
|
|
$ |
0.02 |
|
|
$ |
1.29 |
|
|
|
6568.9 |
% |
|
|
|
(1) |
|
Adjusted EBITDA is defined and reconciled to net loss at the end of
this Results of Operations section. |
Our coal segment revenues for 2010 increased to $418.1 million compared with $361.2
million in 2009. This $56.9 million increase occurred primarily from the 0.9 million increase in
tons sold due to the 2009 customer shutdowns, price increases under existing coal supply
agreements, and the start of new agreements including the new cost-plus contract with our Rosebud
Mines Unit 1&2 buyers.
Our coal segment operating income increased to $32.9 million in 2010 compared to $0.5
million in 2009. Excluding the $4.8 million related to the 2009 reclamation claim discussed in
Items that Affect Comparability of Our Results, our coal segment operating income increased by
$27.6 million. This increase was primarily driven by the factors increasing revenue described
above as well as strong cost management performance by several of our mines.
Power Segment Operating Results
The following table shows comparative power revenues, operating income and production and
percentage changes between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
87,999 |
|
|
$ |
82,162 |
|
|
$ |
5,837 |
|
|
|
7.1 |
% |
Operating income |
|
|
11,721 |
|
|
|
7,672 |
|
|
|
4,049 |
|
|
|
52.8 |
% |
Adjusted EBITDA(1) |
|
|
22,664 |
|
|
|
18,117 |
|
|
|
4,547 |
|
|
|
25.1 |
% |
Megawatts hours |
|
|
1,620 |
|
|
|
1,486 |
|
|
|
134 |
|
|
|
9.0 |
% |
|
|
|
(1) |
|
Adjusted EBITDA is defined and reconciled to net loss at the
end of this Results of Operations section. |
Our power segment revenues for 2010 increased to $88.0 million compared to $82.2 million
in 2009. This $5.8 million increase occurred primarily from an increase in megawatt hours sold as
a result of a planned major maintenance outage, which occurs every five years, and a significant
unplanned outage, both of which occurred in 2009. No comparable outages occurred in 2010.
Our power segment operating income increased to $11.7 million in 2010 compared to $7.7 million
in 2009. This $4.0 million increase was primarily from increased megawatt hours sold and decreased
maintenance expenses as a result of the planned and unplanned maintenance outages discussed above.
55
Heritage Segment Operating Results
The following table shows comparative detail of the heritage segments expenses and percentage
changes between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(In thousands) |
|
Health care benefits |
|
$ |
9,927 |
|
|
$ |
22,490 |
|
|
$ |
(12,563 |
) |
|
|
(55.9 |
)% |
Combined benefit fund payments |
|
|
2,953 |
|
|
|
3,132 |
|
|
|
(179 |
) |
|
|
(5.7 |
)% |
Workers compensation benefits (credits) |
|
|
81 |
|
|
|
(485 |
) |
|
|
566 |
|
|
|
116.7 |
% |
Black lung benefits |
|
|
1,460 |
|
|
|
2,937 |
|
|
|
(1,477 |
) |
|
|
(50.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total heritage health benefit expenses |
|
|
14,421 |
|
|
|
28,074 |
|
|
|
(13,653 |
) |
|
|
(48.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative costs |
|
|
1,547 |
|
|
|
3,696 |
|
|
|
(2,149 |
) |
|
|
(58.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Heritage segment operating loss |
|
$ |
15,968 |
|
|
$ |
31,770 |
|
|
$ |
(15,802 |
) |
|
|
(49.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Our heritage segment operating expenses for 2010 were $16.0 million compared to $31.8
million in 2009. Excluding the heritage legal claim settlement of $0.8 million in 2009 discussed
in Items that Affect Comparability of Our Results, our heritage segment operating expenses
decreased by $16.6 million. This decrease was primarily due to the agreement we entered into to
modernize how we provide prescription drug benefits to our retirees. In addition, while we
continue to work towards further heritage cost reductions, selling and administrative costs
decreased due to reduced cost containment expenses. Finally, we experienced a favorable change in
the valuation of our Black Lung liabilities due to changes in discount rates.
Corporate Segment Operating Results
Our corporate segment operating expenses for 2010 remained consistent with expenses for 2009.
Nonoperating Results (including other income (expense), income tax benefit, and net loss
attributable to noncontrolling interest)
Our other expense for 2010 increased to $23.8 million compared with $14.5 million of expense
for 2009. This is primarily due to the $9.9 million impact of the fair value adjustment on
derivatives and related amortization of debt discount discussed in Items that Affect Comparability
of Our Results.
Our income tax benefit was $0.1 million in 2010 compared with $17.1 million in 2009.
Excluding the $17.1 million tax effect of other comprehensive income gains discussed in Items that
Affect Comparability of our Results, our income tax benefit remained consistent with 2009.
Our net loss attributable to noncontrolling interest in 2010 was $2.6 million compared to
$1.8 million in 2009. This increase was due to an increase in the noncontrolling interest
adjustment to reduce losses from a partially owned consolidated coal segment subsidiary.
2009 Compared to 2008
Summary
Our revenues for 2009 decreased to $443.4 million compared with $509.7 million in 2008. This
decrease was primarily driven by a $58.6 million decrease in our coal segment revenues, which
includes approximately $41.9 million as a result of reduced tonnages sold due to the customer
outages and unfavorable current energy market conditions, approximately $6.5 million of revenue
reversed related to a reclamation claim, and approximately $10.2 million of 2008 revenue recognized
related to the settlement of coal royalty claims. In addition, our power segment revenues
decreased $7.7 million related to a decrease in megawatt hours sold.
56
Our net loss applicable to common shareholders for 2009 decreased to $28.7 million compared
with a $49.9 million loss in 2008. Excluding $18.1 million of income in 2009 and the $17.1 million
of expenses in 2008 discussed in Items that Affect Comparability of Our Results, our net loss
increased by $13.9 million. The primary factors, in aggregate, driving this increase in net loss
were:
|
|
|
|
|
|
|
2009 |
|
|
|
(In millions) |
|
Decrease in coal segment operating income driven by reduced tonnages sold due to the
2009 customer shutdowns and unfavorable energy market conditions, partially offset
with income from Indian Coal Tax Credit monetization transaction, and losses from a
partially owned consolidated subsidiary |
|
$ |
(12.7 |
) |
Decrease in our power segment operating income due to reduced megawatt hours sold,
increased maintenance expenses due to a planned major maintenance outage and a
significant 2009 unplanned outage |
|
|
(8.3 |
) |
Decrease in heritage costs due to elimination of postretirement medical benefits for
non-represented employees costs in the third quarter of 2009, reduced workers
compensation expenses due to changes in interest rates and favorable claims
experience, offset by an increase in cost containment efforts and unfavorable
changes in the valuation of Black Lung benefits trust assets and liabilities due to
changes in interest rates |
|
|
2.9 |
|
Decrease in corporate expenses due to cost control efforts and a reduction in stock
compensation expense |
|
|
2.7 |
|
Favorable noncontrolling interest adjustment due to losses from a partially owned
consolidated subsidiary |
|
|
1.8 |
|
Decrease in interest income partially offset with a decrease in interest expense due
to debt refinancing and an increase in other income |
|
|
(1.3 |
) |
Decrease in income taxes driven by lower state taxable income due to customer outages |
|
|
1.0 |
|
|
|
|
|
Total |
|
$ |
(13.9 |
) |
|
|
|
|
Coal Segment Operating Results
The following table shows comparative coal revenues, operating income and sales volume, and
percentage changes between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
361,206 |
|
|
$ |
419,806 |
|
|
$ |
(58,600 |
) |
|
|
(14.0 |
)% |
Operating income |
|
|
476 |
|
|
|
15,211 |
|
|
|
(14,735 |
) |
|
|
(96.9 |
)% |
Adjusted EBITDA(1) |
|
|
51,207 |
|
|
|
57,743 |
|
|
|
(6,536 |
) |
|
|
(11.3 |
)% |
Tons sold millions of equivalent tons |
|
|
24.3 |
|
|
|
29.3 |
|
|
|
(5.0 |
) |
|
|
(17.1 |
)% |
Operating income per ton sold |
|
$ |
0.02 |
|
|
$ |
0.52 |
|
|
$ |
(0.50 |
) |
|
|
(96.2 |
)% |
|
|
|
(1) |
|
Adjusted EBITDA is defined and reconciled to net loss at the end of
this Results of Operations section. |
Our coal revenues for 2009 decreased to $361.2 million, compared with $419.8 million in
2008. This decrease occurred primarily from a decrease of 5.0 million tons sold as a result of the
customer outages, the reclamation claim recorded in 2009 and settlement of coal royalty claims
recorded in 2008. Additionally, due to unfavorable current economic and energy market conditions,
our Absaloka and Jewett Mines deliveries decreased in 2009.
Our coal segments operating income decreased to $0.5 million in 2009, compared to $15.2
million in 2008. Excluding the $4.8 million related to the anticipated settlement of the
reclamation claim, the $2.6 million coal royalty dispute settlement and $0.2 million of
restructuring charges discussed in Items that Affect Comparability of Our Results, our coal segment
operating income decreased by $12.7 million. Of this
decrease, approximately $20.3 million was due to reduced tonnages sold as a result of the
customer outages
57
and unfavorable current economic and energy market conditions. This decrease was
partially offset with approximately $7.6 million of earnings recognized from our Indian Coal Tax
Credit monetization transaction.
Power Segment Operating Results
The following table shows comparative power revenues, operating income and production and
percentage changes between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
82,162 |
|
|
$ |
89,890 |
|
|
$ |
(7,728 |
) |
|
|
(8.6 |
)% |
Operating income |
|
|
7,672 |
|
|
|
16,920 |
|
|
|
(9,248 |
) |
|
|
(54.7 |
)% |
Adjusted EBITDA(1) |
|
|
18,117 |
|
|
|
26,493 |
|
|
|
(8,376 |
) |
|
|
(31.5 |
)% |
Megawatts hours |
|
|
1,486 |
|
|
|
1,641 |
|
|
|
(155 |
) |
|
|
(9.4 |
)% |
|
|
|
(1) |
|
Adjusted EBITDA is defined and reconciled to net loss at the
end of this Results of Operations section. |
Our power segment revenues for 2009 decreased to $82.2 million compared to $89.9 million
in 2008. This decrease was primarily driven by decreased megawatt hours sold as a result of a
planned major maintenance outage, which occurs every five years, and a significant unplanned
outage, both of which occurred in the fourth quarter of 2009.
Our power segments operating income decreased to $7.7 million in 2009 compared to $16.9
million in 2008. Excluding the 2008 gain on sale of interest in the Ft. Lupton power project of
$0.9 million discussed in Items that Affect Comparability of Our Results, our power segment
operating income decreased by $8.3 million. This decrease was primarily from reduced megawatt
hours sold and increased maintenance expenses as a result of a planned major maintenance outage,
which occurs every five years, and a significant unplanned outage, both of which occurred in the
fourth quarter of 2009.
Heritage Segment Operating Results
The following table shows comparative detail of the heritage segments expenses and percentage
changes between periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
|
|
(In thousands) |
|
Health care benefits |
|
$ |
22,490 |
|
|
$ |
25,588 |
|
|
$ |
(3,098 |
) |
|
|
(12.1 |
)% |
Combined benefit fund payments |
|
|
3,132 |
|
|
|
3,470 |
|
|
|
(338 |
) |
|
|
(9.7 |
)% |
Workers compensation benefits (credits) |
|
|
(485 |
) |
|
|
4,417 |
|
|
|
(4,902 |
) |
|
|
(111.0 |
)% |
Black lung benefits (credits) |
|
|
2,937 |
|
|
|
(23 |
) |
|
|
2,960 |
|
|
|
12,869.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total heritage health benefit expenses |
|
|
28,074 |
|
|
|
33,452 |
|
|
|
(5,378 |
) |
|
|
(16.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative costs |
|
|
3,696 |
|
|
|
2,045 |
|
|
|
1,651 |
|
|
|
80.7 |
% |
Gain on sale of assets |
|
|
|
|
|
|
(25 |
) |
|
|
25 |
|
|
|
(100.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Heritage segment operating loss |
|
$ |
31,770 |
|
|
$ |
35,472 |
|
|
$ |
(3,702 |
) |
|
|
(10.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Our heritage expenses for 2009 were $31.8 million compared to $35.5 million in 2008.
Excluding the heritage legal claim settlement of $0.8 million in the second quarter of 2009
discussed in Items that Affect Comparability of Our Results, our heritage segment expenses
decreased by $2.9 million. This decrease was primarily driven by a revaluation due to the
elimination of postretirement medical benefits for our non-represented employees during the third
quarter of 2009 and reduced workers compensation expenses due to changes in interest rates and
favorable claims experience. These decreases were partially offset with an increase in cost
containment expenditures and unfavorable changes in the valuation of our Black Lung benefits trust
assets and liabilities due to changes in interest rates.
58
Corporate Segment Operating Results
Our corporate segments operating expenses totaled $8.1 million in 2009 compared to $12.7
million in 2008. Excluding the restructuring charge of $2.0 million in 2008 discussed in Items
that Affect Comparability of Our Results, our corporate segment operating expenses decreased by
$2.7 million. This decrease related to cost control efforts and a reduction in our stock
compensation expense.
Nonoperating Results (including other income (expense), income tax benefit (expense), and
net loss attributable to noncontrolling interest)
Our other expense for 2009 decreased to $14.5 million compared with $31.6 million of expense
in 2008. Excluding the $5.1 million impact of the fair value adjustment on derivative and related
amortization of debt discount, $8.1 million of interest on the beneficial conversion feature
associated with our convertible debt issued in 2008, the $3.8 million loss on the extinguishment of
our WML debt, and the $1.3 million loss on the extinguishment of our power debt discussed in Items
that Affect Comparability of Our Results, our other expense increased $1.3 million. This increase
was driven by a $1.9 million decrease in interest income, which was partially offset with a $0.4
million decrease in interest expense as a result of our debt refinancing and a $0.2 million
increase in other income.
Our 2009 income tax benefit was $17.1 million compared with $0.9 million of expense in 2008.
Excluding the $17.1 million tax effect of other comprehensive income gains discussed in Items that
Affect Comparability of our Results, the remaining $1.0 million decrease resulted primarily from
lower state taxable income primarily driven by the customer outages.
Reconciliation of Adjusted EBITDA to Net Loss
The discussion in Results of Operations in 2010, 2009 and 2008 includes references to our
Adjusted EBITDA results. EBITDA and Adjusted EBITDA are supplemental measures of financial
performance that are not required by, or presented in accordance with, GAAP. EBITDA and Adjusted
EBITDA are key metrics used by us to assess our operating performance and we believe that EBITDA
and Adjusted EBITDA are useful to an investor in evaluating our operating performance because these
measures:
|
|
|
are used widely by investors to measure a companys operating performance without
regard to items excluded from the calculation of such terms, which can vary
substantially from company to company depending upon accounting methods and book value
of assets, capital structure and the method by which assets were acquired, among other
factors; and |
|
|
|
|
help investors to more meaningfully evaluate and compare the results of our
operations from period to period by removing the effect of our capital structure and
asset base from our operating results. |
Neither EBITDA nor Adjusted EBITDA is a measure calculated in accordance with GAAP. The items
excluded from EBITDA and Adjusted EBITDA are significant in assessing our operating results. EBITDA
and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation
from, or as a substitute for, analysis of our results as reported under GAAP. For example, EBITDA
and Adjusted EBITDA:
|
|
|
do not reflect our cash expenditures, or future requirements for capital and major
maintenance expenditures or contractual commitments; |
|
|
|
|
do not reflect income tax expenses or the cash requirements necessary to pay income
taxes; |
|
|
|
|
do not reflect changes in, or cash requirements for, our working capital needs; and |
|
|
|
|
do not reflect the significant interest expense, or the cash requirements necessary
to service interest or principal payments, on certain of our debt obligations. |
59
In addition, although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted
EBITDA do not reflect any cash requirements for such replacements. Other companies in our industry
and in other industries may calculate EBITDA and Adjusted EBITDA differently from the way that we
do, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and
Adjusted EBITDA should not be considered as measures of discretionary cash available to us to
invest in the growth of our business. We compensate for these limitations by relying primarily on
our GAAP results and using EBITDA and Adjusted EBITDA only as supplemental data.
The tables below show how we calculated Adjusted EBITDA and includes a breakdown by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Reconciliation of Adjusted EBITDA to Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(3,170 |
) |
|
$ |
(29,162 |
) |
|
$ |
(48,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense from continuing operations |
|
|
(141 |
) |
|
|
(17,136 |
) |
|
|
919 |
|
Other (income) loss |
|
|
2,587 |
|
|
|
(5,991 |
) |
|
|
284 |
|
Interest income |
|
|
(1,747 |
) |
|
|
(3,218 |
) |
|
|
(5,125 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
5,178 |
|
Interest expense attributable to beneficial conversion feature |
|
|
|
|
|
|
|
|
|
|
8,146 |
|
Interest expense |
|
|
22,992 |
|
|
|
23,733 |
|
|
|
23,130 |
|
Depreciation, depletion and amortization |
|
|
44,690 |
|
|
|
44,254 |
|
|
|
41,387 |
|
Accretion of ARO and receivable |
|
|
11,540 |
|
|
|
9,974 |
|
|
|
9,528 |
|
Amortization of intangible assets and liabilities |
|
|
590 |
|
|
|
279 |
|
|
|
598 |
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
77,341 |
|
|
|
22,733 |
|
|
|
35,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
2,009 |
|
Customer reclamation claim |
|
|
|
|
|
|
4,825 |
|
|
|
|
|
(Gain)/loss on sale of assets |
|
|
226 |
|
|
|
191 |
|
|
|
(1,425 |
) |
Share-based compensation |
|
|
4,049 |
|
|
|
2,552 |
|
|
|
2,733 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
81,616 |
|
|
$ |
30,301 |
|
|
$ |
38,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Adjusted EBITDA by Segment |
|
|
|
|
|
|
|
|
|
|
|
|
Coal |
|
$ |
81,681 |
|
|
$ |
51,207 |
|
|
$ |
57,743 |
|
Power |
|
|
22,664 |
|
|
|
18,117 |
|
|
|
26,493 |
|
Heritage |
|
|
(15,968 |
) |
|
|
(31,770 |
) |
|
|
(35,497 |
) |
Corporate |
|
|
(6,761 |
) |
|
|
(7,253 |
) |
|
|
(9,944 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
81,616 |
|
|
$ |
30,301 |
|
|
$ |
38,795 |
|
|
|
|
|
|
|
|
|
|
|
Significant Anticipated Variances between 2010 and 2011 and Related Uncertainties
We expect a number of factors to result in differences in our results of operation, financial
condition and liquidity in 2011 relative to 2010:
|
|
|
We expect significantly higher overall levels of cash and liquidity
throughout 2011 as a result of the issuance of the Parent Notes, as well as increased
coal operating profits and decreased heritage health benefit expenditures; |
|
|
|
|
We expect to take a charge to our earnings in 2011 of approximately $20.0
million as a result of the issuance of the Parent Notes and the mark-to-market
accounting of the conversion feature in our convertible notes; |
60
|
|
|
We expect an increase in the repayments of long-term debt resulting from our
WML Notes as well as from the various debt paid off with the proceeds of the Parent
Notes; |
|
|
|
|
We expect significantly higher overall levels of debt and interest expense
throughout 2011 as a result of the issuance of the Parent Notes; |
|
|
|
|
We expect to pay approximately $21.0 million of preferred stock dividends in
2011; |
|
|
|
|
We expect our overall coal tons delivered to decrease due to the December 31,
2010 expiration of a long-term coal supply contract at our Rosebud Mine. While this
decrease will drive a decrease in overall tonnage sold, we expect the expiration of
the contract to increase our profits and cash flow as our cost per ton sold was
significantly greater than the fixed price per ton we were receiving under the
contract; |
|
|
|
|
We expect our power operating profit to increase slightly due to the
significant maintenance expenses incurred in 2010 relating to a planned maintenance
shutdown. In addition, the ROVA credit agreements required us to perform certain
maintenance procedures that were not otherwise required. As a result, we expect the
termination of those agreements in connection with the completion of the Parent Notes
offering will result in further reductions in 2011 maintenance expenses; |
|
|
|
|
We expect an increase in our depreciation, depletion, and amortization
expense in 2011 due to increases in our asset reclamation obligation studies driving
increased depletion expense as well as slightly increased capital spending levels in
2011; |
|
|
|
|
We expect to make additional capital investments during 2011 in the range of
$40.0 to $50.0 million to improve our mining operations, decrease our equipment
maintenance costs, and increase our coal reserves. We expect these capital investments
to be funded through our mines operating cash flows or, if necessary, WMLs existing
credit facility or capital leases; and |
|
|
|
|
We expect an increase in our investments in bond collateral in the range of
$9.0 to $12.0 million primarily as a result of securing reclamation bonds for new
mining areas in 2011. |
We believe the net effect of the foregoing factors will result in an increase in cash flows in
2011 relative to 2010. Excluding the expected charge to our earnings in 2011 of approximately
$20.0 million explained above, we expect an overall increase in our results of operations due to
increased coal operating profits. Our outlook for 2011 is based on the information we currently
have available and contains certain assumptions regarding future economic conditions. Differences
in actual economic conditions compared with our assumptions could have a material impact on our
results in 2011 and in subsequent years.
Liquidity and Capital Resources
At March 31, 2011, we had $45.0 million of cash and cash equivalents and $23.1 million of
available borrowing capacity under our Westmoreland Mining LLC, or WML, revolving line of credit.
We anticipate that our cash flows from operations, cash on hand and available borrowing capacity
will be sufficient to meet our investing, financing, and working capital requirements for the next
several years.
Parent Notes Offering and Use of Proceeds
On February 4, 2011, we issued the Parent Notes, which are $150.0 million of 10.750% senior
secured notes. Our subsidiary, Westmoreland Partners, was a co-issuer of the notes. Interest is
due at an annual fixed rate of 10.750% and will be paid in cash semi-annually, in arrears, on
February 1 and August 1 of each year beginning August 1, 2011. The Parent Notes mature February
1, 2018. They are fully and unconditionally guaranteed by Westmoreland Energy LLC and WRI and
their respective subsidiaries (other than Absaloka Coal, LLC) and by certain other subsidiaries.
We received net proceeds from the sale of the Parent Notes in the offering of approximately
$135.0 million after deducting the Initial Purchasers discount of $7.5 million and offering costs
of $7.5 million. We repaid existing outstanding debt with those proceeds as follows: $52.7 million
to repay all outstanding term
61
and revolving line of credit at ROVA, including a make-whole payment of $9.1 million; $20.1
million to repay all outstanding term and revolving line of credit at WRI; and $2.5 million to
retire certain of our convertible notes. The holder of our convertible notes agreed to convert the
convertible notes not retired into shares of our common stock. In addition, we used $19.9 million
of the net proceeds to pay all dividend arrearages on our preferred stock. We will use the
remaining net proceeds from the offering for general corporate purposes including the possible
acquisition of new reserves. The indenture governing the Parent Notes requires us to offer to
redeem the notes on an annual basis with certain Excess Cash Flow (as defined in the indenture),
and amounts used for such redemptions will not be available for other purposes.
In connection with the Parent Notes offering, we terminated the WRI and ROVA revolving credit
agreements. The WML Credit Agreements remained in place following the offering. Following the
Parent Notes offering, we are able to enter into a parent-level revolving credit facility without
the consent of the holders of the notes, subject to certain conditions.
Liquidity Limitations and Requirements
The cash at WML is available to us through quarterly distributions. The WML credit agreement
requires a debt service account and imposes timing and other restrictions on the ability of WML to
distribute funds to us. Cash available from WML is affected beginning in June of this year by
payments due in respect of principal on the WML Notes. Following the February 4, 2011 Parent Notes
offering, we expect that distributions from ROVA and WRI will comprise a significant source of
liquidity for us. The cash at WRM is also available to us through dividends, subject to
maintaining a statutory minimum level of capital, which was $0.1 million at March 31, 2011.
Our liquidity continues to be affected by our heritage health and pension obligations as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Remaining |
|
|
|
Year-to-date |
|
|
Expected |
|
|
|
2011 Actual |
|
|
Amounts |
|
|
|
(In millions) |
|
Postretirement medical benefits |
|
$ |
3.3 |
|
|
$ |
10.3 |
|
Pension contributions |
|
|
0.9 |
|
|
|
9.3 |
|
CBF premiums |
|
|
0.7 |
|
|
|
2.0 |
|
Workers compensation benefits |
|
|
0.2 |
|
|
|
0.8 |
|
In addition to the Parent Notes mentioned above, WML has $125.0 million of fixed rate
term debt outstanding at March 31, 2011. Principal on the notes is scheduled to be paid as
follows: $7.5 million in 2011, $14.0 million in 2012, $18.0 million in 2013, $18.0 million in 2014,
$20.0 million in 2015, $20.0 million in 2016, $22.0 million in 2017 and the remaining $5.5 million
in 2018. The revolving credit facility has a borrowing limit of $25.0 million and matures in June
2013. At March 31, 2011, WML had no outstanding balance under the revolving credit facility and a
letter of credit of $1.9 million supported by the revolving credit facility, leaving it with $23.1
million of unused borrowings. WMLs revolving line of credit is only available to fund the
operations of its subsidiaries.
WMLs credit agreement contains various affirmative and negative covenants. Operational
covenants in the agreements prohibit, among other things, WML from incurring or guaranteeing
additional indebtedness, creating liens on its assets, making investments or engaging in asset
sales or transactions with affiliates, in each case subject to specified exceptions. Financial
covenants in the agreements impose requirements relating to specified debt service coverage and
leverage ratios. The debt service coverage ratio must meet or exceed a specified minimum. The
leverage ratio covenant requires that WML not permit the ratio of total debt at the end of each
quarter to EBITDA (both as defined) for the four quarters then ended to be greater than a specified
amount. WML met all of its covenant requirements as of March 31, 2011 and expects to meet all
covenant requirements for the foreseeable future.
WMLs term debt and revolving credit facility are secured by substantially all of the assets
of WML and its subsidiaries (other than Texas Westmoreland Coal Co., or TWCC), our membership
interests in WML, including certain dividends and other proceeds from such interests, and
substantially all of the stock of WMLs subsidiaries other than TWCC.
62
|
|
Historical Sources and Uses of Cash for Three Months Ended March 31, 2011 Compared to
Three Months Ended March 31, 2010 |
|
|
|
The following is a summary of cash provided by or used in each of the indicated types of
activities: |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2011 |
|
2010 |
|
|
(In thousands) |
Cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
16,182 |
|
|
$ |
13,296 |
|
Investing activities
|
|
|
(5,884 |
) |
|
|
(3,941 |
) |
Financing activities
|
|
|
28,911 |
|
|
|
(2,114 |
) |
Cash provided by operating activities increased $2.9 million in the three months ended
March 31, 2011 compared to the three months ended March 31, 2010 primarily due to an increase in
operating income.
Cash used in investing activities increased $1.9 million in the three months ended March 31,
2011 compared to the three months ended March 31, 2010. We received $1.5 million less of proceeds
from the sale of assets and investments in the three months ended March 31, 2011 compared to the
same period in 2010.
Cash provided by financing activities increased by $31.0 million for the three months ended
March 31, 2011 compared to the three months ended March 31, 2010, primarily as a result of the
Parent Notes offering.
Our working capital deficit at March 31, 2011 decreased by $34.8 million to $1.0 million
compared to a $35.8 million deficit at December 31, 2010 primarily as a result of a $39.2 million
increase in cash and cash equivalents mostly due to the Parent Notes offering.
|
|
Historical Sources and Uses of Cash for Year Ended December 31, 2010 Compared to Year Ended
December 31, 2009 |
The following is a summary of cash provided by or used in each of the indicated types of
activities:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2010 |
|
2009 |
|
|
(In thousands) |
Cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
45,353 |
|
|
$ |
29,448 |
|
Investing activities
|
|
|
(29,180 |
) |
|
|
(38,597 |
) |
Financing activities
|
|
|
(20,917 |
) |
|
|
(20,273 |
) |
Cash provided by operating activities increased $15.9 million in 2010 compared to 2009
primarily as a result of a $26.0 million reduction in net loss in 2010. The increase in operating
cash flows was partially offset by the $17.9 million decrease in cash receipts due to a
contractually scheduled decrease in the payments ROVA collects from its customer.
Cash used in investing activities decreased $9.4 million in 2010 compared to 2009 primarily as
a result of the reduction in our capital spending in 2010. Additions to property, plant and
equipment were $22.8 million in 2010 compared to $34.5 million in 2009.
Cash used in financing activities in 2010 remained consistent with 2009.
Our working capital deficit at December 31, 2010 decreased by $39.2 million to approximately
$35.8 million compared to a $75.0 million deficit at December 31, 2009 primarily as a result of a
decrease in current installments of long-term debt and also a decrease in Other current liabilities
due to the payment of a settlement for reclamation claims.
63
Contractual Obligations and Commitments
The following table presents information about our contractual obligations and commitments as
of December 31, 2010, and the effects such obligations are expected to have on liquidity and cash
flow in future periods. Some of the amounts below are estimates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
Total |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
After 2015 |
|
|
(In thousands) |
|
Long-term debt obligations(1)
(principal and interest)
|
|
$ |
279,738 |
|
|
|
51,731 |
|
|
|
40,076 |
|
|
|
61,264 |
|
|
|
38,008 |
|
|
|
35,880 |
|
|
|
52,779 |
|
Capital lease obligations (principal and
interest)
|
|
|
30,293 |
|
|
|
8,714 |
|
|
|
8,319 |
|
|
|
7,077 |
|
|
|
4,461 |
|
|
|
1,617 |
|
|
|
105 |
|
Operating lease obligations
|
|
|
18,311 |
|
|
|
6,665 |
|
|
|
4,243 |
|
|
|
2,827 |
|
|
|
2,233 |
|
|
|
1,625 |
|
|
|
718 |
|
Purchase obligations(2)
|
|
|
105,534 |
|
|
|
28,552 |
|
|
|
28,552 |
|
|
|
28,552 |
|
|
|
17,077 |
|
|
|
2,801 |
|
|
|
|
|
Other long-term liabilities(3)
|
|
|
1,096,065 |
|
|
|
44,442 |
|
|
|
41,937 |
|
|
|
42,308 |
|
|
|
54,298 |
|
|
|
42,763 |
|
|
|
870,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
1,529,941 |
|
|
|
140,104 |
|
|
|
123,127 |
|
|
|
142,028 |
|
|
|
116,077 |
|
|
|
84,686 |
|
|
|
923,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ProForma long-term debt
obligations(4) (principal and
interest)
|
|
$ |
435,022 |
|
|
|
26,098 |
|
|
|
39,661 |
|
|
|
43,918 |
|
|
|
40,898 |
|
|
|
41,355 |
|
|
|
243,092 |
|
|
|
|
(1) |
|
On February 4, 2011, we refinanced our convertible notes, WRIs term and revolving
line of credit and ROVAs term debt. |
|
(2) |
|
Our purchase obligations relate to coal supply agreements for our power plants. |
|
(3) |
|
Represents benefit payments for our postretirement medical benefits, black lung,
workers compensation, and combined benefit fund plans, as well as contributions for our
defined benefit pension plans and final reclamation costs. |
|
(4) |
|
Amounts shown are subsequent to the Parent Notes offering in February 2011. |
Critical Accounting Policies
Postretirement Medical Benefits
We have an obligation to provide postretirement medical benefits to our former employees and
their dependents.
Our liability for our employees postretirement medical benefit costs is recorded on our
consolidated balance sheets in amounts equal to the actuarially determined liability, as this
obligation is not funded. We use various assumptions including the discount rate and future cost
trends, to estimate the cost and obligation for this item. Our discount rate for postretirement
medical benefit is determined by utilizing a hypothetical bond portfolio model, which approximates
the future cash flows necessary to service our liability. This model is calculated using a yield
curve that is developed using the average yield for bonds in the tenth to ninetieth percentiles,
which excludes bonds with outlier yields.
We make assumptions related to future trends for medical care costs in the estimates of
retiree health care obligations. Our medical trend assumption is developed by annually examining
the historical trend of our cost per claim data and projecting forward the participant claims and
our current benefit coverage. These projections include the continuation of cost savings we
achieved in 2010 from the
modernization of how we provide prescription drug benefits to retirees. If our assumptions do
not materialize as expected, actual cash expenditures and costs that we incur could differ
materially from our current estimates. Moreover, regulatory changes could increase our obligation
to satisfy these or additional obligations.
The PPACA could potentially impact these benefits. The PPACA has both short-term and
long-term implications on healthcare benefit plan standards. Implementation of this legislation is
planned to occur in phases, with plan standard changes taking effect beginning in 2010, but to a
greater extend with the 2011 benefit plan year and extending through 2018. We will continue to
evaluate the impact of the PPACA in future periods as additional information, interpretations and
guidance becomes available.
64
Below we have provided a sensitivity analysis to demonstrate the significance of the health
care cost trend rate assumptions in relation to reported amounts.
|
|
|
|
|
|
|
|
|
|
|
Postretirement Medical Benefits |
Health Care Cost Trend Rate |
|
1% Increase |
|
1% Decrease |
|
|
(In thousands) |
Effect on service and interest cost components
|
|
$ |
1,282 |
|
|
$ |
(1,079 |
) |
Effect on postretirement medical benefit obligation
|
|
$ |
22,565 |
|
|
$ |
(19,116 |
) |
Asset Retirement Obligations, Final Reclamation Costs and Reserve Estimates
Our asset retirement obligations primarily consist of cost estimates for final reclamation of
surface land and support facilities at both surface mines and power plants in accordance with
federal and state reclamation laws. Asset retirement obligations are based on projected pit
configurations at the end of mining and are determined for each mine using estimates and
assumptions including estimates of disturbed acreage as determined from engineering data, estimates
of future costs to reclaim the disturbed acreage, the timing of these cash flows, and a
credit-adjusted, risk-free rate. As changes in estimates occur such as mine plan revisions,
changes in estimated costs, or changes in timing of the final reclamation activities, the
obligation and asset are revised to reflect the new estimate after applying the appropriate
credit-adjusted, risk-free rate to the changes. If our assumptions do not materialize as expected,
actual cash expenditures and costs that we incur could be materially different from currently
estimated. Moreover, regulatory changes could increase our obligation to perform final reclamation
and mine closing activities.
Certain of our customers have either agreed to reimburse us for final reclamation expenditures
as they are incurred or have pre-funded a portion of the expected reclamation costs.
Income Taxes and Deferred Income Taxes
As of March 31, 2011, we had significant deferred tax assets. Our deferred tax assets include
federal and state regular net operating losses, or NOLs, alternative minimum tax, or AMT, credit
carryforwards, Indian Coal Tax Credits, or ICTC, carryforwards, and net deductible reversing
temporary differences related to on-going differences between book and taxable income.
We believe we will be taxed under the AMT system for the foreseeable future due to the
significant amount of statutory tax depletion in excess of book depletion expected to be generated
by our mining operations. As a result, we have determined that a valuation allowance is required
for all of our regular federal net operating loss carryforwards and AMT credit carryforwards since
they are only available to offset future regular taxes.
We have recorded a full valuation allowance for all but $2.9 million of our state NOLs since
we believe they will not be realized. No valuation allowance is being provided on $2.9 million of
deferred tax assets because we believe that these NOLs will be used to offset our liabilities
relating to our uncertain tax positions.
We have determined that a full valuation allowance is required for all of our ICTC
carryforward. The ICTC can generally be used to offset AMT liability. We do not believe we have
sufficient positive evidence to substantiate that our deferred tax asset for the ICTC carryforward
is realizable at a more-likely-than-not level of assurance. As a result, we will continue to
record a full valuation allowance on our ICTC carryforward; reversing valuation allowance only if
utilized in a future year.
We have determined that since our net deductible temporary differences will not reverse for
the foreseeable future, and we are unable to forecast when we will have regular taxable income when
they do reverse, a full valuation allowance is required for these deferred tax assets, other than
the deferred tax asset
relating to our uncertain tax positions.
The tax effect of pretax income or loss from continuing operations is generally determined by
a computation that does not consider the tax effects of items that are not included in continuing
operations. The exception to that incremental approach is that all items (for example, items
recorded in other comprehensive
65
income, extraordinary items, and discontinued operations) be
considered in determining the amount of tax benefit that results from a loss from continuing
operations and that shall be allocated to continuing operations.
Recent Accounting Pronouncements
In January 2010, the FASB issued authoritative guidance, which requires additional disclosures
and clarifies certain existing disclosure requirements regarding fair value measurements. Portions
of this guidance are effective for interim and annual reporting periods beginning after December
15, 2009 while other portions are effective for interim and annual reporting periods beginning
after December 15, 2010. We adopted this guidance effective January 1, 2010 by making the
applicable disclosures.
On January 1, 2009, we adopted accounting guidance that clarifies how to determine whether
certain instruments or features are indexed to an entitys own stock. This guidance was effective
for financial statements issued for fiscal years beginning after December 15, 2008 and interim
periods within those fiscal years. We recorded a cumulative effect of change in accounting
principles upon adoption of this guidance.
On January 1, 2009, we adopted accounting guidance that establishes accounting and reporting
standards for (1) noncontrolling interests in partially owned consolidated subsidiaries and (2) the
loss of control of subsidiaries. This guidance requires noncontrolling interests (minority
interests) to be reported as a separate component of equity. The amount of net income or loss
attributable to the noncontrolling interests will be included in consolidated net income or loss on
the face of the income statement. In addition, this guidance requires that a parent recognize a
gain or loss in net income or loss when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the noncontrolling equity investment on the deconsolidation date.
This guidance also includes expanded disclosure requirements regarding the interests of the parent
and its noncontrolling interest. We recorded $2.6 million and $1.8 million, respectively, of net
loss attributable to noncontrolling interest for the years ended December 31, 2010 and December 31,
2009, which is reflected in our consolidated financial statements.
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to certain off-balance sheet arrangements.
These arrangements include financial instruments with off-balance sheet risk such as bank letters
of credit and performance or surety bonds. Surety bonds and letters of credit are issued by
financial institutions to third parties to assure the performance of our obligations relating to
reclamation, workers compensation obligations, postretirement medical benefit obligations, and
other obligations. These arrangements are not reflected in our consolidated balance sheets, and we
do not expect any material adverse effects on our financial condition, results of operations or
cash flows to result from these off-balance sheet arrangements.
We use a combination of surety bonds and letters of credit to secure our financial obligations
for reclamation, workers compensation, postretirement medical benefit and other obligations as
follows as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post |
|
|
|
|
|
|
|
|
|
|
|
|
|
Workers |
|
|
Retirement |
|
|
|
|
|
|
|
|
|
Reclamation |
|
|
Compensation |
|
|
Medical Benefit |
|
|
|
|
|
|
|
|
|
Obligations |
|
|
Obligations |
|
|
Obligations |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Surety bonds |
|
$ |
230,367 |
|
|
$ |
10,303 |
|
|
$ |
9,432 |
|
|
$ |
4,245 |
|
|
$ |
254,347 |
|
Letters of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,556 |
|
|
|
8,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
230,367 |
|
|
$ |
10,303 |
|
|
$ |
9,432 |
|
|
$ |
12,801 |
|
|
$ |
262,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no material changes to our off-balance sheet arrangements during the three
months ended March 31, 2011.
66
CHANGE IN AUDITORS
Change in Independent Public Accounting Firm
On January 6, 2009, we notified KPMG LLP that, upon completion of the 2008 audit engagement
and the filing of the Form 10-K for the year ending December 31, 2008, it would be dismissed as our
independent registered public accounting firm. The decision to change accounting firms was approved
by our Audit Committee. On March 13, 2009, KPMG completed its audit services for the Company for
the fiscal year ended December 31, 2008.
During the years ended December 31, 2008 and 2007 and the subsequent period through the date
of the filing of the Form 8-K/A on March 23, 2009, we had no: (1) disagreements with KPMG on any
matter of accounting principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements, if not resolved to KPMGs satisfaction, would have caused KPMG to
make reference in connection with their opinion to the subject matter of the disagreement; or (2)
reportable events, except as described below. Our management has authorized KPMG to respond fully
to the inquiries of the new independent registered public accounting firm regarding all matters.
KPMGs reports on our consolidated financial statements as of and for the years ended December
31, 2008 and 2007 did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles, except that the
audit report of KPMG on the consolidated financial statements of Westmoreland and subsidiaries for
the year ended December 31, 2008 expressed the opinion that various factors raised substantial
doubt about our ability to continue as a going concern. The audit reports of KPMG on the
effectiveness of internal control over financial reporting as of December 31, 2008 did not contain
any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope, or accounting principles. The audit reports of KPMG on the effectiveness of internal
control over financial reporting as of December 31, 2007 did not contain any adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles, except that KPMGs report indicated that we did not maintain effective
internal control over financial reporting as of December 31, 2007 because of the effect of material
weaknesses on the achievement of the objectives of the control criteria and contained an
explanatory paragraph that stated that: Management identified and included in its assessment
material weaknesses related to electronic spreadsheets that impact the Companys financial
reporting, census data used to calculate postretirement medical benefit obligations, and the
accounting for one of the Companys stock based compensation plans.
We requested and obtained from KPMG a letter addressed to the Securities and Exchange
Commission stating whether or not it agreed with the above statements. A copy of KPMGs letter,
dated March 16, 2009, is filed as Exhibit 16.1 to our Current Report on Form 8-K/A filed March 23,
2009.
Engagement of Ernst & Young LLP
On January 8, 2009, our Audit Committee approved the engagement of Ernst & Young LLP as our
new independent registered public accounting firm beginning with fiscal year 2009, and to perform
procedures related to the financial statements to be included in our quarterly report on Form 10-Q,
beginning with, and including, the quarter ending March 31, 2009. We did not consult with Ernst &
Young during the fiscal years ended December 31, 2007 and December 31, 2008, or during any
subsequent period prior to its appointment as our auditor with respect to any of the matters or
events listed in Regulations S-K 304(a)(2)(i) and (ii).
DESCRIPTION OF THE EXCHANGE NOTES
You can find the definitions of certain terms used in this description under Certain
Definitions below. Certain defined terms used in this description, but not defined below under the
caption Certain Definitions have the meanings assigned to them in the Indenture.
In this description, the term Company refers only to Westmoreland Coal Company, a Delaware
corporation, and not to any of its subsidiaries. The Company and Westmoreland Partners (the
Co-Issuer) issued the Restricted Notes and will issue the Exchange Notes under the indenture (the
Indenture), dated February 4, 2011, among the Company, Co-Issuer, the Guarantors and Wells Fargo
Bank, National Association, as trustee (the trustee). The term Notes refers to the Restricted
Notes, the Exchange Notes and any other Notes
67
issued under the Indenture. The terms of the Notes
include those stated in the Indenture and those made a part of the Indenture pursuant to the Trust
Indenture Act.
The following description is a summary of the material provisions of the Indenture. It does not
restate the Indenture in its entirety. We urge you to read the Indenture because it, and not this
description, define your rights as a holder of the Notes. Anyone who receives this prospectus may
obtain a copy of the Indenture from the Company without charge upon request.
The registered holder of a Note will be treated as the owner of it for all purposes. Only
registered holders will have rights under the Indenture.
Principal, Maturity and Interest
The Notes will mature on February 1, 2018. The Notes will bear interest at the rate shown on
the cover page of this offering memorandum, payable on February 1st and August 1st of each year,
commencing on August 1, 2011, to Holders of record at the close of business on January 15 or July
15, as the case may be, immediately preceding the relevant interest payment date. Interest on the
Notes will be computed on the basis of a 360-day year of twelve 30-day months. Interest (including
post-petition interest in any proceedings under bankruptcy law) on overdue principal and (to the
extent permitted by law) on overdue installments of interest and Additional Interest will accrue at
2% per annum in excess of such rate without regard to any applicable grace period.
The Notes will be issued in registered form, without coupons, and in denominations of $2,000
and integral multiples of $1,000 in excess thereof.
An aggregate principal amount of Notes equal to $150.0 million is being issued in this
offering. The Issuer and the Co-Issuer may issue additional Notes having identical terms and
conditions to the Notes, except for issue date, issue price and first interest payment date, in an
unlimited aggregate principal amount (the Additional Notes), subject to compliance with the
covenant described under Certain Covenants Limitations on Additional Indebtedness and
Preferred Stock; provided, that the Co-Issuer shall not be permitted to issue Additional Notes
independently of the Issuer. Any Additional Notes will be part of the same issue as the Notes being
issued hereby and will be treated as one class with the Notes being issued in this offering,
including for purposes of voting, redemptions and offers to purchase. For purposes of this
Description of the Exchange Notes, except for references to Additional Notes in the covenant
described under Certain Covenants Limitations on Additional Indebtedness and Preferred
Stock, references to the Notes include Additional Notes, if any, and Exchange Notes when issued.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the Issuer at least ten Business Days
prior to the applicable payment date, the Issuer will make all payments on such Holders Notes by
wire transfer of immediately available funds to the account specified in those instructions to an
account in the United States. Otherwise, payments on the Notes will be made at the office or agency
of the paying agent (the Paying Agent) and registrar (the Registrar) for the Notes within the
City and State of New York unless the Issuer elects to make interest payments by check mailed to
the Holders at their addresses set forth in the register of Holders.
Note Guarantees
The obligations of the Issuer and the Co-Issuer under the Notes, the Indenture and other
related documents will be jointly and severally guaranteed (the Note Guarantees), on a senior
secured basis, by
each Restricted Subsidiary that the Issuer shall cause to become a Guarantor pursuant to the
terms of the Indenture. The Guarantors will initially consist of WRI, Westmoreland Power Inc.,
Westmoreland Energy LLC and its direct and indirect Subsidiaries other than the Co-Issuer,
Westmoreland Mining Services, Inc., Westmoreland Coal Sales Co., WCC Land Holding Company, Inc. and
WRI Partners Inc. In the event all of the outstanding obligations under the WML Notes are repaid in
full or refinanced (the date of such repayment or refinancing, the WML Repayment Date), the
Issuer shall be required to cause WML and its Subsidiaries to become guarantors of the Notes on the
terms applicable to the other Subsidiary Guarantors. The Note Guarantees will be secured as
described in Security General. Not all of our subsidiaries will guarantee the Notes. See
Non-Guarantor Subsidiaries.
68
The obligations of each Guarantor under its Note Guarantee will be limited to the maximum
amount as will result in those obligations not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law, after giving effect to (i) all other contingent and fixed
liabilities of the Guarantor (including, without limitation, any guarantees under any future
revolving credit agreement permitted under the Indenture) and (ii) any collections from or payments
made by or on behalf of any other Guarantor in respect of its contribution obligations under the
Indenture. Each Guarantor that makes a payment for distribution under its Note Guarantee is
entitled to a contribution from each other Guarantor in a pro rata amount based on adjusted net
assets of each Guarantor determined in accordance with GAAP.
Any Restricted Subsidiary of the Issuer, Co-Issuer or of a Guarantor created or acquired after
the Issue Date, or any Unrestricted Subsidiary that becomes a Restricted Subsidiary after the Issue
Date, will be required to guarantee the Notes pursuant to a supplemental indenture on a senior
secured basis, except that a newly created Subsidiary of WML or its Subsidiaries is prohibited from
being a Guarantor until the WML Notes are repaid or refinanced.
A Guarantor shall be automatically released from its obligations under its Note Guarantee and
the Indenture, and any of its assets that constitute Collateral will be released from the Liens
created by the Security Documents:
(1) in the event of a sale or other disposition of all or substantially all of the
assets of such Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the Equity Interests of such Guarantor then held by the Issuer,
Co-Issuer or any Restricted Subsidiary; provided, that in the case of a sale or disposition
constituting an Asset Sale, the Net Available Proceeds of such sale or other disposition
are applied in accordance with the provisions under the heading Certain Covenants
Limitations on Asset Sales;
(2) if such Guarantor is designated as an Unrestricted Subsidiary in accordance with
the provisions of the Indenture, upon effectiveness of such designation; or
(3) if the Notes are discharged or defeased in accordance with the procedures
described below under Legal Defeasance and Covenant Defeasance and Satisfaction
and Discharge below.
Non-Guarantor Subsidiaries
Certain of the Issuers Restricted Subsidiaries will not be Guarantors of the Notes. These
Restricted Subsidiaries are WML and its Subsidiaries, Absaloka and WRM. In addition, WML and its
Subsidiaries will not provide any Security for the Notes, provided, that the Notes will be secured
by the Note First-Priority Lien on the WML Payments Collateral. The Issuers non-guarantor
Subsidiaries comprise a significant portion of its overall business. For the twelve months ended
December 31, 2010, the Issuers non-guarantor Subsidiaries represented $416.4 million, or
approximately 82%, of our revenues. As of March 31, 2011, our non-guarantor Subsidiaries
represented $407.4 million, or 52%, of our total assets and $485.3 million, or approximately 53%,
of our total liabilities and WML would have had the ability to incur an additional $23.1 million of
Indebtedness under the WML Credit Agreements, to which liabilities and other Indebtedness the Notes
would be structurally subordinated. In the twelve months ended December 31, 2010, WML and its
Subsidiaries distributed $33.7 million in management fees and other
distributions to the Issuer. The WML Credit Agreements contain limitations on WMLs ability to
pay dividends and make other payments to the Issuer, as described in Description of Other
IndebtednessWML Credit Agreements.
In addition, WML has $125.0 million of fixed rate term debt (represented by the WML Notes)
outstanding at June 2, 2011, which bears interest at 8.02% per annum, payable quarterly. The term
debt, by its terms, is payable in full on March 31, 2018. WML also has a revolving credit facility
with a borrowing limit of $25.0 million and a maturity date of June 26, 2013. The interest rate
under this revolving credit facility at June 2, 2011, was 3.75% per annum. At June 2, 2011, WML had
a letter of credit of $1.9 million under its revolving credit facility, but no other borrowings
thereunder. The WML term debt represented by the WML Notes and the WML credit agreement are
collectively referred to as the WML Credit Agreements.
The Notes will be structurally subordinated to all existing and future liabilities and
preferred stock of the nonguarantor Subsidiaries, including, with respect to WML, indebtedness
under the WML Credit Agreements. This means that in the event of a bankruptcy, liquidation or
reorganization of any of these entities, or if an event of default occurs under financing
arrangements obtained by these entities, they will pay
69
the holders of their debts and their trade
creditors before they will be able to distribute any of their assets to the Issuer. See Risk
Factors Risks Related to the Notes and the Collateral The Notes will be structurally
subordinated to indebtedness and other liabilities of our non-guarantor subsidiaries.
In addition, the WML Credit Agreements contain terms of which you should be aware. In
particular, those agreements require WML to maintain its status as a single purpose entity by,
among other things, maintaining its own separate books and records, holding its assets and credit
out as separate from those of any other person, including the Issuer, and conducting its day-to-day
operations with a significant degree of independence from the Issuer. The terms of the Notes
reflect the requirements of the WML Credit Agreements. For example, the definition of Permitted
Liens under the Indenture encompasses liens WML and its Subsidiaries would be allowed to create as
permitted liens under the WML Credit Agreements, and the definition of Permitted Investments under
the Indenture includes investments permitted under the WML Credit Agreements.
Restricted and Unrestricted Subsidiaries
As of the date of the Indenture, all of the Subsidiary Guarantors, WML and its Subsidiaries,
WRM and Absaloka will be Restricted Subsidiaries. Our Subsidiary, Basin Resources Inc. will be an
Unrestricted Subsidiary and will not guarantee the Notes. Under the circumstances described below
under the subheading Certain Covenants Limitations on Designation of Unrestricted
Subsidiaries, the Issuer will be permitted to designate certain other Subsidiaries as
Unrestricted Subsidiaries. The effect of designating a Subsidiary as an Unrestricted Subsidiary
will be that:
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an Unrestricted Subsidiary will not be subject to many of the restrictive
covenants in the Indenture; |
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a Subsidiary that has previously been a Guarantor and that is designated an
Unrestricted Subsidiary will be released from its Note Guarantee, the Indenture and
the Security Documents, and any of its assets that constitute Collateral will be
released from the Liens of the Security Documents; and |
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the assets, income, cash flow and other financial results of an Unrestricted
Subsidiary will not be consolidated with those of the Issuer and Co-Issuer for
purposes of calculating compliance with the restrictive covenants contained in the
Indenture. |
Ranking
Senior Notes
The Notes will be general senior secured obligations of the Issuer, the Co-Issuer and the
Subsidiary Guarantors that will rank equally in right of payment with all existing and future
Senior Indebtedness of the Issuer, the Co-Issuer and the Subsidiary Guarantors. The Notes will
effectively rank senior to all Unsecured Indebtedness of the Issuer, the Co-Issuer, the Subsidiary
Guarantors and Absaloka to the extent of the value of the Note Collateral securing such
obligations. Under the terms of the Indenture, the Issuer, the Co-Issuer, the Subsidiary Guarantors
and Absaloka will be permitted following the Issue Date to enter into or guarantee the Revolving
Credit Facility with a maximum availability of up to $20.0 million that may be secured by the
Revolving Facility First-Priority Liens on the Revolving Facility First-Priority Collateral.
Concurrent with the Revolving Credit Facility, an intercreditor agreement would be entered into
between the Note Collateral Agent and the collateral agent under the Revolving Credit Facility
providing: (i) that the Notes will have a second-priority Lien in the accounts receivable and
inventory, and proceeds and products thereof, (ii) identifying the rights of the respective lenders
in the event of default under either the Notes or the Revolving Credit Facility or a bankruptcy,
liquidation, reorganization or other winding up, or sale, of the Issuer, the Co-Issuer or any
Guarantor or Absaloka, and (iii) providing other terms of the intercreditor relationship. See
Security Intercreditor Agreement to be Entered into in Connection with a Future Revolving Credit
Facility. In any of such events, the assets of the Issuer, the Co-Issuer, the Subsidiary
Guarantors and Absaloka that secure the Revolving Credit Facility will only be available to pay
obligations on the Notes and the Note Guarantees in accordance with the terms and conditions of
such intercreditor agreement.
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Ranking of Note Guarantees
The Guarantors will, jointly and severally, fully and unconditionally guarantee on a senior
secured basis the due and punctual payment of principal of, premium, if any, and interest on, the
Notes. See Security General for a description of the assets securing the guarantees.
Under certain circumstances described under Certain Covenants Additional Note
Guarantees, we are required to cause the execution and delivery of additional Note Guarantees by
Restricted Subsidiaries.
Optional Redemption
The Notes may not be redeemed prior to February 1, 2015. At any time or from time to time on
or after February 1, 2015, upon not less than 30 nor more than 60 days notice, the Issuer, at its
option, may redeem the Notes, in whole or in part, at the redemption prices (expressed as
percentages of principal amount) set forth below, together with accrued and unpaid interest
thereon, if any, to the redemption date, if redeemed during the twelve-month period beginning
February 1 of the years indicated:
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Optional |
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Year |
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Redemption Price |
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2015 |
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103.583 |
% |
2016 |
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101.792 |
% |
2017 and thereafter |
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100.000 |
% |
Redemption with Proceeds from Qualified Equity Offerings
At any time or from time to time prior to February 1, 2015, the Issuer, at its option, may
redeem up to 35% of the aggregate principal amount of the Notes issued under the Indenture
(including the principal amount of any Additional Notes issued under the Indenture but without
duplication with respect to Exchange Notes) with the net cash proceeds of one or more Qualified
Equity Offerings at a redemption price equal to 110.75% of the principal amount of the Notes to be
redeemed, plus accrued and unpaid interest thereon, if any, to the date of redemption; provided,
that (1) at least 65% of the aggregate principal amount of Notes (including the principal amount of
any Additional Notes issued under the Indenture but without duplication with respect to Exchange
Notes) issued under the Indenture remains outstanding immediately after the occurrence of such
redemption and (2) the redemption occurs within 60 days of the date of the closing of any such
Qualified Equity Offering.
The Issuer may acquire Notes by means other than a redemption, whether pursuant to an issuer
tender offer, open market purchase or otherwise, so long as the acquisition does not otherwise
violate the terms of the Indenture.
Selection and Notice of Redemption
If the Issuer makes a partial redemption, selection of the Notes for redemption will be made
by the Trustee on a pro rata basis, by lot or by such method that complies with applicable legal
and securities exchange requirements, if any; provided, however, that no Notes of a principal
amount of $2,000 or less shall be redeemed in part and Notes shall be redeemed in higher integral
multiples of $1,000. In addition, if a partial redemption is made pursuant to the provisions
described under Optional Redemption Redemption with Proceeds from Qualified Equity
Offerings, selection of the Notes or portions thereof for redemption shall be made by the Trustee
only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to the
procedures of The Depository Trust Company), unless that method is otherwise prohibited.
Notice of redemption will be mailed by first-class mail at least 30 but not more than 60 days
before the date of redemption to each Holder of Notes to be redeemed at its registered address,
except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is
issued in connection with a defeasance of the Notes or a satisfaction and discharge of the
Indenture. If any Note is to be redeemed in part only, the notice of redemption that relates to
that Note will state the portion of the principal amount of the Note to be redeemed. A new Note in
a principal amount equal to the unredeemed portion of the Note will be issued in the name of the
Holder of the Note upon cancellation of the original Note. On and after the date of redemption,
interest will cease to accrue on Notes or portions thereof called for redemption and redeemed Notes
will be cancelled as of the redemption date so long as the Issuer has deposited with the paying
agent for
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the Notes funds in satisfaction of the redemption price (including accrued and unpaid
interest on the Notes to be redeemed) pursuant to the Indenture.
Security
General
The Notes and the Note Guarantees will be secured by:
(i) the Note First-Priority Liens granted by the Issuer, the Co-Issuer and the
Subsidiary Guarantors on substantially all of the tangible and intangible assets of the
Issuer, the Co-Issuer and the Subsidiary Guarantors (whether now owned or hereinafter
arising or acquired) pursuant to one or more First Lien Security Documents among the
Issuer, the Co-Issuer, the Subsidiary Guarantors and the Note Collateral Agent and, with
respect to assets consisting of Real Property and fixtures (whether now owned or
hereinafter arising or acquired), pursuant to mortgages, deeds of trust or deeds to secure
debt (the foregoing being the First Lien Collateral);
(ii) the Note First-Priority Lien on 100% of all management fees, dividends, and
distributions payable by WML to the Issuer, subject to the prior Lien under the WML Credit
Agreements and related WML Security Agreements, but only to the extent that such Lien
affects such management fees, dividends, and distributions (the foregoing being the WML
Payments Collateral);
(iii) the Note First-Priority Lien on all of the common shares of WRM held by the
Issuer (the foregoing being the WRM Collateral); and
(iv) the Note First-Priority Lien on any assets owned by Absaloka (the Absaloka
Collateral);
provided, that the First Lien Collateral, the WML Payments Collateral, the WRM Collateral and the
Absaloka Collateral will be subject to Permitted Liens and will not include any Excluded Property;
and provided, further, that, in the event the Issuer, the Co-Issuer, the Subsidiary Guarantors and
Absaloka enter into the Revolving Credit Facility secured by a first-priority Lien on the Revolving
Facility First-Priority Collateral, the Note First-Priority Liens will, pursuant to the terms of an
intercreditor agreement between the Note Collateral Agent and the collateral agent under the
Revolving Credit Facility, become a second-priority Lien on such Revolving Facility First-Priority
Collateral (the Second Lien Collateral). The First Lien Collateral, the WML Payments Collateral,
the WRM Collateral and the Absaloka Collateral and, if the Issuer, the Co-Issuer, the Subsidiary
Guarantors and Absaloka enter into a secured Revolving Credit Facility in the future, the Second
Lien Collateral, are, subject to Permitted Liens and the exclusion of Excluded Property,
collectively, the Note Collateral.
On the WML Repayment Date, the Issuer shall cause WML and its Subsidiaries to grant a Lien
(the WML Lien) in all of the WML Collateral existing on the WML Repayment Date or any assets
acquired thereafter in favor of the Trustee and the Holders of the Notes subject to Permitted Liens
and to the extent such WML Collateral does not constitute Excluded Property. The WML Collateral
shall be Note Collateral, and the WML Lien shall be a Note First-Priority Lien, and shall be
subject to the same terms, conditions and provisions described herein and in the Indenture and the
Security Documents with respect to the Note Collateral and the Note First-Priority Liens.
The Issuer, the Co-Issuer, the Subsidiary Guarantors and Absaloka will be required to perfect
on the Issue Date the security interests in the Note Collateral solely to the extent they can be
perfected by the filing of UCC-1 financing statements or the delivery of capital stock or
instruments. To the extent any such security interest cannot be perfected by filing or the delivery
of capital stock, the Issuer, the Co-Issuer, the Subsidiary Guarantors and Absaloka will be
required to have all security interests and Liens that are contemplated by the Indenture and the
Security Documents to be in place and perfected as soon as practicable following the Issue Date,
but in any event no later than (A) 90 days after the Issue Date, (B) such later date as the Trustee
agrees that the security interests and Liens in favor of the Holders of the Notes are required to
be in place or (C) 90 days after an asset ceases to be an Excluded Property. If the Issuer, the
Co-Issuer, any Subsidiary Guarantor or Absaloka were to become subject to a bankruptcy proceeding,
any Liens recorded or perfected after the Issue Date would face a greater risk of being invalidated
than if they had been recorded or perfected on the Issue Date. Security in real property will be
granted as described in Security General Certain Covenants with Respect to the Note
Collateral Real estate mortgages and filings.
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From and after the Issue Date, if the Issuer, the Co-Issuer, any Subsidiary Guarantor or
Absaloka creates any additional Lien upon any property to secure the Revolving Credit Facility
Obligations, it must concurrently grant a Note Second-Priority Lien upon such property (subject to
Permitted Liens) as security for the Notes substantially concurrently with granting any such
additional Lien.
The Liens in the Note Collateral securing the Notes and the Note Guarantees under the Security
Documents will rank (i) equally in priority with the security interest and Liens in and on the Note
Collateral securing any Senior Indebtedness and (ii) senior to any Unsecured Indebtedness. In
addition, the Notes will not be secured by any of the assets of any Subsidiary that is not a
Guarantor other than Absaloka. See Risk Factors Risks Related to the Notes and the Collateral
The Notes will be structurally subordinated to indebtedness and other liabilities of our
non-guarantor subsidiaries.
Intercreditor Agreement to be Entered into in Connection with a Future Revolving Credit Facility
After the Issue Date, the Issuer, the Co-Issuer, the Subsidiary Guarantors and Absaloka will
be permitted to enter into or guarantee the Revolving Credit Facility, which may be secured by the
Revolving Facility First-Priority Collateral. Notwithstanding the time, order or method of grant,
creation, attachment or perfection of any Liens securing the Notes, the Liens of the Notes on the
Revolving Facility First-Priority Collateral shall rank junior to the Revolving Facility
First-Priority Liens under the Revolving Credit Facility. Concurrent with the Revolving Credit
Facility, an intercreditor agreement will be entered into between the Note Collateral Agent, the
collateral agent under the Revolving Credit Facility (the Revolving Collateral Agent) and the
relevant borrowers and guarantors parties thereto on the terms described in this section in all
material respects (the Intercreditor Agreement). Compliance with this provision shall be
evidenced by an Officers Certificate delivered to the Trustee.
Prior to the discharge of the Revolving Facility First-Priority Liens, the Revolving
Collateral Agent will determine whether, and if so, the time and method by which to enforce its
Revolving Facility First-Priority Lien in the Revolving Facility First-Priority Collateral. Neither
the Note Collateral Agent nor the Revolving Collateral Agent will be permitted (whether directly or
indirectly) to enforce the security interests and other rights related to any Collateral upon which
it does not have a first-priority Lien or take any enforcement action against or in respect of the
Note Collateral in which it does not have a first-priority Lien, even if an Event of Default has
occurred and the Notes have been accelerated, except (i) in any insolvency or liquidation
proceeding of the Issuer, the Co-Issuer or any Significant Subsidiary, the Note Collateral Agent
may file a proof of claim with respect to the Notes or any Note Guarantee and (ii) exercise such
rights as described in the following paragraphs and certain other limited rights.
After the discharge of the Revolving Facility First-Priority Liens, the Note Collateral Agent,
acting at the instruction of the Holders of a majority in principal amount of the Notes, voting as
one class, in accordance with the provisions of the Indenture and the Security Documents, will
determine the time and method by which its liens in the Second Lien Collateral will be enforced
and, if applicable, will distribute proceeds (after payment of the costs of enforcement and Collateral administration) of the
Second Lien Collateral received by it under the Security Documents for the ratable benefit of the
Holders of the Notes.
The Note Collateral Agent may exercise rights and remedies with respect to the security
interests in the Second Lien Collateral after the passage of a period of 180 days from the first
date on which the Note Collateral Agent has notified the Revolving Collateral Agent that (i) an
Event of Default consisting of nonpayment of any principal or interest then due under the Notes has
been declared, or (ii) an Event of Default other than an Event of Default consisting of nonpayment
of any principal or interest then due under the Notes has been declared and the repayment of all
the principal amount under the Notes has been demanded. However, the Note Collateral Agent is only
permitted to exercise remedies to the extent that the Revolving Collateral Agent, or the secured
parties, under the Revolving Credit Facility Obligations are not diligently pursuing the exercise
of its rights and remedies with respect to a material portion of the Second Lien Collateral.
The rights of the Holders of the Notes with respect to the Second Lien Collateral securing the
Notes and the Note Guarantees will be materially limited pursuant to the terms of the Intercreditor
Agreement. Under the terms of such intercreditor agreement, the Note Second-Priority Liens in the
Revolving Facility First-Priority Collateral securing the Notes will rank junior to the Revolving
Facility First-Priority Liens. Any proceeds received upon a realization of the Revolving Facility
First-Priority Collateral securing the Revolving Credit Facility Obligations and the Notes will be
applied as follows:
73
(1) first, to the Revolving Collateral Agent to be applied as required under the
Revolving Credit Facility until the payment and discharge of the Revolving Credit Facility
Obligations has occurred; and
(2) second, to the Trustee to be applied ratably to the Holders of the Notes and in
such order as specified in the Indenture and the Security Documents (with the Note
Collateral Agent entitled to apply any proceeds in respect of the Notes to its costs and
expenses prior to principal and interest being paid to the Holders of the Notes).
In the event of any release of the Note Collateral under the Indenture or Revolving Credit
Facility, as the case may be, (i) in connection with an exercise of remedies (even if, with respect
to the Revolving Facility First-Priority Collateral, such release violates the Indenture but
complies with the Intercreditor Agreement) or (ii) that does not cause an express Default under the
Indenture, the Note Liens on the Note Collateral and the Revolving Facility First-Priority
Collateral will be automatically released and the Agents will be required to take any action (and
be deemed to have authorized such action) as necessary to effect such release.
Upon the occurrence of any acceleration under the Revolving Credit Facility Obligations, the
Holders shall have the right to buy-out all of the Revolving Credit Facility Obligations as
described below. In addition, upon any acceleration of the Revolving Credit Facility Obligations,
no action to enforce remedies may be taken by any lender under the Revolving Credit Facility
(Revolving Lender) or the Revolving Collateral Agent with respect to the Revolving Credit
Facility Obligations for a period of (i) initially, 30 days from the date of the acceleration
notice given by the Revolving Lenders to the Issuer and (ii) if the Holder Buy-out Right (as
defined below) is exercised prior to the conclusion of such 30-day period, an additional 10 days
(such period, the Standstill Period); provided, that actions to prepare for sale of or other
enforcement against the Collateral, including notifying account debtors to make payments to the
Revolving Lenders, that do not result in any disposition of the Collateral shall be deemed not to
violate the foregoing.
Each Holder shall have the right (but not the obligation) to purchase (or to designate an
Affiliate or other party to purchase) all of the rights and obligations of the Revolving Lenders,
including all of the commitments or Revolving Credit Facility Obligations owing to them (the
Holder Buy-out Right) for an aggregate purchase price equal to the sum of (x) the then
outstanding principal amount of such Revolving Credit Facility Obligations, plus (y) all accrued
and unpaid interest thereon, plus (z) all other amounts accrued and unpaid in respect thereof (the
Revolving Buy-out Price).
The Holder Buy-out Right may be exercised by Holders upon written notice thereof to the
administrative agent under the Revolving Credit Facility (the Administrative Agent) and the
Issuer within 30 days of public notice of any event of default or acceleration of the Revolving
Credit Facility Obligations committing to the purchase of 100% of the Revolving Credit Facility
Obligations; provided, that so long as 100% of the Revolving Credit Facility Obligations are
committed to be purchased, such Revolving Credit Facility Obligations shall be allocated as
described below. Such written notice shall identify the Holder or Holders exercising such Holder
Buy-out Right and contain no conditions other than the satisfaction of the requirements of the
Revolving Credit Facility as to the assignment of Revolving Credit Facility Obligations to a Holder
purchasing such Revolving Credit Facility Obligations. Each Holder exercising its Holder Buy-Out
Right shall be entitled to a share of the Revolving Credit Facility Obligations based on its
pro-rata share of the aggregate amount of outstanding Notes, subject to increases by a pro-rata
share of Notes allocable to Holders that do not elect to purchase their pro rata share. Such notice
shall constitute an irrevocable commitment by (x) the delivering Holders to the Revolving Lenders
to purchase the Revolving Credit Facility Obligations for the Revolving Buy-out Price no later than
the last day of the Standstill Period and (y) the Revolving Lenders to sell the Revolving Credit
Facility Obligations to the Holders upon delivery of the Revolving Buy-out Price to the
Administrative Agent. The Holders and Revolving Lenders shall timely execute all necessary transfer
documentation.
The Revolving Buy-out Price shall be paid in immediately available funds to the Administrative
Agent on behalf of the Revolving Lenders, and the Administrative Agent shall promptly pay the
proceeds thereof to such Revolving Lenders in accordance with their interests. If the Revolving
Buy-out Price is not received by the Administrative Agent in accordance with the foregoing, the
Administrative Agent may enforce such commitment on behalf of the Revolving Lenders and may
exercise all other remedies hereunder, including enforcement of all remedies against the
Collateral.
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In the event a bankruptcy proceeding shall be commenced by or against the Issuer, the
Co-Issuer, any Subsidiary Guarantor or Absaloka, and the Note Collateral Agent, at the institution
of the majority of the Holders of Notes, and the Revolving Collateral Agent shall desire to permit
the Issuer, the Co-Issuer, any Subsidiary Guarantor or Absaloka the use of cash collateral which
constitutes Collateral or to enter into a debtor-in-possession financing (a DIP Financing) in
such proceeding, (i) the Note First-Priority Liens on the Note Collateral other than the Revolving
Facility First-Priority Collateral and (ii) the Note Second-Priority Liens on the Revolving
Facility First-Priority Collateral may, in each case be made junior and subordinated to Liens
granted to secure such DIP Financings. The use of cash collateral or the provision of DIP Financing
will require the approval of the governmental authority having jurisdiction over such bankruptcy
proceeding, to the extent required by law. To the extent the first-priority Liens securing the
Revolving Credit Facility Obligations are subordinated to or pari passu with such DIP Financing,
the Note Collateral Agent (a) will subordinate or make pari passu its Note Second-Priority Liens in
the Revolving Facility First-Priority Collateral to the same extent that the Revolving Credit
Facility Obligations are subordinated or pari passu to (x) the Liens securing such DIP Financing
(and all obligations relating thereto), (y) adequate protection provided to the representative for,
or holders of, the Revolving Credit Facility Obligations, and (z) any carve-out agreed by the
representative for, or holders of, the Revolving Credit Facility Obligations and (b) will not
request adequate protection or any other relief in connection with the Note Second-Priority Liens
(other than as described below).
The Agents will only be permitted to seek adequate protection without the consent of the
Holders of the Notes or the Revolving Collateral Agent, as applicable, (i) in the form of the
benefit of additional or replacement Liens on the Note Collateral (including Proceeds thereof
arising after the commencement of any insolvency or liquidation proceeding), or additional or
replacement collateral to secure the Notes or the Revolving Credit Facility Obligations, as long as
the Trustee and the Revolving Collateral Agent, as applicable, are also granted such additional or
replacement Liens or additional or replacement collateral and such additional or replacement Liens
are in the case of the Revolving Facility First-Priority Collateral, subordinated to the Liens
securing the Revolving Credit Facility Obligations to the same extent as the Note Second-Priority
Liens on the Revolving Facility First-Priority Collateral are subordinated to the Revolving
Facility First-Priority Liens and (ii) to obtain adequate protection in the form of reports,
notices, inspection rights and similar forms of adequate protection to the extent granted to the
Trustee or the representative of the Revolving Credit Facility Obligations, as applicable. The
Intercreditor Agreement will limit the right of the Agents to seek relief from the automatic stay
and will provide that neither Agent may assert any right of marshalling, appraisal, valuation or
other similar right that may be available under applicable law with respect to the Note Collateral.
In no event will the Intercreditor Agreement or the Revolving Credit Facility require or
permit a Lien of any priority on the Note Collateral other than the Revolving Facility
First-Priority Liens, nor impair or condition any right of the Trustee, the Note Collateral Agent
or the Holders of the Notes with respect to the Note Collateral, other than the Revolving Facility
First-Lien Collateral on the terms described herein and in the Intercreditor Agreement, nor impair
or condition any other rights of the Trustee, the Note Collateral Agent or the Holders of the Notes
with respect to the relevant borrowers and guarantors under the Revolving Credit Facility or their
Subsidiaries.
To the extent that the Intercreditor Agreement contains terms that are in addition to those
specified herein, the Issuer shall be authorized to determine such terms, which shall be customary
terms not inconsistent with the terms set forth herein and not materially adverse to the Holders.
If the Issuer and the Revolving Credit Lenders are unable to agree on an Intercreditor Agreement on
the terms set forth herein in all material respects, the terms of any proposed intercreditor
agreement shall be required to be approved by holders of a majority of the outstanding principal
amount of the Notes.
Sufficiency of collateral in the event of foreclosure
In the event of foreclosure on the Note Collateral, there can be no assurance that the
proceeds from the sale of the Note Collateral in whole or in part pursuant to the Security
Documents would be sufficient to satisfy payments due on the Notes. The fair market value of the
Note Collateral is subject to fluctuations based on factors that include, among others, the ability to sell the Note Collateral in an
orderly sale, general economic conditions, the availability of buyers and similar factors. The
amount to be received upon a sale of the Note Collateral would also be dependent on numerous
factors, including, but not limited to, the actual fair market value of the Note Collateral at such
time and the timing and the manner of the sale. By its nature, portions of the Note Collateral may
be illiquid and may have no readily ascertainable market value or may
75
require consents or approvals
to transfer that are not obtainable. In particular, some assets constituting Note Collateral
(including contracts and intellectual property) are more illiquid than other assets constituting
Note Collateral (such as accounts receivable and inventory). Accordingly, there can be no assurance
that all of the Note Collateral can be sold in a short period of time or in an orderly manner. See
Risk FactorsRisks Related to the Notes and the Collateral There may not be sufficient
collateral to pay all or any of the Notes. Liquidating the collateral securing the Notes may not
produce proceeds in an amount sufficient to pay any amounts due on the Notes. In addition, in the
event of a bankruptcy, the ability of the holders to realize upon any of the Note Collateral may be
subject to certain bankruptcy law limitations as described below under Certain bankruptcy
limitations.
Certain Covenants with Respect to the Note Collateral
The Note Collateral will be pledged pursuant to the Security Documents, which contain
provisions relating to the administration, preservation and disposition of the Note Collateral. The
following is a summary of some of the covenants and provisions set forth in the Security Documents
and the Indenture as they relate to the Note Collateral.
Maintenance of collateral
The Indenture and/or the Security Documents will provide that the Issuer and the Co-Issuer
will, and will cause each of the Subsidiary Guarantors and Absaloka to (i) at all times maintain,
preserve and protect all property material to the conduct of its business and keep such property in
good repair, working order and condition (other than wear and tear occurring in the ordinary course
of business); (ii) from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times; (iii) keep its insurable
property adequately insured at all times by financially sound and reputable insurers; and (iv)
maintain such other insurance, to such extent and against such risks as is customary with companies
in the same or similar businesses operating in the same or similar locations.
Permitted ordinary course activities with respect to collateral
Notwithstanding the foregoing, so long as no Default or Event of Default under the Indenture
would result therefrom and such transaction would not violate the Trust Indenture Act, the Issuer,
the Co-Issuer and the Subsidiary Guarantors and Absaloka may, among other things, without any
release or consent by the Trustee or the Agents, conduct ordinary course activities with respect to
Collateral, including, without limitation, (i) selling or otherwise disposing of, in any
transaction or series of related transactions, any property subject to the Lien of the Security
Documents which has become worn out, defective or obsolete or not used or useful in the business;
(ii) abandoning, terminating, canceling, releasing or making alterations in or substitutions of any
leases or contracts subject to the Lien of the Indenture or any of the Security Documents; (iii)
surrendering or modifying any license or permit subject to the Lien of the Indenture or any of the
Security Documents which it may own or under which it may be operating; (iv) granting a license of
any intellectual property; (v) selling, transferring or otherwise disposing of inventory in the
ordinary course of business; (vi) selling, collecting, liquidating, factoring or otherwise
disposing of accounts receivable in the ordinary course of business; (vii) making cash payments
(including for the scheduled repayment of Indebtedness) from cash that is at any time part of the
Note Collateral in the ordinary course of business that are not otherwise prohibited by the
Indenture and the Security Documents; and (viii) abandoning any intellectual property which is no
longer used or useful in the Issuers, the Co-Issuers or Subsidiary Guarantors business. The
Issuer and the Co-Issuer must deliver to the Agents, within thirty (30) calendar days following the
end of each six month period beginning on January 1 and July 1 of any year, an officers
certificate to the effect that none of the releases and withdrawals occurring
during the preceding six month period (or since the Issue Date, in the case of the first such
certificate) were prohibited by the Indenture.
After-acquired property
If the Issuer, the Co-Issuer, a Subsidiary Guarantor or Absaloka acquires property that is not
automatically subject to a perfected security interest or Lien under the Security Documents and
such property would be of the type that would constitute Collateral, or a Subsidiary becomes a
Guarantor, then the Issuer, the Co-Issuer, such Guarantor or Absaloka will provide security
interests in and Liens on such property (or, in the case of a new Guarantor, all of its assets
constituting Collateral) in favor of the Agents for their benefit and the benefit of the Trustee,
the Holders of the Notes and, if the Revolving Credit Facility has been entered into, the
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holders
of the Revolving Credit Facility Obligations (with respect to the Revolving Facility First-Priority
Collateral) and deliver certain joinder agreements and certificates in respect thereof as required
by the Indenture and the Security Documents.
Further assurances
Subject to the limitations described above under General, the Security Documents and the
Indenture will provide that the Issuer, the Co-Issuer, the Subsidiary Guarantors and Absaloka
shall, at their expense, duly execute and deliver, or cause to be duly executed and delivered, such
further agreements, documents and instruments, and do or cause to be done such further acts as may
be reasonably necessary or proper to evidence, perfect, maintain and enforce the security interests
and the priority thereof in the Note Collateral for the benefit of the Holders of the Notes, the
Trustee and, if the Revolving Credit Facility has been entered into, the holders of the Revolving
Credit Facility Obligations (with respect to the Revolving Facility First-Priority Collateral) and
to otherwise effectuate the provisions or purposes of the Indenture and the Security Documents.
Real estate mortgages and filings
Subject to the limitations described above under General, and provided that the following
does not grant any real estate security interests beyond that which is required pursuant to the
Indenture, with respect to any fee interest in certain Real Property identified in a schedule to
the Indenture as owned by the Issuer, the Co-Issuer or a Subsidiary Guarantor on the Issue Date or
any fee interest in Real Property acquired by the Issuer, the Co-Issuer or a Subsidiary Guarantor
after the Issue Date or otherwise that secures the Notes and Note Guarantees, but exclusive of
Excluded Property (individually and collectively, the Mortgaged Property) in each instance:
(1) with respect to each Mortgaged Property, the Issuer, the Co-Issuer and the
Subsidiary Guarantors, as applicable, will cause to be delivered to the Note Collateral
Agent, as mortgagee or beneficiary, as applicable, fully executed counterparts of
Mortgages, each dated as of the Issue Date or, if later, the date such property is
encumbered to secure the Notes and the Note Guarantees, in accordance with the requirements
of the Indenture and/or the Security Documents, duly executed by the Issuer, the Co-Issuer
or the applicable Subsidiary Guarantor, as the case may be;
(2) within forty-five (45) days following the recording of any Mortgage with respect
to any Mortgaged Property in accordance with the foregoing, if available at commercially
reasonable rates, the Note Collateral Agent shall have received mortgagees title insurance
policies in favor of the Note Collateral Agent, as mortgagee for the benefit of itself and
the Trustee and the Holders of the Notes, in a commercially reasonable form, with respect
to the property purported to be covered by such Mortgage, to insure that the interests
created by the Mortgage constitute valid and Note First-Priority Liens on such Mortgaged
Property free and clear of all Liens, defects and encumbrances (other than Permitted
Liens), each such title insurance policy to have a policy limit, not to exceed one hundred
ten percent (110%) of the then fair market value of the Mortgaged Property, and such
policies shall also include, to the extent available and at a commercially reasonable
premium, the endorsements, as applicable, equivalent to those delivered in connection
with the Indenture and shall be accompanied by evidence of the payment in full of all
premiums thereon; and
(3) within forty-five (45) days following the recording of any Mortgage with respect
to any Mortgaged Property, the Issuer, the Co-Issuer or any Subsidiary Guarantor shall
deliver to the Note Collateral Agent, such filings (or any updates or affidavits that the
title company may reasonably require as necessary to issue the title insurance policies),
surveys and fixture filings, along with such other documents, opinions, instruments,
certificates and agreements, as reasonably required to create, evidence or perfect a valid
and Note First-Priority Lien on the Mortgaged Property subject to each such Mortgage
(subject to Permitted Liens).
Foreclosure
In the event of foreclosure on the Note Collateral, the proceeds from the sale of the same may
not be sufficient to satisfy the Issuers and the Co-Issuers obligations under the Notes, either
in whole or in part. The amount to be received upon such a sale would be dependent on numerous
factors (including those described in Sufficiency of collateral in the event of foreclosure).
By its nature, portions of the Note Collateral may be illiquid and may have no readily
ascertainable market value or may require consents that cannot be obtained. In particular, Note
Collateral consisting of contracts and intellectual property is generally more illiquid than
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the Revolving Facility First-Priority Collateral consisting of receivables and inventory. Accordingly,
there can be no assurance that the Note Collateral can be sold in a short period of time in an
orderly manner. If the Revolving Credit Facility has been entered into, the Revolving Lenders may
receive payment prior to payment of the Notes.
Certain bankruptcy limitations
The right of the Agents to repossess and dispose of the Note Collateral upon the occurrence of
an Event of Default would be significantly impaired by applicable bankruptcy law in the event that
a bankruptcy case were to be commenced by or against the Issuer, the Co-Issuer or any Subsidiary
Guarantor prior to the Agents having repossessed and disposed of the Note Collateral. Upon the
commencement of a case for relief under the Bankruptcy Code, secured creditors such as the Agents
are prohibited from repossessing security from a debtor in a bankruptcy case, or from disposing of
security repossessed from the debtor or any other Collateral, without bankruptcy court approval.
In view of the broad equitable powers of a U.S. bankruptcy court, it is impossible to predict
how long payments under the Notes or any Guarantees could be delayed following commencement of a
bankruptcy case, whether or when the Agents could repossess or dispose of the Note Collateral, the
value of the Note Collateral at the time of the bankruptcy petition or whether or to what extent
Holders of the Notes would be compensated for any delay in payment or loss of value of the Note
Collateral. The Bankruptcy Code only permits the payment and/or accrual of post-petition interest,
costs and attorneys fees to a secured creditor during a debtors bankruptcy case to the extent the
value of the Note Collateral is determined by the bankruptcy court to exceed the aggregate
outstanding principal amount of the obligations secured by the Note Collateral.
Furthermore, in the event a bankruptcy court determines that the value of the Note Collateral
is not sufficient to repay all amounts due on the Notes after payment of any priority claims, the
Holders of the Notes would hold secured claims only to the extent of the value of the Note
Collateral to which the Holders of the Notes are entitled (and subject to the rights in the
Revolving Facility First-Priority Lien Collateral of holders of the Revolving Credit Facility
Obligations), and unsecured claims with respect to such shortfall.
Release
The Liens on the Note Collateral will be released with respect to the Notes and the Note
Guarantees, as applicable:
(1) in whole, upon payment in full of the principal of, accrued and unpaid interest,
and premium, if any, on the Notes;
(2) in whole, upon satisfaction and discharge of the Indenture;
(3) in whole, upon a legal defeasance or a covenant defeasance as set forth under
Legal Defeasance and Covenant Defeasance below;
(4) as to any asset constituting Note Collateral (A) that is sold or otherwise
disposed of by the Issuer, the Co-Issuer, any of the Subsidiary Guarantors or Absaloka (to
a person that is not an Issuer, Co-Issuer, a Subsidiary Guarantor or Absaloka) in a
transaction permitted by Certain Covenants Limitations on Asset Sales and by the
Security Documents (to the extent of the interest sold or disposed of) or otherwise
permitted by the Indenture and the Security Documents, if all Liens on that asset then
securing the Notes and the Note Guarantees then secured by that asset (including all
commitments thereunder) are released or (B) that is otherwise released in accordance with,
and as expressly provided for in accordance with, the Indenture, the Intercreditor
Agreement and the Security Documents;
(5) as set forth under Amendment, Supplement, Waiver and Entry into Intercreditor
Agreement, as to property that constitutes less than all or substantially all of the Note
Collateral, with the consent of holders of at least a majority in aggregate principal
amount of the Notes, voting as one class (or, in the case of a release of all or
substantially all of the Note Collateral, with the consent of the holders of at least
sixty-six and two-thirds percent (662/3%) in aggregate principal amount of the Notes,
voting as one class), including consents obtained in connection with a tender offer or
exchange offer for, or purchase of, Notes; or
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(6) with respect to assets of a Guarantor upon release of such Guarantor from its Note
Guarantee as set forth under Note Guarantees, above.
Upon compliance by the Issuer, the Co-Issuer, any Subsidiary Guarantor or Absaloka, as the
case may be, with the conditions precedent required by the Indenture, the Trustee and the Agents
shall promptly cause to be released and reconveyed to the Issuer, the Co-Issuer, the Subsidiary
Guarantor or Absaloka, as the case may be, the released Collateral. Prior to each proposed release,
the Issuer, the Co-Issuer, each Subsidiary Guarantor and Absaloka will furnish to the Trustee and
the Agents all documents required by the Indenture, the Security Documents and the Trust Indenture
Act.
Change of Control
Upon the occurrence of any Change of Control, each Holder will have the right to require that
the Issuer purchase (a Change of Control Offer) pursuant to the procedure required by the
Indenture, all or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof) of
that Holders Notes for a cash price (the Change of Control Purchase Price) equal to 101% of the
principal amount of the Notes to be purchased, plus accrued and unpaid interest thereon and
Additional Interest, if any, to the date of purchase, on a date specified in the notice specified
below (which shall be a Business Day not earlier than 30 days nor later than 60 days from the date
the notice is mailed) (a Change of Control Payment Date). A Change of Control Offer may be made
in advance of a Change of Control or conditional upon the occurrence of a Change of Control, if a
definitive agreement is in place for the Change of Control at the time the Change of Control Offer
is made.
Within 30 days following any Change of Control, or at an earlier date if the Issuer makes a
Change of Control Offer in advance of, or conditioned on the occurrence of, a Change of Control,
the Issuer will mail, or caused to be mailed, to the Holders a notice which notice shall state:
(1) the circumstances and relevant facts regarding such Change of Control;
(2) that the Change of Control Offer is being made pursuant to the relevant section of
the Indenture and that all Notes properly tendered and not withdrawn shall be accepted for
payment;
(3) the Change of Control Purchase Price (including the amount of accrued interest and
any Additional Interest) and the Change of Control Payment Date;
(4) that any Note not tendered shall continue to accrue interest;
(5) that, unless the Issuer defaults in making payment therefore, any Note accepted
for payment pursuant to the Change of Control Offer shall cease to accrue interest after
the Change of Control Payment Date;
(6) that Holders electing to have a Note purchased pursuant to a Change of Control
Offer shall be required to surrender the Note, with the form entitled Option of Holder to
Elect Purchase on the reverse of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third Business Day prior to
the Change of Control Payment Date;
(7) that Holders shall be entitled to withdraw their election if the Paying Agent
receives, not later than the second Business Day prior to the Change of Control Payment
Date, an email, facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Notes the Holder delivered for purchase and a statement that such
Holder is withdrawing such Holders election to have such Note purchased; and
(8) that Holders whose Notes are purchased only in part shall be issued new Notes in a
principal amount equal to the unpurchased portion of the Notes surrendered.
The Change of Control Offer is required to remain open for at least 20 Business Days or for
such longer period as is required by law. The Issuer and the Co-Issuer will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the date of purchase.
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If a Change of Control Offer is made, there can be no assurance that the Issuer and the
Co-Issuer will have available funds sufficient to pay for all or any of the Notes of Holders
seeking to accept the Change of Control Offer. In addition, we cannot assure you that in the event
of a Change of Control the Issuer and the Co-Issuer will be able to obtain the consents necessary
to consummate a Change of Control Offer from the parties to agreements governing other outstanding
Indebtedness which may prohibit the offer.
The definition of Change of Control under the Indenture includes certain events defined as
Prepayment Events in the WML Credit Agreements. Those agreements require WML to offer to prepay
indebtedness under the agreements in specified circumstances, including events relating to a change
of control of the Issuer, WML or WMLs Subsidiaries. The offer price for the indebtedness would be
the principal amount of such indebtedness plus, in the case of the WML Notes, a make-whole amount
determined in accordance with the terms of the agreement governing the WML Notes. To the extent
accepted, such an offer would reduce the amount of assets available to the Issuer to satisfy its
obligations with respect to a Change of Control Offer or its other obligations under the Indenture.
Any future credit agreement or other agreement to which the Issuer becomes a party may
prohibit us from purchasing any Notes, subject to certain exceptions, and may also provide that
some change of control events with respect to us would constitute a default thereunder. In the
event a Change of Control occurs at a time when the Issuer is prohibited from purchasing Notes, the
Issuer could seek the consent from the lenders under such other agreement to the purchase of Notes
or could attempt to refinance the borrowings that contain the prohibition. If the Issuer is
unsuccessful in obtaining a consent or refinancing the borrowings, the Issuer will remain
prohibited from purchasing Notes. In that case, the Issuers failure to purchase tendered Notes
would constitute an Event of Default under the Indenture which could, in turn, constitute a default
under such other agreement.
The provisions described above that require the Issuer to make a Change of Control Offer
following a Change of Control will be applicable regardless of whether any other provisions of the
Indenture are applicable to the transaction giving rise to the Change of Control. Except as
described above with respect to a Change of Control, the Indenture does not contain provisions that
permit the Holders of the Notes to require that the Issuer purchase or redeem the Notes in the
event of a takeover, recapitalization or similar transaction.
The obligation of the Issuer to make a Change of Control Offer will be satisfied if a third
party makes the Change of Control Offer (an Alternate Offer) in the manner and at the times and
otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of
Control Offer made by the Issuer and purchases all Notes properly tendered and not withdrawn under
the Change of Control Offer. The Alternate Offer must comply with all the other provisions
applicable to the Change of Control Offer, shall remain, if commenced prior to the Change of
Control, open for acceptance until at least the consummation of the Change of Control (and
otherwise in accordance with the time specified as set forth above) and must permit Holders to
withdraw any tenders of Notes made into the Alternate Offer until the final expiration or
consummation thereof. An Alternate Offer may be made in advance of a Change of Control or
conditional upon the occurrence of a Change in Control, if a definitive agreement is in place for
the Change of Control at the time the Alternate Offer is made.
With respect to any disposition of assets, the phrase all or substantially all as used in
the Indenture (including as set forth under the definition of Change of Control and Certain
Covenants Limitations on Mergers, Consolidations, Etc. below) varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning under New York law
(which governs the Indenture) and is subject to judicial interpretation. Accordingly, in certain
circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of all or substantially all of the assets of the Issuer, and
therefore it may be unclear as to whether a Change of Control has occurred and whether the Holders
have the right to require the Issuer to purchase Notes. In addition, it may be unclear whether
certain transactions constitute a Change of Control. Under a recent Delaware Chancery Court
interpretation of a change of control repurchase requirement with a continuing
director provision, a Board of Directors may approve a slate of shareholder nominated
directors without endorsing them or while simultaneously recommending and endorsing its own slate
instead. The foregoing interpretation would permit the Issuers Board of Directors to approve a
slate of directors that included a majority of dissident directors nominated pursuant to a proxy
contest, and the ultimate election of such dissident slate would not constitute a Change of
Control that would trigger a Holders right to require the Issuer to make an Change of Control
Offer as described above.
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The Issuer shall when making a Change of Control Offer comply, and shall use commercially
reasonable efforts to cause any third party making an Alternate Offer to comply, with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection with the repurchase
of the Notes as a result of a Change of Control or an Alternate Offer, as applicable. To the extent
that the provisions of any applicable securities laws or regulations conflict with the Change of
Control provisions of the Indenture, the Issuer shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under the Change of
Control provisions of the Indenture by virtue of such conflict.
Certain Covenants
The Indenture will contain, among others, the following covenants:
Limitations on Additional Indebtedness and Preferred Stock
The Issuer and the Co-Issuer will not, and the Issuer will not permit any Restricted
Subsidiary to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness),
and the Issuer and the Co-Issuer will not issue any Disqualified Equity Interests or Preferred
Stock and the Issuer shall not permit any Restricted Subsidiaries to issue any Disqualified Equity
Interests or Preferred Stock (other than Preferred Stock of a Restricted Subsidiary held by the
Issuer, the Co-Issuer or any Guarantor, so long as it is so held); provided, that the Issuer, the
Co-Issuer or any Guarantor may incur additional Indebtedness or issue Disqualified Equity Interests
and the Issuer may issue Designated Preferred Stock if, in each case, after giving effect thereto,
the Fixed Charge Coverage Ratio would have been at least 2.00 to 1.00 (the Coverage Ratio
Exception) provided, further, that the Issuer may issue Preferred Stock under the Issuers Rights
Plan.
Notwithstanding the above, each of the following shall be permitted (the Permitted
Indebtedness):
(1) (a) Indebtedness of the Issuer, the Co-Issuer, any Guarantor and Absaloka under
the Revolving Credit Facility together with the incurrence by any Restricted Subsidiary of
the guarantees thereunder and the issuance and creation of letters of credit and bankers
acceptances thereunder (with letters of credit and bankers acceptances being deemed to
have a principal amount equal to the face amount thereof), up to an aggregate principal
amount of $20.0 million outstanding at any one time, less, to the extent a permanent
repayment and/or commitment reduction is required thereunder as a result of such
application, the aggregate amount of Net Available Proceeds applied to repayments under
such Revolving Credit Facility in accordance with the covenant described under
Limitations on Asset Sales and (b) Indebtedness of WML and its Subsidiaries under the
Amended and Restated WML Credit Agreement and the incurrence and creation of letters of
credit and bankers acceptances thereunder (to the extent permitted and with letters of
credit and bankers acceptances being deemed to have a principal amount equal to the face
amount thereof), up to an aggregate principal amount of $25.0 million outstanding at any
time, reduced, to the extent a permanent repayment and/or commitment reduction is required
thereunder;
(2) (x) the Notes issued on the Issue Date (excluding any Additional Notes) and the
Note Guarantees thereof and (y) any Exchange Notes issued in exchange for the Notes
(excluding any Additional Notes) and any Note Guarantees thereof pursuant to the
Registration Rights Agreement;
(3) Indebtedness of the Issuer, the Co-Issuer and the Restricted Subsidiaries to the
extent outstanding on the Issue Date (other than Indebtedness referred to in clauses (1)
and (2) above), after giving effect to the intended use of proceeds of the Notes, including
the WML Notes;
(4) Indebtedness under Hedging Obligations in the ordinary course of business that are
designed to protect against fluctuations in interest rates, foreign currency exchange rates
and commodity prices; provided, that if such Hedging Obligations are of the type described
in clause (1) of the definition thereof, (a) such Hedging Obligations relate to payment
obligations on Indebtedness otherwise permitted to be incurred by this covenant, and (b)
the notional principal amount of such Hedging Obligations at the time incurred does not
exceed the principal amount of the Indebtedness to which such Hedging Obligations relate;
(5) Indebtedness of the Issuer or the Co-Issuer owed to a Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary owed to the Issuer, the Co-Issuer or any other
Restricted Subsidiary; provided, however, that (A) if the Issuer, the Co-Issuer or any
Guarantor is the obligor with respect to such Indebtedness and the payee is not the Issuer,
the Co-Issuer or a Guarantor, such Indebtedness must be subordinated to the
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prior payment
in full in cash of all obligations of the Issuer, the Co-Issuer or such Guarantor with
respect to the Notes and (B) upon any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or such Indebtedness being owed to any Person other than the Issuer, the
Co-Issuer or a Restricted Subsidiary, the Issuer, the Co-Issuer or such Restricted
Subsidiary, as applicable, in each case, shall be deemed to have incurred Indebtedness not
permitted by this clause (5);
(6) (x) any guarantee by the Issuer, the Co-Issuer or a Guarantor of Indebtedness of
the Issuer, the Co-Issuer or any Guarantor so long as the incurrence of such Indebtedness
by the Issuer, the Co-Issuer and such Guarantor is permitted under the terms of the
Indenture and (y) any guarantee by a Restricted Subsidiary that is not a Guarantor of
Indebtedness of the Issuer, the Co-Issuer or a Restricted Subsidiary so long as the
incurrence of such Indebtedness is permitted under the terms of the Indenture;
(7) (a) Indebtedness incurred by the Issuer, the Co-Issuer or any Restricted
Subsidiary constituting reimbursement obligations with respect to any letters of credit,
bankers acceptance warehouse receipt or similar facility issued in the ordinary course of
business, including without limitation letters of credit or Indebtedness in respect of
workers compensation claims, health, disability or other employee benefits or property,
casualty or liability insurance or self-insurance or other Indebtedness with respect to
reimbursement type obligations regarding workers compensation claims and (b) Obligations
in respect of performance, surety, reclamation and similar bonds and performance and
completion guarantees provided by the Issuer, the Co-Issuer or any Restricted Subsidiary or
Obligations in respect of letters of credit related thereto, in each case incurred in the
ordinary course of business or consistent with past practice, and any guarantees or letters
of credit functioning as so supporting any of the foregoing bonds or obligations (in the
case of clauses (a) and (b), other than for an obligation for money borrowed);
(8) Purchase Money Indebtedness (a) incurred by the Issuer, the Co-Issuer or any
Restricted Subsidiary, in an aggregate amount not to exceed at any time outstanding $40.0
million and (b) incurred by WML or any of its Subsidiaries in an aggregate amount not to
exceed at any time outstanding $35.0 million;
(9) Indebtedness arising from the honoring by a bank or other financial institution of
a check, draft or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within five Business Days of incurrence;
(10) Indebtedness arising in connection with endorsement of instruments for deposit in
the ordinary course of business;
(11) Refinancing Indebtedness with respect to Indebtedness incurred or outstanding
pursuant to the Coverage Ratio Exception or clause (1)(b), (2), (3), (8), this clause (11),
(15) or (18); provided, that for the purposes of clause 1(b) and 3 (for the purpose of
clause 3, with respect to the WML Notes only), such Refinancing Indebtedness may be
represented by Additional Notes and Note Guarantees;
(12) Indebtedness supported by one or more letters of credit issued under the
Revolving Credit Facility and the Amended and Restated WML Credit Agreement in accordance
with clause (1)(a) and (1)(b), respectively; provided, that the amount of Indebtedness
permitted to be incurred under this clause (12) supported by any such letter(s) of credit
shall not exceed the amount of such letter(s) of credit; provided, further, that upon any
reduction, cancellation or termination of such letter(s) of credit, there shall be deemed
to be an incurrence of Indebtedness under the Indenture that must be otherwise permitted to
be incurred under the Indenture equal to the excess of the amount of such Indebtedness
outstanding immediately after such reduction, cancellation or termination over the
remaining stated amount, if any, of such letter(s) of credit or the stated amount of any
letter(s) of credit issued in a contemporaneous replacement of such letter(s) of credit;
(13) Attributable Indebtedness incurred by the Issuer, the Co-Issuer or any Restricted
Subsidiary in an aggregate amount not to exceed $10.0 million at any one time outstanding;
(14) Indebtedness incurred by the Issuer, the Co-Issuer or any Guarantor in an
aggregate principal amount (or accreted value, as applicable) at any one time outstanding,
including all Refinancing Indebtedness incurred to renew, refund, refinance, replace,
defease or discharge any Indebtedness incurred pursuant to this clause (14), not to exceed
$20.0 million;
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(15) Indebtedness of the Issuer, the Co-Issuer or any Restricted Subsidiary of
Acquired Indebtedness (except to the extent such Acquired Indebtedness was incurred in
connection with or in contemplation of such acquisition); provided, that after giving
effect to such incurrence of Indebtedness either (A) the Issuer would be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Coverage Ratio Exception
immediately following such transaction or (B) such Fixed Charge Coverage Ratio would have
been greater than immediately prior to such acquisition;
(16) Indebtedness of the Issuer, the Co-Issuer or any Restricted Subsidiary under any
Cash Management Obligations;
(17) Customary indemnification, adjustment of purchase price or similar obligations,
including title insurance, of the Issuer, the Co-Issuer or any Restricted Subsidiary, in
each case, incurred in connection with the disposition of any assets of the Issuer, the
Co-Issuer or any such Restricted Subsidiary (other than guarantees incurred by any Person
acquiring all or any portion of such assets for the purpose of financing such acquisition);
and
(18) Indebtedness represented by Additional Notes and Note Guarantees thereof in
connection with or in contemplation of, or to provide all or any portion of the funds or
credit support utilized to consummate, the acquisition by the Issuer, the Co-Issuer or any
Guarantor of assets used or useful in a Permitted Business (whether through the direct
purchase of assets or the purchase of capital stock of, or merger or consolidation with,
any Person owning such assets); provided, that the Issuer would, on the date of such
transaction after giving pro forma effect thereto and any related financing transactions as
if the same had occurred at the beginning of the applicable Four-Quarter Period, have had a
Total Leverage Ratio for the Four-Quarter Period immediately preceding the date of such
transaction, of no more than 4.0 to 1.0.
The Issuer and the Co-Issuer will not incur, and will not permit any Restricted Subsidiary to
incur, any Indebtedness (including Permitted Indebtedness) that is contractually subordinated in
right of payment to any other Indebtedness of the Issuer, the Co-Issuer or such Restricted
Subsidiary unless such
Indebtedness is also contractually subordinated in right of payment to the Notes and the
applicable Note Guarantees on substantially identical terms; provided, however, that no
Indebtedness will be deemed to be contractually subordinated in right of payment to any other
Indebtedness of the Issuer or the Co-Issuer solely by virtue of being unsecured or by virtue of
being secured on a junior priority basis; and provided, further, that this provision shall not
apply to subordinated debt incurred by WML or its Subsidiaries at any time when the WML Notes are
outstanding.
For purposes of determining compliance with this covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness
described in clauses (1) through (18) above or is entitled to be incurred pursuant to the Coverage
Ratio Exception, the Issuer shall classify and may reclassify, in each case in its sole discretion,
such item of Indebtedness and may divide, classify and reclassify such Indebtedness in more than
one of the types of Indebtedness described, except that Indebtedness incurred under the Revolving
Credit Facility after the Issue Date must be incurred under clause (1) above. In addition, for
purposes of determining any particular amount of Indebtedness under this covenant, guarantees,
Liens or letter of credit obligations supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included so long as incurred by a Person that
could have incurred such Indebtedness. Notwithstanding any other provision of this covenant, the
maximum amount of Indebtedness that the Issuer, the Co-Issuer or any Restricted Subsidiary may
incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of
fluctuations in exchange rates or currency values.
Limitations on Restricted Payments
The Issuer and the Co-Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, make any Restricted Payment unless, at the time of and after giving effect
to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or would
occur as a consequence of such Restricted Payment;
(2) the Issuer would, at the time of such Restricted Payment and after giving pro
forma effect thereto as if such Restricted Payment had been made at the beginning of the
applicable Four-Quarter Period,
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have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Coverage Ratio Exception; or
(3) such Restricted Payment, when added to the aggregate amount of all other
Restricted Payments made by the Issuer, the Co-Issuer and the Restricted Subsidiaries after
the Issue Date (other than Restricted Payments made pursuant to clauses (2), (3), (4), (5),
(6), (8) or (9) of the next paragraph), is less than the sum (the Restricted Payments
Basket) of (without duplication):
(a) 50% of Consolidated Net Income of the Issuer for the period (taken as one
accounting period) commencing on the first day of the first full fiscal quarter commencing
after the Issue Date to and including the last day of the fiscal quarter ended immediately
prior to the date of such calculation for which consolidated financial statements are
available (or, if such Consolidated Net Income shall be a deficit, minus 100% of such
aggregate deficit), plus
(b) 100% of the aggregate net cash proceeds and the fair market value, as determined
in good faith by the Board of Directors of the Issuer, of property and marketable
securities, received by the Issuer either (x) as contributions to the common equity of the
Issuer after the Issue Date (other than (i) by a Restricted Subsidiary, (ii) any
Disqualified Equity Interests, (iii) Designated Preferred Stock and (iv) cash proceeds
applied to Restricted Payments made in accordance with clause (4) of the next succeeding
paragraph) or (y) from the issuance and sale of Qualified Equity Interests after the Issue
Date, in each case, other than any such proceeds which are used (x) to redeem Notes in
accordance with Optional Redemption Redemption with Proceeds from
Qualified Equity Offerings or (y) to make Restricted Payments in reliance on clause
(3) or clause (4) of the next succeeding paragraph, plus
(c) the aggregate amount by which Indebtedness (other than any Subordinated
Indebtedness) of the Issuer, the Co-Issuer or any Restricted Subsidiary is reduced on the
Issuers balance sheet upon the conversion or exchange subsequent to the Issue Date (other
than by a Subsidiary of the Issuer) into Qualified Equity Interests (less the amount of any
cash, or the fair value of assets, distributed by the Issuer, the Co-Issuer or any
Restricted Subsidiary upon such conversion or exchange), plus
(d) without duplication of any amounts included in clause (4) of the next succeeding
paragraph, (x) in the case of the disposition or repayment of or return on any Investment
that was treated as a Restricted Payment made after the Issue Date, an amount (to the
extent not included in the computation of Consolidated Net Income) equal to the lesser of
(i) the aggregate amount received in cash and the fair market value, as determined by the
Board of Directors of the Issuer in good faith, of property and marketable securities
received after the Issue Date and representing the return of capital with respect to such
Investment and (ii) the amount of such Investment that was treated as a Restricted Payment,
in either case, less the cost of the disposition of such Investment and net of taxes or (y)
the sale (other than to the Issuer, the Co-Issuer or a Restricted Subsidiary) of the Equity
Interests of an Unrestricted Subsidiary, plus
(e) upon a Redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the
lesser of (i) the Fair Market Value of the Issuers proportionate interest in such
Subsidiary immediately following such Redesignation, and (ii) the aggregate amount of the
Issuers Investments in such Subsidiary to the extent such Investments reduced the
Restricted Payments Basket and were not previously repaid or otherwise reduced.
The foregoing provisions will not prohibit:
(1) the payment by the Issuer, the Co-Issuer or any Restricted Subsidiary of any
dividend or other distribution within 60 days after the date of declaration thereof, if on
the date of declaration the payment would have complied with the provisions of the
Indenture;
(2) the redemption, repurchase, retirement or other acquisition of any Equity
Interests of the Issuer, the Co-Issuer or any Restricted Subsidiary in exchange for, or out
of the proceeds of the substantially concurrent issuance and sale of, Qualified Equity
Interests;
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(3) the redemption, repurchase, retirement or other acquisition of Subordinated
Indebtedness of the Issuer, the Co-Issuer or any Restricted Subsidiary (a) in exchange for,
or out of the proceeds of the substantially concurrent issuance and sale of, Qualified
Equity Interests or (b) in exchange for, or out of the proceeds of the substantially
concurrent incurrence of, Refinancing Indebtedness permitted to be incurred under the
Limitations on Additional Indebtedness and Preferred Stock covenant and the other terms
of the Indenture; provided, that the amount of any such net cash proceeds that are utilized
for any such Restricted Payment will not be considered to be net proceeds of Qualified
Equity Interests for purposes of clause (3)(b) of the preceding paragraph and will not be
considered to be net cash proceeds from a Qualified Equity Offering for purposes of the
provisions described above under the caption Optional Redemption Redemption with
Proceeds from Qualified Equity Offerings;
(4) payments to redeem Equity Interests of the Issuer, held by officers, directors or
employees or former officers, directors or employees (or their transferees, estates or
beneficiaries under their estates) thereof, upon their death, disability, retirement,
severance or termination of employment or service pursuant to any employee benefit plan or
agreement or awarded to an employee to pay for the taxes payable by such employee upon such
grant or award or the vesting thereof; provided, that the aggregate amount of Restricted
Payments under this clause (4) shall not exceed (A) $2.0 million during any calendar year
plus (B) the amount of any net cash proceeds received by or contributed to the Issuer from the issuance and sale since the Issue
Date of Qualified Equity Interests of the Issuer to its officers, directors or employees
that have not been applied to the payment of Restricted Payments pursuant to the terms of
clause 3(b) of the preceding paragraph or this clause (4), plus (C) the net cash proceeds
of any key-man life insurance policies that have not been applied to Restricted Payments
pursuant to this clause (4), less (D) the amount of any Restricted Payments previously made
from cash proceeds received pursuant to clauses (B) and (C) of this clause (4); provided,
further, that the cancellation of Indebtedness owing to the Issuer, the Co-Issuer or any
Restricted Subsidiary in connection with the repurchase of Qualified Equity Interests will
not be deemed to constitute a Restricted Payment;
(5) (a) the declaration and payment of regularly scheduled or accrued dividends to
holders of the Series A Preferred Stock to the extent such dividends are included in the
definition of Consolidated Interest Expense, (b) the declaration and payment of regularly
scheduled or accrued dividends to holders of any class or series of Disqualified Equity
Interests of the Issuer, the Co-Issuer or any Restricted Subsidiary outstanding on the
Issue Date or issued on or after the Issue Date in accordance with the Coverage Ratio
Exception described above under the caption Limitations on Additional Indebtedness and
Preferred Stock to the extent such dividends are included in the definition of
Consolidated Interest Expense and (c) the declaration and payment of accrued and unpaid
dividends to holders of the Series A Preferred Stock outstanding as of the Issue Date with
the proceeds of this offering as described under Use of Proceeds;
(6) the declaration and payment of dividends or distributions to holders of any class
or series of Designated Preferred Stock (other than Disqualified Equity Interests) issued
by the Issuer after the Issue Date in accordance with the Coverage Ratio Exception
described under the caption Limitations on Additional Indebtedness and Preferred Stock
to the extent such dividends are included in the definition of Consolidated Interest
Expense; provided, however, that (A) for the most recently ended four full fiscal quarters
for which consolidated financial statements are available immediately preceding the date of
issuance of such Designated Preferred Stock, after giving effect to such issuance (and the
payment of dividends or distributions thereon) on a pro forma basis, the Issuer would have
had a Fixed Charge Coverage Ratio of at least 2.0 to 1.0 and (B) the aggregate amount of
dividends declared and paid pursuant to this clause (6) does not exceed the net cash
proceeds actually received by the Issuer from any such sale of Designated Preferred Stock
(other than Disqualified Equity Interests) issued after the Issue Date;
(7) repurchases of Equity Interests deemed to occur upon the exercise or conversion of
stock options or other Equity Interests, if such repurchased or converted Equity Interests
represent a portion of the exercise price thereof;
(8) the repurchase, redemption or other acquisition or retirement for value of any
Subordinated Indebtedness pursuant to the provisions in documentation governing such
Subordinated Indebtedness similar to those described under Change of Control,
Certain Covenants Limitations on Asset Sales and Certain Covenants Event of Loss;
provided, that prior to such repurchase, redemption or another acquisition, the Issuer and
the Co-Issuer (or a third party to the extent permitted by the Indenture) shall have made
any required Change of Control Offer, Net Proceeds Offer or Loss Proceeds Offer, as the
case may be,
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with respect to the Notes and shall have repurchased all Notes validly
tendered and not withdrawn in connection with such Change of Control Offer, Net Proceeds
Offer or Loss Proceeds Offer; or
(9) additional Restricted Payments of $10.0 million.
provided, that (a) in the case of any Restricted Payment pursuant to clause (3), (4), (5)(b), (6),
(8) or (9) above, no Default shall have occurred and be continuing or occur as a consequence
thereof and (b) no issuance and sale of Qualified Equity Interests used to make a payment pursuant
to clause (2), (3) or (4) above shall increase the Restricted Payments Basket.
In the event that a Restricted Payment meets the criteria of more than one of the exceptions
described in (1) through (9) above or is entitled to be made pursuant to the first paragraph above,
the Issuer shall, in its sole discretion, classify or reclassify such Restricted Payment into one
or more exceptions.
Limitations on Dividend and Other Restrictions Affecting Restricted Subsidiaries
The Issuer and the Co-Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in respect of its Equity
Interests to the Issuer, the Co-Issuer or any Restricted Subsidiary, or with respect to any
other interest or participation in, or measured by, its profits, or pay any Indebtedness
owed to the Issuer, the Co-Issuer or any Restricted Subsidiary;
(b) make loans or advances or pay any Indebtedness or other obligation owed to the
Issuer, the Co-Issuer or any other Restricted Subsidiary; or
(c) sell, lease or transfer any of its assets to the Issuer, the Co-Issuer or any
other Restricted Subsidiary;
except for:
(1) encumbrances or restrictions existing under or by reason of applicable law or any
applicable rule, regulation or order;
(2) encumbrances or restrictions existing under the Indenture, the Notes and the Note
Guarantees (including any Exchange Notes and guarantees thereof), an Intercreditor
Agreement and the Security Documents;
(3) customary non-assignment provisions of any contract or any lease or license
entered into in the ordinary course of business;
(4) encumbrances or restrictions existing under agreements existing on the date of the
Indenture (including, without limitation, the WML Credit Agreements and agreements relating
to Absaloka) as in effect on that date;
(5) restrictions on transfers of assets subject to any Lien permitted under the
Indenture imposed by the holder of such Lien;
(6) restrictions on transfers of assets imposed under any agreement to sell such
assets permitted under the Indenture to any Person pending the closing of such sale;
(7) any instrument governing Acquired Indebtedness, which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person, other than the
Person or the properties or assets of the Person so acquired, so long as such Acquired
Indebtedness or encumbrance or restriction was not incurred in connection with, or in
contemplation of, such acquisition;
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(8) any other agreement governing Indebtedness entered into after the Issue Date that
contains encumbrances and restrictions that are not materially more restrictive with
respect to any Restricted Subsidiary than those in effect on the Issue Date with respect to
that Restricted Subsidiary pursuant to agreements in effect on the Issue Date;
(9) customary provisions in partnership agreements, limited liability company
organizational governance documents, joint venture agreements and other similar agreements
entered into in the ordinary course of business that restrict the transfer of ownership
interests in such partnership, limited liability company, joint venture or similar Person;
(10) Purchase Money Indebtedness and Attributable Indebtedness incurred in compliance
with the covenant described under Limitations on Additional Indebtedness and Preferred
Stock that impose restrictions of the nature described in clause (c) above on the assets
acquired;
(11) restrictions on cash or other deposits or net worth imposed by suppliers or
landlords under contracts and bonding requirements entered into in the ordinary course of
business;
(12) any encumbrances or restrictions pursuant to waivers or consents provided by
lenders under the WML Credit Agreements to permit sales of assets of WML or its
Subsidiaries that would be otherwise prohibited by the terms of those agreements, provided,
that such encumbrances or restrictions may exist only until all Indebtedness outstanding
under the WML Credit Agreements is repaid and the agreements are terminated, or until such
earlier date as specified in any such waivers or consents; and
(13) any encumbrances or restrictions imposed by any amendments or refinancings of the
contracts, instruments or obligations referred to in clauses (1) through (12) above;
provided, that such amendments or refinancings are, in the good faith judgment of the
Issuers Board of Directors, no more materially restrictive with respect to such
encumbrances and restrictions than those prior to such amendment or refinancing.
Limitations on Transactions with Affiliates
The Issuer and the Co-Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, in one transaction or a series of related transactions, sell, lease,
transfer or otherwise dispose of any of its assets to, or purchase any assets from, or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (an Affiliate Transaction), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to the Issuer,
the Co-Issuer or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction at such time on an arms-length basis by the Issuer,
the Co-Issuer or that Restricted Subsidiary from a Person that is not an Affiliate of the
Issuer, the Co-Issuer or that Restricted Subsidiary; and
(2) the Issuer delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving aggregate value in excess of
$10.0 million, an Officers Certificate certifying that such Affiliate Transaction complies
with clause (1) above and a Secretarys Certificate which sets forth and authenticates a
resolution that has been adopted by a majority of the disinterested members of the Board of
Directors of the Issuer approving such Affiliate Transaction and affirming the
determination set forth in clause (1) above; and
(b) with respect to any Affiliate Transaction involving aggregate value of $20.0
million or more, the certificates described in the preceding clause (a) and a written
opinion as to the fairness of such Affiliate Transaction to the Issuer, the Co-Issuer or
such Restricted Subsidiary from a financial point of view issued by an Independent
Financial Advisor to the Board of Directors of the Issuer.
The foregoing restrictions shall not apply to:
(1) transactions exclusively between or among (a) the Issuer, the Co-Issuer and one or
more Guarantors, (b) Guarantors or (c) Restricted Subsidiaries that are not Guarantors;
87
(2) the payment of reasonable and customary director, officer, employee and consultant
compensation (including bonuses), reimbursement of expenses and other benefits (including
retirement, health, stock option and other benefit plans) and indemnification arrangements;
(3) the issuance of Equity Interests (other than Disqualified Equity Interests) of the
Issuer to any director, officer, employee or consultant of the Issuer, the Co-Issuer or its
Subsidiaries in the ordinary course of business;
(4) Restricted Payments which are made in accordance with the covenant described under
Limitations on Restricted Payments;
(5) transactions with customers, clients, suppliers, joint venture partners or
purchasers or sellers of goods and services, in each case in the ordinary course of
business and otherwise not prohibited by the Indenture that are fair to the Issuer, the
Co-Issuer or its Restricted Subsidiaries, in the reasonable determination of the members of
the Board of Directors of the Issuer or the senior management of the Issuer, or are on
terms at least as favorable as would reasonably have been entered into at such time with an
unaffiliated party;
(6) (x) any agreement in effect on the Issue Date and disclosed in this offering
memorandum, as in effect on the Issue Date or as thereafter amended or replaced in any
manner, that, taken as a whole, is not more disadvantageous to the Holders or the Issuer in
any material respect than such agreement as it was in effect on the Issue Date or (y) any
transaction pursuant to any agreement referred to in the immediately preceding clause (x);
(7) the existence of, and the performance by the Issuer, the Co-Issuer or any
Restricted Subsidiary of its obligations under the terms of, any limited liability company,
limited partnership or other organizational document or security holders agreement
(including any registration rights agreement or purchase agreement related thereto) to
which it is a party on the Issue Date and which is described in this offering memorandum,
as in effect on the Issue Date, and similar agreements that it may enter into thereafter;
provided, however, that the existence of, or the performance by the Issuer, the Co-Issuer
or any of its Restricted Subsidiaries of obligations under, any amendment to any such
existing agreement or any such similar agreement entered into after the date of the
Indenture shall only be permitted by this clause (7) to the extent not more disadvantageous
to the Holders in any material respect, when taken as a whole, than any of such documents
and agreements as in effect on the Issue Date;
(8) the Transactions and the payment of all transaction, underwriting commitment and
other fees and expenses incurred in connection with the Transactions;
(9) sales of Qualified Equity Interests to Affiliates of the Issuer not otherwise
prohibited by the Indenture and the granting of registration and other customary rights in
connection therewith;
(10) loans or advances to employees in the ordinary course of business consistent with
past practice; or
(11) any transaction between or among WML or any of its Subsidiaries, on the one hand,
and the Issuer or any of its Subsidiaries other than WML and its Subsidiaries, on the other
hand, that qualifies as a Permitted Affiliate Transaction under the WML Credit
Agreements; provided, that, except with respect to the services to be provided and fees payable
under the management agreement between WML and the Issuer, no such affiliate transaction
shall constitute a Permitted Affiliate Transaction unless it is consummated on terms and
conditions that are at fair market value and generally similar to the terms and conditions
that would apply in a comparable arms length transaction with an unrelated third party and
the Issuer delivers to the Trustee the certificates referred to in clause 2(a) above, to
the extent required by such provision. A Permitted Affiliate Transaction under the WML
Credit Agreements generally refers to sales of coal and other transactions effected between
such parties in limited circumstances (e.g., sales of coal from WRI to a WML Subsidiary
when, due to a force majeure event, the WML Subsidiary is unable to provide sufficient coal
to meet a customers needs) at fair market value and on arms length terms.
Limitations on Liens
The Issuer and the Co-Issuer shall not, and shall not permit any Restricted Subsidiary other
than WML or WMLs subsidiaries in accordance with the WML Credit Agreements to, directly or
indirectly,
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create, incur, assume or permit or suffer to exist any Lien of any nature whatsoever
against any properties or assets of the Issuer, the Co-Issuer or any Restricted Subsidiary
(including Equity Interests of a Restricted Subsidiary), whether owned at the Issue Date or
thereafter acquired, or any proceeds therefrom, or assign or otherwise convey any right to receive
income or profits therefrom (other than Permitted Liens and liens on the collateral securing the
Revolving Credit Facility Obligations). Notwithstanding anything herein to the contrary, neither
the Issuer nor any of its Restricted Subsidiaries shall permit any Refinancing Indebtedness
incurred to refinance Indebtedness under the WML Notes to be secured by any Lien other than as
permitted under clause (12) in the definition of Permitted Liens.
Limitations on Asset Sales
The Issuer and the Co-Issuer will not, and will not permit any Restricted Subsidiary, other
than WML or WMLs subsidiaries in accordance with the WML Credit Agreements, to, directly or
indirectly, consummate any Asset Sale unless:
(1) the Issuer, the Co-Issuer or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the assets included
in such Asset Sale; and
(2) at least 75% of the total consideration received in such Asset Sale consists of
cash or Cash Equivalents. For purposes of clause (2), the following shall be deemed to be
cash:
(a) the amount (without duplication) of any Indebtedness (other than Subordinated
Indebtedness) of the Issuer, the Co-Issuer or such Restricted Subsidiary that is expressly
assumed by the transferee in such Asset Sale and with respect to which the Issuer, the
Co-Issuer or such Restricted Subsidiary, as the case may be, is unconditionally released by
the holder of such Indebtedness,
(b) the amount of any securities, Notes or other obligations received from such
transferee that are within 90 days converted by the Issuer, the Co-Issuer or such
Restricted Subsidiary to cash (to the extent of the cash actually so received), and
(c) the Fair Market Value of (i) any assets (other than securities) received by the
Issuer, the Co-Issuer or any Restricted Subsidiary to be used by it in a Permitted
Business, (ii) Equity Interests in a Person that is a Restricted Subsidiary or in a Person
engaged in a Permitted Business that shall become a Restricted Subsidiary
immediately upon the acquisition of such Person by the Issuer or the Co-Issuer or
(iii) a combination of (i) and (ii).
If at any time any non-cash consideration received by the Issuer, the Co-Issuer or any
Restricted Subsidiary, as the case may be, in connection with any Asset Sale is repaid or converted
into or sold or otherwise disposed of for cash (other than interest received with respect to any
such non-cash consideration), then the date of such repayment, conversion or disposition shall be
deemed to constitute the date of an Asset Sale hereunder and the Net Available Proceeds thereof
shall be applied in accordance with this covenant.
If the Issuer, the Co-Issuer or any Restricted Subsidiary engages in an Asset Sale, the
Issuer, the Co-Issuer or such Restricted Subsidiary shall, no later than 365 days following the
consummation thereof, apply amounts equal to all or any of the Net Available Proceeds therefrom to:
(1) If such Net Available Proceeds are proceeds of an Asset Sale of any asset, prepay
permanently or repay permanently any Indebtedness which was secured by the Collateral sold
in such Asset Sale; provided, that if such Net Available Proceeds are proceeds of an Asset
Sale of the Revolving Facility First-Priority Collateral, such Net Available Proceeds shall
be applied as required under the Revolving Credit Facility;
(2) If such Net Available Proceeds are proceeds of an Asset Sale of any assets or
properties of WML or any of its Subsidiaries, apply such Net Available Proceeds as and to
the extent required under the WML Credit Agreements or in connection with any consent,
waiver or amendment thereto provided by the WML lenders thereunder; provided, that Net
Available Proceeds that are proceeds of an Asset Sale of any properties or assets of WML or
any of its Subsidiaries shall constitute Excess Proceeds (as defined below) only if and
to the extent permitted to be distributed to the Issuer by WML or any of its Subsidiaries
under the WML Credit Agreements and the WML Security Agreements;
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(3) If such Net Available Proceeds are proceeds of any Asset Sale (other than an Asset
Sale of any asset that constitutes WML Collateral), to permanently reduce any Pari Passu
Indebtedness; provided, however, that if any Pari Passu Indebtedness is so reduced, the
Issuer and the Co-Issuer will equally and ratably reduce Indebtedness under the Notes by
making an offer to all Holders of the Notes to purchase at a purchase price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest, if any, the pro rata
principal amount of the Notes; or
(4) invest all or any part of the Net Available Proceeds thereof in (A) the purchase
of assets (other than securities) to be used by the Issuer, the Co-Issuer or any Restricted
Subsidiary in a Permitted Business, (B) capital expenditures to be used by the Issuer, the
Co-Issuer or any Restricted Subsidiary in a Permitted Business, (C) acquisition of
Qualified Equity Interests in a Person that is a Restricted Subsidiary or in a Person
engaged in a Permitted Business that shall become a Restricted Subsidiary immediately upon
the consummation of such acquisition or (D) a combination of (A), (B) and (C).
The amount of Net Available Proceeds not applied or invested as provided in this paragraph
will constitute Excess Proceeds.
When the aggregate amount of Excess Proceeds equals or exceeds $10.0 million, the Issuer will
be required to make an offer to purchase from all Holders and, if applicable, redeem (or make an
offer to do so) any Pari Passu Indebtedness of the Issuer the provisions of which require the
Issuer to redeem such Indebtedness with the proceeds from any Asset Sales (or offer to do so), in
an aggregate principal amount of Notes and such Pari Passu Indebtedness equal to the amount of such
Excess Proceeds as follows:
(1) the Issuer will (a) make an offer to purchase (a Net Proceeds Offer) to all
Holders in accordance with the procedures set forth in the Indenture, and (b) redeem (or
make an offer to do so) any such other Pari Passu Indebtedness, pro rata in proportion to
the respective principal amounts of the Notes and such other Indebtedness required to be
redeemed, the maximum principal amount of Notes and Pari Passu Indebtedness that may be
redeemed out of the amount (the Payment Amount) of such Excess Proceeds;
(2) the offer price for the Notes will be payable in cash in an amount equal to 100%
of the principal amount of the Notes tendered pursuant to a Net Proceeds Offer, plus
accrued and unpaid interest thereon, if any, to the date such Net Proceeds Offer is
consummated (the Offered Price), in accordance with the procedures set forth in the
Indenture and the redemption price for such Pari Passu Indebtedness (the Pari Passu
Indebtedness Price) shall be as set forth in the related documentation governing such
Indebtedness;
(3) if the aggregate Offered Price of Notes validly tendered and not withdrawn by
Holders thereof exceeds the pro rata portion of the Payment Amount allocable to the Notes,
Notes to be purchased will be selected on a pro rata basis or as nearly a pro rata basis as
is practicable (subject to the procedures of the Depository Trust Company); and
(4) upon completion of such Net Proceeds Offer in accordance with the foregoing
provisions, the amount of Excess Proceeds with respect to which such Net Proceeds Offer was
made shall be deemed to be zero.
To the extent that the sum of the aggregate Offered Price of Notes tendered pursuant to a Net
Proceeds Offer and the aggregate Pari Passu Indebtedness Price paid to the holders of such Pari
Passu Indebtedness is less than the Payment Amount relating thereto (such shortfall constituting a
Net Proceeds Deficiency), the Issuer may use the Net Proceeds Deficiency, or a portion thereof,
for general corporate purposes, subject to the provisions of the Indenture.
In the event of the transfer of substantially all (but not all) of the assets of the Issuer,
the Co-Issuer and the Restricted Subsidiaries as an entirety to a Person in a transaction covered
by and effected in accordance with the covenant described under Limitations on Mergers,
Consolidations, Etc., the successor Person shall be deemed to have sold for cash at Fair Market
Value the assets of the Issuer, the Co-Issuer and the Restricted Subsidiaries not so transferred
for purposes of this covenant, and the successor Person shall comply with the provisions of this
covenant with respect to such deemed sale as if it were an Asset Sale (with such Fair Market Value
being deemed to be Net Available Proceeds for such purpose).
The Issuer will comply with applicable tender offer rules, including the requirements of Rule
14e-1 under the Exchange Act and any other applicable laws and regulations in connection with the
purchase of
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Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Limitations on Asset Sales provisions of the
Indenture, the Issuer shall comply with the applicable securities laws and regulations and will not
be deemed to have breached their obligations under the Limitations on Asset Sales provisions of
the Indenture by virtue of this compliance.
Excess Cash Flow
Within 120 days after the end of each fiscal year of the Issuer (commencing with the fiscal
year ending December 31, 2011), when the aggregate Excess Cash Flow Amount equals or exceeds $1.0
million, the Issuer will be required to make an offer to purchase from all Holders Notes issued
under the Indenture (including the principal amount of any Additional Notes issued under the
Indenture but without duplication with respect to Exchange Notes) in an aggregate principal amount
equal to the Excess Cash Flow Amount as follows:
(1) the Issuer will make an offer to purchase (an Excess Cash Flow Offer) to all
Holders in accordance with the procedures set forth in the Indenture, pro rata in
proportion to the respective principal amounts of the Notes to be purchased, the maximum
principal amount that may be purchased out of the Excess Cash Flow Amount (the Excess Cash
Flow Payment Amount);
(2) the offer price for the Notes will be payable in cash in an amount equal to 100%
of the principal amount of the Notes tendered pursuant to an Excess Cash Flow Offer, plus
accrued and unpaid interest thereon, if any, to the date such Excess Cash Flow Offer is
consummated (the Excess Cash Flow Offered Price), in accordance with the procedures
set forth in the Indenture;
(3) if the aggregate Excess Cash Flow Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the pro rata portion of the Excess Cash Flow Payment
Amount allocable to the Notes, Notes to be purchased will be selected on a pro rata basis;
and
(4) upon completion of such Excess Cash Flow Offer in accordance with the foregoing
provisions, the Excess Cash Flow Amount with respect to which such Excess Cash Flow Offer
was made shall be deemed to be zero. To the extent that the sum of the aggregate Excess
Cash Flow Offered Price of Notes tendered pursuant to an Excess Cash Flow Offer is less
than the Excess Cash Flow Payment Amount relating thereto (such shortfall constituting an
Excess Cash Flow Offer Deficiency), the Issuer may use the Excess Cash Flow Offer
Deficiency, or a portion thereof, for general corporate purposes, subject to the provisions
of the Indenture.
The Issuer will comply with applicable tender offer rules, including the requirements of Rule
14e-1 under the Exchange Act and any other applicable laws and regulations in connection with the
purchase of Notes pursuant to an Excess Cash Flow Offer.
Rights Offering
At the end of each of the Issuers fiscal quarters beginning with the fiscal quarter ended
June 30, 2015, if the Total Leverage Ratio equals or exceeds 3.50 to 1.0, the Issuer shall be
required within 90 days (subject to requirements of applicable securities laws) of the end of the
first such fiscal quarter to provide holders of the Notes with the right to purchase, on a pro rata
basis with respect to Notes held as of such date, an amount of Additional Notes equal to the amount
necessary to repurchase and/or redeem all WML Notes that remain outstanding as of such date,
including any make-whole payment, at an issue price of 100% (the Rights Offering); provided, that
the Issuer shall not be required to undertake more than one Rights Offering during the term of the
Notes; provided, further, that a condition to the consummation of the Rights Offering shall be the
subscription by existing Holders to purchase Additional Notes equal to the amount necessary to
repurchase all of the outstanding WML Notes, including any make-whole payment. The proceeds from
the sale of such Additional Notes shall be used to repurchase and/or redeem all outstanding WML
Notes. The Indenture will include provisions necessary to cause the Issuer and Co-Issuer to
effectuate the foregoing and will be modified to permit the Issuer and Co-Issuer to comply with its
foregoing obligations without a resulting breach thereof.
The Issuer will be required to pay a make whole-amount with respect to the WML Notes to the
extent such Notes are repurchased or redeemed.
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Limitations on Designation of Unrestricted Subsidiaries
The Issuer may designate any Subsidiary (including any newly formed or newly acquired
Subsidiary) of the Issuer (other than the Co-Issuer) as an Unrestricted Subsidiary under the
Indenture (a Designation) only if:
(1) no Default shall have occurred and be continuing at the time of or after giving
effect to such Designation; and
(2) the Issuer would be permitted to make, at the time of such Designation, (a) a
Permitted Investment or (b) an Investment pursuant to the first paragraph of
Limitations on Restricted Payments above, in either case, in an amount (the Designation
Amount) equal to the Fair Market Value of the Issuers proportionate interest in such
Subsidiary on such date.
No Subsidiary shall be Designated as an Unrestricted Subsidiary unless such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding with the
Issuer, the Co-Issuer or any Restricted Subsidiary unless the terms of the agreement,
contract, arrangement or understanding are no less favorable to the Issuer, the Co-Issuer
or the Restricted Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates;
(3) is a Person with respect to which none of the Issuer, the Co-Issuer or any
Restricted Subsidiary has any direct or indirect obligation (a) to subscribe for additional
Equity Interests or (b) to maintain or preserve the Persons financial condition or to
cause the Person to achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Issuer, the Co-Issuer or any Restricted Subsidiary, except for any
guarantee given solely to support the pledge by the Issuer, the Co-Issuer or any Restricted
Subsidiary of the Equity Interests of such Unrestricted Subsidiary, which guarantee is not
recourse to the Issuer, the Co-Issuer or any Restricted Subsidiary, and except to the
extent the amount thereof constitutes a Restricted Payment permitted pursuant to the
covenant described under Limitations on Restricted Payments; provided, further, that
an Unrestricted Subsidiary may have previously been a Guarantor and have provided a Note
Guarantee of the Notes.
If, at any time, any Unrestricted Subsidiary fails to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of
the Indenture and any Indebtedness of the Subsidiary and any Liens on assets of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary as of the date and, if the Indebtedness
is not permitted to be incurred under the covenant described under Limitations on Additional
Indebtedness and Preferred Stock or the Lien is not permitted under the covenant described under
Limitations on Liens, the Issuer shall be in default of the applicable covenant. The Issuer
may not designate the Co-Issuer as an Unrestricted Subsidiary.
The Issuer may redesignate an Unrestricted Subsidiary as a Restricted Subsidiary (a
Redesignation) only if:
(1) no Default shall have occurred and be continuing at the time of and after giving
effect to such Redesignation; and
(2) all Liens, Indebtedness and Investments of such Unrestricted Subsidiary
outstanding immediately following such Redesignation would, if incurred or made at such
time, be permitted to be incurred or made for all purposes of the Indenture.
All Designations and Redesignations must be evidenced by resolutions of the Board of Directors
of the Issuer, delivered to the Trustee certifying compliance with the foregoing provisions.
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Limitations on Sale and Leaseback Transactions
The Issuer and the Co-Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into any Sale and Leaseback Transaction; provided, that the Issuer,
the Co-Issuer or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if:
(1) the Issuer, the Co-Issuer or such Restricted Subsidiary could have (a) incurred
the Indebtedness in an amount equal to the Attributable Indebtedness attributable to such
Sale and Leaseback Transaction pursuant to the covenant described under Limitations on
Additional Indebtedness and Preferred Stock and (b) incurred a Lien to secure such
Attributable Indebtedness pursuant to the covenant described under Limitations on
Liens;
(2) the gross cash proceeds of such Sale and Leaseback Transaction are at least equal
to the Fair Market Value of the asset that is the subject of such Sale and Leaseback
Transaction; and
(3) the transfer of assets in such Sale and Leaseback Transaction is permitted by, and
the Issuer, the Co-Issuer or the applicable Restricted Subsidiary applies the proceeds of
such transaction in accordance with, the covenant described under Limitations on Asset
Sales.
Limitations on the Issuance or Sale of Equity Interests of Restricted Subsidiaries
The Issuer and the Co-Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, sell or issue any shares of Equity Interests of any Restricted Subsidiary
except (1) to the Issuer, the Co-Issuer, a Restricted Subsidiary or the minority stockholders of
any Restricted Subsidiary, on a pro rata basis or (2) to the extent such shares represent
directors qualifying shares or shares required by applicable law to be held by a Person other than
the Issuer, the Co-Issuer or a Wholly Owned Restricted Subsidiary or (3) pursuant to the Absaloka
operating agreement or membership interest purchase agreement relating to the Indian coal tax
credit transaction. The sale of all the Equity Interests of any Restricted Subsidiary is permitted
by this covenant but is subject to the covenant described under Limitations on Asset Sales.
Limitations on Mergers, Consolidations, Etc.
The Issuer will not, directly or indirectly, in a single transaction or a series of related
transactions, (a) consolidate or merge with or into another Person, or sell, lease, transfer,
convey or otherwise dispose of or assign all or substantially all of the assets of the Issuer, the
Co-Issuer and the Restricted Subsidiaries (taken as a whole) or (b) adopt a Plan of Liquidation
unless, in either case:
(a) the Issuer will be the surviving or continuing Person; or
(b) the Person formed by or surviving such consolidation or merger or to which such
sale, lease, conveyance or other disposition shall be made (or, in the case of a Plan of
Liquidation, any Person to which assets are transferred) (collectively, the Successor) is
a corporation, limited liability company or limited partnership organized and existing
under the laws of any State of the United States of America or the District of Columbia,
and the Successor expressly assumes, by a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, all of the obligations of the Issuer and the
Co-Issuer under the Notes, the Indenture, the Security Documents, the Registration Rights
Agreement and, if the Revolving Credit Facility is then outstanding, any Intercreditor
Agreement, and shall cause (i) such amendments, supplements or other instruments to be
executed, filed and recorded in such jurisdiction as may be required by applicable law to
preserve and protect the lien on the Collateral pledged by the Issuer, together
with such financing statements or comparable documents as may be required to perfect
any security interest in such Collateral which may be perfected by the filing of a
financing statement or a similar document under the UCC or other similar statute or
regulation of the relevant states or jurisdictions and (ii) the property and assets of the
Person which is merged or consolidated with or into the Successor, to the extent that they
are property or assets of the types which would constitute Collateral under the Security
Documents (other than assets that would qualify as Excluded Property or assets that
otherwise may not be made subject to a Lien), to be treated as after-acquired property and
the Successor shall take such actions as may be reasonably necessary to cause such property
and assets to be made subject to the Lien of
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the Security Documents in the manner and to
the extent provided in the Indenture, in each case in a form reasonably satisfactory to the
Trustee;
(2) immediately prior to and immediately after giving effect to such transaction and
the assumption of the obligations as set forth in clause (1)(b) above and the incurrence of
any Indebtedness to be incurred in connection therewith, and the use of any net proceeds
therefrom on a pro forma basis, no Default or Event of Default shall have occurred and be
continuing;
(3) immediately after and giving effect to such transaction and the assumption of the
obligations set forth in clause (1)(b) above and the incurrence of any Indebtedness to be
incurred in connection therewith, and the use of any net proceeds therefrom on a pro forma
basis, the Issuer or the Successor, as the case may be, (a) could incur $1.00 of additional
Indebtedness pursuant to the Coverage Ratio Exception or (b) shall have an Fixed Charge
Coverage Ratio greater than the Fixed Charge Coverage Ratio of the Issuer immediately prior
to such transaction and assumption; and
(4) the Issuer shall have delivered to the Trustee an Officers Certificate and an
Opinion of Counsel, each stating that such transaction and such supplemental indentures, if
any, comply with the Indenture.
Notwithstanding the foregoing, clauses (3) and (4) of the first paragraph of this covenant
shall not be applicable to (a) the Issuer consolidating with, merging into or selling, assigning,
transferring, conveying, leasing or otherwise disposing of all or part of its properties and assets
to a Restricted Subsidiary and (b) the Issuer merging with an Affiliate solely for the purpose and
with the sole effect of reincorporating the Issuer, as the case may be, in another jurisdiction so
long as the amount of Indebtedness of the Issuer, the Co-Issuer and the Restricted Subsidiaries is
not increased thereby.
For purposes of this covenant, any Indebtedness of the Successor which was not Indebtedness of
the Issuer immediately prior to the transaction shall be deemed to have been incurred in connection
with such transaction.
Except as provided in the fourth paragraph under the caption Note Guarantees, no
Guarantor or the Co-Issuer may consolidate with or merge with or into (whether or not such
Guarantor or the Co-Issuer is the surviving Person) another Person, other than the Issuer, the
Co-Issuer or another Guarantor, unless:
(1) either:
(a) such Guarantor will be the surviving or continuing Person; or
(b) the Person formed by or surviving any such consolidation or merger assumes, by
supplemental indenture in form and substance satisfactory to the Trustee, all of the
obligations of such Guarantor under the Note Guarantee of such Guarantor, the Indenture,
the Security Documents, the Registration Rights Agreement and, if the Revolving Credit
Facility is then outstanding, any Intercreditor Agreement and shall cause (i) such
amendments, supplements or other instruments to be executed, filed and recorded in such
jurisdiction as may be required by
applicable law to preserve and protect the lien on the Collateral pledged by such
Guarantor, together with such financing statements or comparable documents as may be
required to perfect any security interest in such Collateral which may be perfected by the
filing of a financing statement or a similar document under the UCC or other similar
statute or regulation of the relevant states or jurisdictions and (ii) the property and
assets of the Person which is merged or consolidated with or into the Successor, to the
extent that they are property or assets of the types which would constitute Collateral
under the Security Documents (other than assets that would qualify as Excluded Property or
assets that otherwise may not be made subject to a Lien), to be treated as after acquired
property and the Successor shall take such actions as may be reasonably necessary to cause
such property and assets to be made subject to the Lien of the Security Documents in the
manner and to the extent provided in the Indenture, in each case in a form reasonably
satisfactory to the Trustee; and
(2) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing.
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For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a
single transaction or series of transactions) of all or substantially all of the properties or
assets of the Co-Issuer or one or more Restricted Subsidiaries, the Equity Interests of which
constitute all or substantially all of the properties and assets of the Issuer, will be deemed to
be the transfer of all or substantially all of the properties and assets of the Issuer.
Upon any consolidation, combination or merger of the Issuer, the Co-Issuer or a Guarantor, or
any transfer of all or substantially all of the assets of the Issuer in accordance with the
foregoing, in which the Issuer, the Co-Issuer or such Guarantor is not the continuing obligor under
the Notes or its Note Guarantee, the surviving entity formed by such consolidation or into which
the Issuer, the Co-Issuer or such Guarantor is merged or the Person to which the conveyance, lease
or transfer is made will succeed to, and be substituted for, and may exercise every right and power
of, the Issuer, the Co-Issuer or such Guarantor under the Indenture, the Notes, the Note
Guarantees, the Security Documents, the Registration Rights Agreement and, if the Revolving Credit
Facility is then outstanding, any Intercreditor Agreement with the same effect as if such surviving
entity had been named therein as the Issuer, the Co-Issuer or such Guarantor and, except in the
case of a lease, the Issuer, the Co-Issuer or such Guarantor, as the case may be, will be released
from the obligation to pay the principal of and interest on the Notes or in respect of its Note
Guarantee, as the case may be, and all of the Issuers, the Co-Issuers or such Guarantors other
obligations and covenants under the Notes, the Indenture, its Note Guarantee, the Security
Documents, the Registration Rights Agreement and the Intercreditor Agreement, if applicable.
Notwithstanding the foregoing, any Guarantor may consolidate with, merge with or into or
convey, transfer or lease, in one transaction or a series of transactions, all or substantially all
of its assets to the Issuer, the Co-Issuer or another Guarantor; provided, that the Issuer, the
Co-Issuer and such Guarantors shall cause such amendments, supplements or other instruments to be
executed, filed and recorded in such jurisdiction as may be required by applicable law to preserve
and protect the lien on the Collateral pledged by such entity, together with such financing
statements or comparable documents as may be required to perfect any security interest in such
Collateral which may be perfected by the filing of a financing statement or a similar document
under the UCC or other similar statute or regulation of the relevant states or jurisdictions.
Additional Note Guarantees
If, after the Issue Date, (a) the Issuer, the Co-Issuer or any Restricted Subsidiary (other
than WML and its Subsidiaries) shall acquire or create another Subsidiary (other than in any case a
Subsidiary that has been designated an Unrestricted Subsidiary), (b) any Unrestricted Subsidiary is
redesignated a Restricted Subsidiary or, (c) the Issuer otherwise elects or is required to have any
Restricted Subsidiary become a Guarantor, including on the WML Repayment Date, at which time the
Issuer shall cause WML and its Subsidiaries to become Guarantors under the Indenture, then, in each
such case, the Issuer shall cause such Restricted Subsidiary to:
(1) execute and deliver to the Trustee (a) a supplemental indenture in form and
substance satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee all of the Issuers and the Co-Issuers obligations under the
Notes, the Indenture, the Security Documents, the Registration Rights Agreement and, if the
Revolving Credit Facility is then outstanding, any Intercreditor Agreement, (b) a notation
of guarantee in respect of its Note Guarantee, and (c) a joinder to the Security Documents
or new Security Documents;
(2) deliver to the Trustee one or more Opinions of Counsel that such supplemental
indenture (a) has been duly authorized, executed and delivered by such Restricted
Subsidiary and (b) constitutes a valid and legally binding obligation of such Restricted
Subsidiary in accordance with its terms; and
(3) shall take such actions as may be reasonably necessary to cause the property and
assets of such Restricted Subsidiary, to the extent that they are property or assets of the
types which would constitute Collateral under the Security Documents, to be treated as
after-acquired property and to be made subject to the Lien of the Security Documents in the
manner and to the extent provided in the Indenture, in a manner reasonably satisfactory to
the Trustee.
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Conduct of Business
The Issuer and the Co-Issuer will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business.
Limitation on Activities of Certain Subsidiaries
The Issuer will not permit Basin Resources Inc. to engage in any activities other than in
relation to providing benefits to former mining operation employees and activities incidental to
its organization and existence and shall not incur any Indebtedness, grant Liens over its assets or
enter into any transactions other than in the ordinary course. The Issuer will not permit
Westmoreland Terminal Company, Eastern Coal & Coke Company, and Criterion Coal Company to engage in
any activities other than activities incidental to their organization and existence and activities
incidental to their respective dissolution and shall not incur any Indebtedness, grant Liens over
their assets or enter into any transactions.
Payments for Consent
The Indenture provides that neither the Issuer, the Co-Issuer nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders or all Holders that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports and Other Information
(a) Whether or not the Issuer is subject to Section 13(a) or 15(d) of the Exchange
Act, the Issuer, the Co-Issuer and any Guarantor will, to the extent permitted under the
Exchange Act, file with the SEC the annual reports, quarterly reports and other documents
which the Issuer, the Co-Issuer and such Guarantor would have been required to file with
the SEC pursuant to Sections 13(a) or 15(d) of the Exchange Act if the Issuer, the
Co-Issuer or such Guarantor were so subject, such documents to be filed with the SEC on or
prior to the date (the Required Filing Date) by which the Issuer, the Co-Issuer and such
Guarantor would have been required so to file such documents if the Issuer, the Co-Issuer
and such Guarantor were so subject.
If at any time the Notes are guaranteed by a direct or indirect parent of the Issuer and such
company has complied with the reporting requirements of Section 13 or 15(d) of the Exchange Act, if
applicable, and has furnished the Holders of Notes, or filed electronically with the SECs
Next-Generation EDGAR System (or any successor system), the reports described herein with respect
to such company, as applicable (including any financial information required by Regulation S-X
under the Securities Act relating to the Issuer, the Co-Issuer and the Guarantors), the Issuer, the
Co-Issuer and the Guarantors shall be deemed to be in compliance with the provisions of this
covenant.
The Issuer, the Co-Issuer and any Guarantor will also in any event (a) within 15 days after
each Required Filing Date file with the Trustee copies of the annual reports, quarterly reports and
other documents which the Issuer, the Co-Issuer and such Guarantor would have been required to file
with the SEC pursuant to Section 13(a) or Section 15(d) of the Exchange Act if the Issuer, the
Co-Issuer and such Guarantor were subject to either of such Sections and (b) if filing such
documents by the Issuer, the Co-Issuer and such Guarantor with the SEC is not permitted under the
Exchange Act or prior to the exchange offer or the effectiveness of a shelf registration statement
contemplated by the Registration Rights Agreement, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents to any prospective
holder at the Issuers cost. The Issuer, the Co-Issuer and each Guarantor shall be deemed to have
satisfied the foregoing requirements if the relevant documents have been filed with the SEC.
If the Co-Issuers, any Guarantors or secured partys financial statements would be required
to be included in the financial statements filed or delivered pursuant to the Indenture if the
Issuer were subject to Section 13(a) or 15(d) of the Exchange Act, the Issuer shall include such
financial statements in any filing or delivery pursuant to the Indenture.
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The Indenture also provides that, so long as any of the Notes remain outstanding, the
Issuer will make available to any prospective purchaser of Notes or beneficial owner of Notes in
connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities
Act, until the earlier of (x) such time as the Issuer has exchanged the Notes for the Exchange
Notes and (y) such time as the holders thereof have disposed of such Notes pursuant to an effective
registration statement under the Securities Act.
(b) The Issuer will also hold quarterly conference calls for the Holders of the Notes
to discuss financial information for the previous quarter. The conference call will be
following the last day of each fiscal quarter of the Issuer and not later than ten Business
Days after the time that the Issuer distributes the financial information as set forth in
clause (a) above. No fewer than two days prior to the conference call, the Issuer shall
issue a press release announcing the time and date of such conference call and providing
instructions for Holders, securities analysts and prospective investors to obtain access to
such call. For the avoidance of doubt, the Issuer may satisfy the requirements of this
paragraph by holding the conference calls required above within the time period required as
part of any earnings calls of the Issuer in accordance with past practice.
Events of Loss
Subject to any intercreditor agreement and the Security Documents, in the event of an Event of
Loss with respect to any Collateral, the Issuer, the Co-Issuer or the affected Guarantor, as the
case may be, will apply the Net Loss Proceeds from such Event of Loss, within 365 days after
receipt, at its option to:
(1) repay obligations under any revolving credit facility with the Net Loss Proceeds of
borrowing base assets, and effect a permanent reduction in the availability under such revolving
credit facility;
(2) repay any Indebtedness which was secured by the assets to which Event of Loss related;
and/or
(3) (A) invest all or any part of the Net Loss Proceeds thereof in the purchase of assets
(other than securities) to be used by the Issuer, the Co-Issuer or any Restricted Subsidiary in a
Permitted Business, (B) capital expenditures to be used by the Issuer, the Co-Issuer or any
Restricted Subsidiary in a Permitted Business, (C) acquisition of Qualified Equity Interests in a
Person that is a Restricted Subsidiary or in a Person engaged in a Permitted Business that shall
become a Restricted Subsidiary immediately upon the consummation of such acquisition or (D) a
combination of (A), (B) and (C).
Pending the final application of any Net Loss Proceeds, the Issuer, the Co-Issuer or the
affected Guarantor shall deposit such Net Loss Proceeds in accordance with the Security Documents
and any applicable Intercreditor Agreement.
Any Net Loss Proceeds from an Event of Loss that are not applied or invested as provided in
the prior paragraph will be deemed to constitute Excess Loss Proceeds. When the aggregate amount
of Excess Loss Proceeds exceeds $10.0 million, the Issuer will be required to make an offer to
purchase from all Holders and, if applicable, redeem (or make an offer to do so) any Pari Passu
Indebtedness of the Issuer the provisions of which require the Issuer to redeem such Indebtedness
with the Net Loss Proceeds (or offer to do so) (a Loss Proceeds Offer) in an aggregate principal
amount of Notes and such Pari Passu Indebtedness equal to the amount of such Excess Loss Proceeds
at an offer price in cash in an amount equal to 100% of their principal amount plus accrued and
unpaid interest to the date of purchase or redemption, as applicable. If the aggregate principal
amount of Notes surrendered by Holders exceeds the Excess Loss Proceeds to be used to purchase the
Notes, the Trustee shall select the Notes to be purchased pursuant to the Loss Proceeds Offer on a
pro rata basis or on a pro rata basis as is practicable, subject to the procedures of the
Depository Trust Company.
The Indenture provides that the Issuer will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Loss Proceeds Offer, and the relevant provisions of the Indenture
will be deemed modified as necessary to permit such compliance.
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Events of Default
Each of the following is an Event of Default:
(1) failure by the Issuer and the Co-Issuer to pay interest or Additional Interest on any of
the Notes when it becomes due and payable and the continuance of any such failure for 30 days;
(2) failure by the Issuer and the Co-Issuer to pay the principal of or premium, if any, on any
of the Notes when due and payable, whether at stated maturity, upon redemption, upon purchase, upon
acceleration or otherwise;
(3) failure by the Issuer and the Co-Issuer to comply with any of its agreements or covenants
described above under Certain Covenants Limitations on Mergers, Consolidations, Etc., or in
respect of its obligations to make a Change of Control Offer as described above under Change of
Control;
(4) failure by the Issuer and the Co-Issuer to comply with any of its agreements or covenants
described above under Certain Covenants Limitations on Additional Indebtedness and Preferred
Stock or Certain Covenants Limitations on Restricted Payments and continuance of this
failure for 30 days after notice of the failure has been given to the Issuer by the Trustee or by
the Holders of at least 25% of the aggregate principal amount of the Notes then outstanding;
(5) failure by the Issuer and the Co-Issuer to comply with any other agreement or covenant in
the Indenture and continuance of this failure for 60 days after notice of the failure has been
given to the Issuer by the Trustee or by the Holders of at least 25% of the aggregate principal
amount of the Notes then outstanding;
(6) (a) default with respect to any payment when due under any mortgage, indenture or other
instrument or agreement under which there may be issued or by which there may be secured or
evidenced Indebtedness of the Issuer, the Co-Issuer or any Restricted Subsidiary, whether such
Indebtedness now exists or is incurred after the Issue Date; provided, that the principal amount of
such Indebtedness aggregates to $15.0 million or more or such Indebtedness is incurred under the
Revolving Credit Facility or any of the WML Credit Agreements or (b) any default under any of the
WML Credit Agreements that results in the prohibition, or reduction of the amount, of any payments,
dividends or distributions permitted to be made by WML or any of its Subsidiaries, directly or
indirectly, to the Issuer;
(7) one or more judgments or orders that exceed $15.0 million in the aggregate (net of amounts
covered by insurance or bonded) for the payment of money have been entered by a court or courts of
competent jurisdiction against the Issuer, the Co-Issuer or any Restricted Subsidiary and such
judgment or judgments have not been satisfied, stayed, annulled or rescinded within 60 days of
being entered;
(8) the Issuer, the Co-Issuer or any Significant Subsidiary pursuant to or within the meaning
of any applicable bankruptcy law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an involuntary case,
(c) consents to the appointment of a Custodian of it or for all or substantially all
of its assets, or
(d) makes a general assignment for the benefit of its creditors;
(9) a court of competent jurisdiction enters an order or decree under any applicable
bankruptcy law that:
(a) is for relief against the Issuer, the Co-Issuer or any Significant Subsidiary as
debtor in an involuntary case,
(b) appoints a Custodian of the Issuer, the Co-Issuer or any Significant Subsidiary or
a Custodian for all or substantially all of the assets of the Issuer, the Co-Issuer or any
Significant Subsidiary, or
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(c) orders the liquidation of the Issuer, the Co-Issuer or any Significant Subsidiary,
and the order or decree remains unstayed and in effect for 60 days;
(10) any Note Guarantee of any Significant Subsidiary ceases to be in full force and effect
(other than in accordance with the terms of such Note Guarantee and the Indenture) or is declared
in a judicial proceeding null and void and unenforceable or found in a judicial proceeding to be
invalid or any Guarantor denies its liability under its Note Guarantee (other than by reason of
release of a Guarantor from its Note Guarantee in accordance with the terms of the Indenture and
the Note Guarantee); or
(11) so long as the Security Documents have not been otherwise terminated in accordance with
their terms and the Note Collateral as a whole has not been released from the Lien of the Security
Documents securing the Notes in accordance with the terms thereof, with respect to Collateral
having a Fair Market Value in excess of $15.0 million, (a) any default by the Issuer, the Co-Issuer
or any Guarantor in the performance of its obligations under the Security Documents (after the
lapse of any applicable grace periods) or the Indenture which adversely affects the condition or
value of such Collateral, in any material respect, (b) repudiation or disaffirmation of the Issuer,
the Co-Issuer or any Guarantor of its respective obligations under the Security Documents and (c)
the determination in a judicial proceeding that the Security Documents are unenforceable or invalid
against the Issuer, the Co-Issuer or any Guarantor for any reason.
If an Event of Default (other than an Event of Default specified in clause (8) or (9) above
with respect to the Issuer or the Co-Issuer) shall have occurred and be continuing under the
Indenture, the Trustee, by written notice to the Issuer, or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by written notice to the Issuer and the
Trustee, may declare all amounts owing under the Notes to be due and payable immediately. If an
Event of Default specified in clause (8) or (9) with respect to the Issuer or the Co-Issuer occurs,
all outstanding Notes shall become due and payable without any further action or notice.
The Trustee shall, within 30 days after the occurrence of any Default with respect to the
Notes, give the Holders notice of all uncured Defaults thereunder known to it; provided, however,
that, except in the case of an Event of Default in payment with respect to the Notes or a Default
in complying with Certain Covenants Limitations on Mergers, Consolidations, Etc., the
Trustee shall be protected in withholding such notice if and so long as a committee of its trust
officers in good faith determines that the withholding of such notice is in the interest of the
Holders.
No Holder will have any right to institute any proceeding with respect to the Indenture, the
Notes, the Security Documents or, if applicable, an Intercreditor Agreement, or for any remedy
thereunder, unless the Trustee:
(1) has failed to act for a period of 60 days after receiving written notice of a continuing
Event of Default by such Holder and a request to act by Holders of at least 25% in aggregate
principal amount of Notes outstanding;
(2) has been offered indemnity, security or prefunding reasonably satisfactory to it; and
(3) has not received from the Holders of a majority in aggregate principal amount of the
outstanding Notes a direction inconsistent with such request.
However, such limitations do not apply to a suit instituted by a Holder of any Note for
enforcement of payment of the principal of or interest on such Note on or after the due date
therefore (after giving effect to the grace period specified in clause (1) of the first paragraph
of this Events of Default section).
The Issuer is required to deliver to the Trustee annually a statement regarding compliance
with the Indenture and, upon any Officer of the Issuer becoming aware of any Default, a statement
specifying such Default and what action the Issuer is taking or proposes to take with respect
thereto.
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Legal Defeasance and Covenant Defeasance
The Issuer may, at its option and at any time, elect to have its obligations and the
obligations of the Co-Issuer and the Guarantors discharged with respect to the outstanding Notes
(Legal Defeasance). Legal Defeasance means that the Issuer, the Co-Issuer and the Guarantors
shall be deemed to have paid and discharged the entire indebtedness represented by the Notes and
the Note Guarantees, and the Indenture shall cease to be of further effect as to all outstanding
Notes and Note Guarantees, except as to:
(1) rights of Holders to receive payments in respect of the principal of and interest on the
Notes when such payments are due from the trust funds referred to below,
(2) the obligations of the Issuer and the Co-Issuer with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and the
maintenance of an office or agency for payment and to hold money for payments held in trust,
(3) the rights, powers, trust, duties, and immunities of the Trustee and Note Collateral
Agent, and the Issuers obligation in connection therewith, and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuer may, at its option and at any time, elect to have its obligations and
the obligations of the Co-Issuer and the Guarantors released with respect to most of the covenants
under the Indenture and the Security Documents, except as described otherwise in the Indenture
(Covenant Defeasance), and thereafter any omission to comply with such obligations shall not
constitute a Default. In the event Covenant Defeasance occurs, certain Events of Default (not
including non-payment, bankruptcy, receivership, reorganization and insolvency events) will no
longer apply. The Issuer may exercise its Legal Defeasance option regardless of whether it
previously exercised Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuer must irrevocably deposit with the Trustee, as trust funds, in trust solely for
the benefit of the Holders, U.S. legal tender, U.S. Government Obligations or a combination
thereof, in such amounts as will be sufficient (without reinvestment) in the opinion of a
nationally recognized firm of independent public accountants selected by the Issuer, to pay the
principal of and interest on the Notes on the stated date for payment or on the redemption date of
the principal or installment of principal of or interest on the Notes and the Holders must have a
valid, perfected exclusive security interest in such trust,
(2) in the case of Legal Defeasance, the Issuer shall have delivered to the Trustee an Opinion
of Counsel in the United States confirming that:
(a) the Issuer has received from, or there has been published by the Internal Revenue
Service, a ruling, or
(b) since the date of the Indenture, there has been a change in the applicable U.S.
federal income tax law,
in either case to the effect that, and based thereon this Opinion of Counsel shall confirm that,
the Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a
result of the Legal Defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such Legal Defeasance had
not occurred,
(3) in the case of Covenant Defeasance, the Issuer shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the
Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of
such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if the Covenant Defeasance had not
occurred,
(4) no Default shall have occurred and be continuing on the date of such deposit (other than a
Default resulting from the borrowing of funds to be applied to such deposit and the grant of any
Lien securing such borrowing);
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(5) the Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a Default under the Indenture (other than a Default resulting solely from the
borrowing of funds to be applied to such deposit and the grant of any Lien on such deposit in favor
of the Trustee and/or the Holders), the Revolving Credit Facility or any other material agreement
or instrument to which the Issuer or any of its Subsidiaries is a party or by which the Issuer or
any of its Subsidiaries is bound,
(6) the Issuer shall have delivered to the Trustee an Officers Certificate stating that the
deposit was not made by it with the intent of defeating, hindering, delaying or defrauding any
other of its creditors or others, and
(7) the Issuer shall have delivered to the Trustee an Officers Certificate and an Opinion of
Counsel, each stating that the conditions provided for in, in the case of the Officers
Certificate, clauses (1) through (6) and, in the case of the Opinion of Counsel, clauses (1) (with
respect to the validity and perfection of the security interest), (2) and/or (3) and (5) of this
paragraph have been complied with.
If the funds deposited with the Trustee to effect Covenant Defeasance are insufficient to pay
the principal of and interest on the Notes when due, then the Issuers and the Co-Issuers
obligations and the obligations of Guarantors under the Indenture will be revived and no such
defeasance will be deemed to have occurred.
Satisfaction and Discharge
The Indenture and the Security Documents will be discharged and will cease to be of further
effect (except as to rights of registration of transfer or exchange of Notes which shall survive
until all Notes have been canceled) as to all outstanding Notes when either
(1) all the Notes that have been authenticated and delivered (except lost, stolen or destroyed
Notes which have been replaced or paid and Notes for whose payment money has been deposited in
trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or
discharged from this trust) have been delivered to the Trustee for cancellation, or
(2) (a) all Notes not delivered to the Trustee for cancellation otherwise have become due and
payable or have been called for redemption pursuant to the provisions described under Optional
Redemption, and the Issuer has irrevocably deposited or caused to be deposited with the Trustee
trust funds in an amount of money sufficient to pay and discharge the entire Indebtedness
(including all principal and accrued interest) on the Notes not theretofore delivered to the
Trustee for cancellation,
(b) the Issuer and the Co-Issuer have paid all sums payable by it under the Indenture,
(c) the Issuer and the Co-Issuer have delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Notes at maturity or on the
date of redemption, as the case may be, and
(d) the Holders have a valid, perfected, exclusive security interest in this trust.
In addition, the Issuer must deliver an Officers Certificate and an Opinion of Counsel
stating that all conditions precedent to satisfaction and discharge have been complied with.
Transfer and Exchange
A Holder will be able to register the transfer of or Exchange Notes only in accordance with
the provisions of the Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees required by law or
permitted by the Indenture. Without the prior consent of the Issuer, the Registrar is not required
(1) to register the transfer of or exchange any Note selected for redemption, (2) to register the
transfer of or exchange any Note for a period of
15 days before a selection of Notes to be redeemed or (3) to register the transfer or exchange
of a Note between a record date and the next succeeding interest payment date.
The Notes will be issued in registered form and the registered Holder will be treated as the
owner of such Note for all purposes.
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Amendment, Supplement and Waiver and Entry into Intercreditor Agreement
Subject to certain exceptions, the Indenture may be amended with the consent of the Holders of
a majority in principal amount of the Notes then outstanding (voting as one class) (including
consents obtained in connection with a tender offer for, exchange for or purchase of, the Notes)
and any past default or compliance with any provisions may also be waived with the consent of the
Holders of at least a majority in principal amount of the Notes then outstanding. An intercreditor
agreement containing terms that differ from those set forth under Security Intercreditor
Agreement to be Entered into in Connection with a Future Revolving Credit Facility in any material
respect may be entered into and, subject to certain exceptions, the Intercreditor Agreement and the
Security Documents may be amended, in each case with the consent of the Holders of a majority in
principal amount of the Notes then outstanding (including consents obtained in connection with a
tender offer for, exchange for or purchase of, the Notes) and any past default or compliance with
any provisions in an Intercreditor Agreement and the Security Documents may also be waived with the
consent of the Holders of a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer for, exchange for or purchase of, the Notes);
and such amendments may not, without the consent of the Holders of 75% in principal amount of the
Notes then outstanding, release all or substantially all of the Collateral other than in accordance
with the Indenture, an Intercreditor Agreement and the Security Documents; provided, that without
the consent of each Holder affected, no amendment or waiver may:
(1) change the maturity of any Note;
(2) reduce the amount, extend the due date or otherwise affect the terms of any scheduled
payment of interest on or principal of the Notes;
(3) reduce any premium payable upon optional redemption of the Notes, change the date on, or
the circumstances under which, any Notes are subject to redemption or otherwise alter the
provisions with respect to the redemption of the Notes (other than provisions relating to the
repurchase of Notes described above under Change of Control, Certain Covenants
Limitations on Asset Sales, Events of Loss and Excess Cash Flow, except that if a Change
of Control has occurred, no amendment or other modification of the obligation of the Issuer and the
Co-Issuer to make a Change of Control Offer relating to such Change of Control shall be made
without the consent of each Holder of the Notes affected);
(4) make any Note payable in money or currency other than that stated in the Notes;
(5) make any change in the ranking or priority of any Note that would adversely affect the
Holders of the Notes;
(6) reduce the percentage of Holders necessary to consent to an amendment or waiver to the
Indenture or the Notes;
(7) impair the rights of Holders to receive payments of principal of or interest on the Notes;
(8) release any Guarantor from any of its obligations under its Note Guarantee or the
Indenture, except as permitted by the Indenture; or
(9) make any change in these amendment and waiver provisions.
Notwithstanding the foregoing, the Issuer, the Co-Issuer, the Trustee and the Note Collateral
Agent, as applicable, may (i) enter into an Intercreditor Agreement on the same terms set forth in
SecurityIntercreditor Agreement to be Entered into in Connection with a Future Revolving
Credit Facility in all material respects, without the consent of any Holder and (ii) amend the
Indenture, the Note Guarantees, the Notes, the Security Documents or if applicable, an
Intercreditor Agreement, without the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
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(3) to provide for the assumption of the obligations of the Issuer and the Co-Issuer to the
Holders in the case of a merger, consolidation or sale of all or substantially all of the assets in
accordance with Certain Covenants Limitations on Mergers, Consolidations, etc.;
(4) to release any Guarantor from any of its obligations under its Note Guarantee or the
Indenture (to the extent permitted by the Indenture);
(5) to provide for the accession or succession of any parties to any Intercreditor Agreement
or the Security Documents (and other amendments that are administrative or ministerial in nature)
in connection with the execution or amendment, renewal, extension, substitution, refinancing,
restructuring, replacement, supplementing or other modification from time to time of a Revolving
Credit Facility, the WML Credit Agreements, the Notes or any other agreement or action that is not
prohibited by the Indenture;
(6) to provide for the release of Collateral in accordance with the terms of the Indenture, an
Intercreditor Agreement, if applicable, and the Security Documents (it being understood that the
Liens on the Collateral with respect to the Notes and the Note Guarantees will be released to the
extent the corresponding Revolving Facility First-Priority Liens securing Revolving Credit Facility
Obligations are released);
(7) to provide security for additional borrowings under the Revolving Credit Facility or any
additional Indebtedness which Liens are permitted to be incurred in accordance with the Indenture;
(8) to expand the Collateral securing the Notes or the Note Guarantees;
(9) to evidence and provide the acceptance of the appointment of a successor trustee under the
Indenture or successor Note Collateral Agent;
(10) to provide for the issuance of Exchange Notes pursuant to the terms of the Indenture and
the Registration Rights Agreement; or
(11) to make any change that does not materially adversely affect the rights of any Holder,
or, in the case of the Indenture, to maintain the qualification of the Indenture under the Trust
Indenture Act.
In the case of execution of an Intercreditor Agreement without the consent of the Holders, the
Issuer shall have delivered to the Trustee an Officers Certificate, signed by the Chief Executive
Officer and Chief Financial Officer of the Issuer, confirming that the Intercreditor Agreement
shall have been entered into on terms that are the same as the terms set forth under Security
Intercreditor Agreement to be Entered into in Connection with a Future Revolving Credit
Facility in all material respects and any additional terms are not inconsistent with the terms set
forth herein and not materially adverse to the Holders.
No Personal Liability of Directors, Officers, Employees, Stockholders and Members
No director, officer, employee, incorporator, stockholder, member or manager of the Issuer,
the Co-Issuer or any Restricted Subsidiary will have any liability for any obligations of the
Issuer or the Co-Issuer under the Notes, the Indenture, the Security Documents or the Intercreditor
Agreement or of any Guarantor under its Note Guarantee or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the consideration for issuance of
the Notes and the Note Guarantees. The waiver may not be effective to waive liabilities under the
federal securities laws. It is the view of the SEC that this type of waiver is against public
policy.
Concerning the Trustee and the Note Collateral Agent
Wells Fargo Bank, National Association will be the Trustee and the Note Collateral Agent under
the Indenture and has been appointed by the Issuer as Registrar and Paying Agent with regard to the
Notes. The Indenture contains certain limitations on the rights of the Trustee, should it become a
creditor of the Issuer, to obtain payment of claims in certain cases, or to realize on certain
assets received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest (as defined in the Indenture), it must eliminate
such conflict or resign.
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The Holders of a majority in principal amount of the then outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions. The Indenture provides that, in case an
Event of Default occurs and is not cured, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder, unless such Holder shall
have offered to the Trustee indemnity, security or prefunding reasonably satisfactory to the
Trustee.
References in this section to the Trustee include the Trustee in its capacity as Note
Collateral Agent
Governing Law
The Indenture, the Notes, the Note Guarantees, the Security Documents (except as to real
estate and certain other security documents required to be governed by local law) and any
Intercreditor Agreement will be governed by, and construed in accordance with, the laws of the
State of New York
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the Indenture. Reference
is made to the Indenture for the full definition of all such terms.
Absaloka means Absaloka Coal LLC.
Absaloka Collateral has the meaning assigned to that term in clause (iv) of the first
paragraph under the subheading Security General.
Acquired Indebtedness means (1) with respect to any Person that becomes a Restricted
Subsidiary after the Issue Date, Indebtedness of such Person and its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary and (2) with respect to the Issuer, the Co-Issuer
or any Restricted Subsidiary, any Indebtedness of a Person (other than the Issuer, the Co-Issuer or
a Restricted Subsidiary) existing at the time such Person is merged with or into the Issuer, the
Co-Issuer or a Restricted Subsidiary, or Indebtedness expressly assumed by the Issuer, the
Co-Issuer or any Restricted Subsidiary in connection with the acquisition of an asset or assets
from another Person.
Additional Interest has the meaning set forth in the Registration Rights Agreement and the
Issuer shall promptly notify the Trustee of such Additional Interest as set forth in the
Registration Rights Agreement and any other registration rights agreement.
Additional Notes has the meaning assigned to that term in the third paragraph under the
heading Principal, Maturity And Interest.
Administrative Agent has the meaning assigned to that term in the ninth paragraph under the
subheading Security Intercreditor Agreement to be Entered into in Connection with a Future
Revolving Credit Facility.
Affiliate of any Person means any other Person which directly or indirectly controls or is
controlled by, or is under direct or indirect common control with, the referenced Person. For
purposes of the covenant described under Certain Covenants Limitations on Transactions with
Affiliates, Affiliates shall be deemed to include, with respect to any Person, any other Person
(1) which beneficially owns or holds, directly or indirectly, 10% or more of any class of the
Voting Stock of the referenced Person, (2) of which 10% or more of the Voting Stock is beneficially
owned or held, directly or indirectly, by the referenced Person or (3) with respect to an
individual, any immediate family member of such Person. For purposes of this definition, control
of a Person shall mean the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or otherwise.
Affiliate Transaction has the meaning assigned to that term in the first paragraph under the
subheading Certain Covenants Limitations on Transactions with Affiliates.
Agents means, collectively, the Note Collateral Agent and the Revolving Collateral Agent.
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Alternate Offer has the meaning assigned to that term in the eighth paragraph under the
heading Change of Control.
amend means to amend, supplement, restate, amend and restate or otherwise modify, including
successively, and amendment shall have a correlative meaning.
Amended and Restated WMLCredit Agreement means the Amended and Restated Credit Agreement by
and among Westmoreland Mining LLC, the guarantors party thereto, the banks party thereto and PNC
Bank, National Association, as agent, dated as of June 26, 2008.
asset means any asset or property.
Asset Acquisition means
(1) an Investment by the Issuer, the Co-Issuer or any Restricted Subsidiary of the Issuer in
any other Person if, as a result of such Investment, such Person shall become a Restricted
Subsidiary of the Issuer, or shall be merged with or into the Issuer, the Co-Issuer or any
Restricted Subsidiary of the Issuer, or
(2) the acquisition by the Issuer, the Co-Issuer or any Restricted Subsidiary of the Issuer of
all or substantially all of the assets of any other Person or any division or line of business of
any other Person.
Asset Sale means any sale, issuance, conveyance, transfer, lease, assignment or other
disposition by the Issuer, the Co-Issuer or any Restricted Subsidiary to any Person (including by
means of a Sale and Leaseback Transaction or a merger or consolidation or similar transaction and
including any sale or issuance of the Equity Interest of any Restricted Subsidiary) (collectively,
for purposes of this definition, a transfer), in one transaction or a series of related
transactions, of any assets of the Issuer, the Co-Issuer or any of the Restricted Subsidiaries of
the Issuer; provided, that for purposes of this definition, the term Asset Sale shall not
include:
(1) transfers of cash or Cash Equivalents;
(2) transfers of assets (including Equity Interests) that are governed by, and made in
accordance with, the covenant described under Certain Covenants Limitations on Mergers,
Consolidations, Etc. and under Change of Control;
(3) Permitted Investments and Restricted Payments permitted under the covenant described under
Certain Covenants Limitations on Restricted Payments;
(4) the creation of or realization on any Permitted Lien;
(5) any transfer or series of related transfers that, but for this clause, would be Asset
Sales, if after giving effect to such transfers, the aggregate Fair Market Value of the assets
transferred in such transaction or any such series of related transactions does not exceed $2.5
million;
(6) a transfer of assets between or among any of the Issuer, the Co-Issuer and any of the
Guarantors, a transfer of assets between any Restricted Subsidiaries that are not Guarantors and a
transfer of assets by a Restricted Subsidiary that is not a guarantor to the Issuer, the Co-Issuer
or any Guarantor;
(7) an issuance or sale of Equity Interests by a Guarantor to the Issuer, the Co-Issuer or to
another Guarantor or an issuance or sale of Equity Interests by a Restricted Subsidiary that is not
a Guarantor to the Issuer, the Co-Issuer or any Restricted Subsidiary;
(8) a disposition of inventory in the ordinary course of business;
(9) a disposition of obsolete or worn out equipment or equipment that is no longer useful in
the conduct of the business of the Issuer, the Co-Issuer and the Restricted Subsidiaries of the
Issuer and that is disposed of in each case in the ordinary course of business;
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(10) dispositions of past due accounts and Notes receivable arising in the ordinary course of
business, but only in connection with the compromise or collection thereof;
(11) the licensing or sublicensing of intellectual property or other general intangibles and
licenses, leases or subleases of other property in the ordinary course of business and which do not
materially interfere with the business of the Issuer, the Co-Issuer and its Restricted
Subsidiaries;
(12) a surrender or waiver of contract rights or the settlement, release or surrender of
contract, tort or other claims of any kind; and
(13) trades of coal properties of equivalent value in the ordinary course of business.
Attributable Indebtedness, when used with respect to any Sale and Leaseback Transaction,
means, as at the time of determination, the present value (discounted at a rate equivalent to the
Issuers then-current weighted average cost of funds for borrowed money as at the time of
determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in any such Sale and Leaseback
Transaction.
Bankruptcy Code means Title 11 of the United States Code, as amended.
bankruptcy law means the Bankruptcy Code or any similar federal, foreign or state law for
the relief of debtors.
Board of Directors means, with respect to any Person, (i) in the case of any corporation,
the board of directors of such Person, (ii) in the case of any limited liability company, the board
of managers of such Person, (iii) in the case of any partnership, the Board of Directors of the
general partner of such Person and (iv) in any other case, the functional equivalent of the
foregoing.
Business Day means a day other than a Saturday, Sunday or other day on which banking
institutions in New York are authorized or required by law to close.
Capital Lease means, with respect to any Person, a lease required to be capitalized for
financial reporting purposes on the balance sheet of such Person in conformity with GAAP.
Capital Lease Obligations of any Person means the obligations of such Person to pay rent or
other amounts under a Capital Lease, and the amount of such obligation shall be the capitalized
amount thereof determined in accordance with GAAP.
Cash Equivalents means:
(1) obligations issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided, that the full faith and credit of the
United States of America is pledged in support thereof) or obligations of state or local
governments rated not lower than AAA/Aaa by S&P or Moodys maturing no later than twelve months
from the date of acquisition;
(2) time deposits and certificates of deposit or acceptances with a maturity of 360 days or
less of any financial institution having combined capital and surplus and undivided profits of not
less than $500.0 million whose obligations are rated A- or the equivalent or better by S&P or A3 or
better by Moodys on the date of acquisition;
(3) commercial paper maturing no more than 180 days (or 270 days in the case of WML or its
Subsidiaries) from the date of creation thereof issued by a corporation that is not the Issuer or
an Affiliate of the Issuer, and is organized under the laws of any State of the United States of
America or the District of Columbia and rated at least A-1 by S&P or at least P-1 by Moodys;
(4) repurchase obligations for underlying securities of the types described in clause (1)
above entered into with any financial institution meeting the specifications of clause (2) above;
provided, that for any Person other than WML and its Subsidiaries, such obligations may not have a
term of more than seven days;
(5) demand deposit accounts maintained in the ordinary course of business; and
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(6) investments in money market or other mutual funds 95% of whose assets comprise securities
of the types described in clauses (1) through (5) above.
Cash Management Obligations means, with respect to any Person, the obligations of such
Person in connection with (a) credit cards or stored value cards or (b) treasury, depository or
cash management or related services, including (i) the automated clearinghouse transfer of funds or
overdrafts or (ii) controlled disbursement services.
Change of Control means:
(1) the merger or consolidation of the Issuer with or into another Person or the merger of
another Person with or into the Issuer or the merger of any Person with or into a Subsidiary of the
Issuer if Equity Interests of the Issuer are issued in connection therewith, or the sale of all or
substantially all the assets of the Issuer and Guarantors, taken as a whole, to another Person,
unless holders of a majority of the aggregate voting power of the Voting Stock of the Issuer,
immediately prior to such transaction, hold securities of the surviving or transferee Person that
represent, immediately after such transaction, at least a majority of the aggregate voting power of
the Voting Stock of the surviving Person;
(2) any person or group of persons (within the meaning of Sections 13(d) or 14(d)(2) of the
Exchange Act) shall have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the SEC) of capital stock or other securities of the Issuer which are entitled to
cast more than 40% of the total votes which may be cast in an election of directors of the Issuer;
(3) a majority of the board of directors of the Issuer shall be comprised of persons other
than individuals who were directors of the Issuer one year prior to such time together with any
individuals who were nominated for election as directors of the Issuer by individuals who were
directors of the Issuer who, at the time of such individuals nominations, had been directors of
the Issuer for at least one year;
(4) there is any change in the persons (as such term is used in Section 13(d) and Section
14(d)(2) of the Exchange Act) who are direct owners of an equity interest in WML or certain of its
Subsidiaries identified in the WML Credit Agreements;
(5) the execution by the Issuer, Co-Issuer or any of its Subsidiaries or Affiliates, or WML or
any of its Subsidiaries or Affiliates, of any agreement with respect to any proposed transaction or
event or series of transactions or events which, individually or in the aggregate, may reasonably
be expected to result in an event described in clauses (2), (3) or (4) above; or the execution of
any written agreement which, when fully performed by the parties thereto, would result in an event
described in such clauses; or
(6) the adoption of a plan relating to the liquidation or dissolution of the Issuer.
Change of Control Offer has the meaning assigned to that term in the first paragraph under
the heading Change of Control.
Change of Control Payment Date has the meaning assigned to that term in the first paragraph
under the heading Change of Control.
Change of Control Purchase Price has the meaning assigned to that term in the first
paragraph under the heading Change of Control.
Collateral means collectively Note Collateral and Revolving Facility First-Priority
Collateral.
Consolidated Adjusted Working Capital means at any date the excess of (i) Consolidated
Current Assets (excluding (A) cash and Cash Equivalents classified as such in accordance with GAAP
and (B)
deferred taxes calculated in accordance with GAAP) over (ii) Consolidated Current Liabilities
(excluding deferred taxes calculated in accordance with GAAP).
Consolidated Amortization Expense for any period means the amortization expense of the
Issuer, the Co-Issuer and the Restricted Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP.
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Consolidated Asset Reclamation Accretion Expense for any period means the accretion expense
associated with asset reclamation obligations of the Issuer, the Co-Issuer and the Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.
Consolidated Capital Expenditures means for any period the aggregate amount of all
expenditures (whether paid in cash or other consideration or accrued as a liability) that would, in
accordance with GAAP, be included as additions to property, plant and equipment and other capital
expenditures of the Issuer and its consolidated Subsidiaries for such period, as the same are or
would be set forth in a consolidated statement of cash flows of the Issuer and its consolidated
Subsidiaries for such period (including the amount of assets leased under any capital lease and any
mine reserve acquisitions), but excluding (to the extent that they would otherwise be included) (i)
any such expenditures made for the replacement or restoration of assets in amounts not exceeding
the aggregate amount of insurance proceeds or casualty or condemnation proceeds with respect to the
asset or assets being replaced or restored, (ii) any such expenditures financed with the proceeds
of Indebtedness, equity issuances or other proceeds that would not be included in Consolidated
EBITDA and (iii) capitalized interest.
Consolidated Current Assets means at any date the consolidated current assets of the Issuer
and its consolidated Subsidiaries determined as of such date in accordance with GAAP, including
accounts receivable, inventory and for purposes of this definition whether or not treated as a
current asset in accordance with GAAP, restricted investments and bond collateral, reclamation
deposits and advanced coal royalties.
Consolidated Current Liabilities means at any date the consolidated current liabilities of
the Issuer and its consolidated Subsidiaries determined as of such date in accordance with GAAP,
including the amount of any accounts payable, accrued expenses and any Investments made during such
period to purchase performance and surety bonds for permitting purposes or reclamation.
Consolidated Depreciation and Depletion Expense for any period means the depreciation and
depletion expense of the Issuer, the Co-Issuer and the Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
Consolidated EBITDA for any period means, without duplication, the sum of the amounts for
such period of
(1) Consolidated Net Income, plus
(2) in each case only to the extent (and in the same proportion) deducted in determining
Consolidated Net Income and with respect to the portion of Consolidated Net Income attributable to
the Co-Issuer or any Restricted Subsidiary only if a corresponding amount would be permitted at the
date of determination to be distributed to the Issuer by the Co-Issuer or such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to the Co-Issuer or such Restricted Subsidiary or its
stockholders,
(a) Consolidated Income Tax Expense (other than income taxes or income tax adjustments
(whether positive or negative) attributable to Asset Sales or extraordinary gains or losses
and, without duplication, permitted tax distributions,
(b) Consolidated Amortization Expense (but only to the extent not included in
Consolidated Interest Expense),
(c) Consolidated Asset Reclamation Accretion Expense,
(d) Consolidated Depreciation and Depletion Expense (but only to the extent not
included in Consolidated Interest Expense),
(e) Consolidated Interest Expense,
(f) all other non-cash items reducing Consolidated Net Income (including without
limitation noncash write-offs of goodwill, intangibles and long-lived assets, but excluding
any non-cash charge that results in an accrual of a reserve for cash charges in any future
period) for such period, and
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(g) costs and expenses incurred in connection with the Transactions, in each case
determined on a consolidated basis in accordance with GAAP, minus
(3) the aggregate amount of all non-cash items, determined on a consolidated basis in
accordance with GAAP, to the extent such items increased Consolidated Net Income (other than the
accrual of revenue, recording of receivables or the reversal of reserves in the ordinary course of
business) for such period.
Consolidated Income Tax Expense for any period means the provision for taxes of the Issuer,
the Co-Issuer and the Restricted Subsidiaries, determined on a consolidated basis in accordance
with GAAP.
Consolidated Interest Expense for any period means the sum, without duplication, of the
total interest expense of the Issuer, the Co-Issuer and the Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP and including, without
duplication,
(1) imputed interest on Capital Lease Obligations and Attributable Indebtedness,
(2) commissions, discounts and other fees and charges owed with respect to letters of credit
securing financial obligations, bankers acceptance financing and receivables financings,
(3) amortization of debt issuance costs, debt discount or premium and other financing fees and
expenses but excluding amortization of deferred financing charges incurred in respect of the Notes,
(4) the interest portion of any deferred payment obligations,
(5) all other non-cash interest expense,
(6) consolidated capitalized interest,
(7) the product of (a) all cash and non-cash dividends paid, declared, accrued or accumulated
on any series of Disqualified Equity Interests or any Preferred Stock of the Issuer, the Co-Issuer
or any Restricted Subsidiary (other than any such Disqualified Equity Interests or any Preferred
Stock held by the Issuer, the Co-Issuer or a Wholly Owned Restricted Subsidiary or to the extent
paid in Qualified Equity Interests), multiplied by (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined federal, state and local
statutory income tax rate of the Issuer, the Co-Issuer and the Restricted Subsidiaries, expressed
as a decimal,
(8) all interest payable with respect to discontinued operations, and
(9) all interest on any Indebtedness of any other Person guaranteed by the Issuer, the
Co-Issuer or any Restricted Subsidiary; provided, that to the extent directly related to the
issuance of the Notes, amortization of debt issuance costs, debt discount or premium and other
financing fees and expenses shall be excluded. Consolidated Interest Expense shall be calculated
after giving effect to Hedging Obligations (including associated costs) described in clause (1) of
the definition of Hedging Obligations, but excluding unrealized gains and losses with respect to
Hedging Obligations.
Consolidated Net Income for any period means the net income (or loss) of the Issuer, the
Co-Issuer and the Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP; provided, that there shall be excluded from the calculation of Consolidated
Net Income (to the extent otherwise included therein), without duplication:
(1) the net income (or loss) of any Person (other than a Restricted Subsidiary) in which any
Person other than the Issuer, the Co-Issuer and the Restricted Subsidiaries has an ownership
interest, except to the extent that cash in an amount equal to any such income has actually been
received by the Issuer, the Co-Issuer or any of its Restricted Subsidiaries during such period;
(2) except to the extent includible in the consolidated net income of the Issuer pursuant to
the foregoing clause (1), the net income (or loss) of any Person that accrued prior to the date
that (a) such Person becomes a Restricted Subsidiary or is merged into or consolidated with the
Issuer, the Co-Issuer or any Restricted Subsidiary or (b) the assets of such Person are acquired by
the Issuer, the Co-Issuer or any Restricted Subsidiary;
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(3) the net income of any Restricted Subsidiary and Co-Issuer during such period to the extent
that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary
and Co-Issuer of that income is not permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable
to that Subsidiary during such period, except that the Issuers equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining Consolidated Net Income;
provided, that the net income of WML and its Subsidiaries shall not be excluded pursuant to this
clause (3) to the extent that the declaration or payment of dividends or similar distributions or
payments is not permitted pursuant to provisions in the WML Credit Agreements that limit dividends,
distributions or fee payments from WML to the Issuer (it being understood that this proviso shall
apply only to such provisions of the WML Credit Agreements and not to any other limitations or
restrictions otherwise applicable).
(4) for the purposes of calculating the Restricted Payments Basket only, in the case of a
successor to the Issuer by consolidation, merger or transfer of its assets, any income (or loss) of
the successor prior to such merger, consolidation or transfer of assets;
(5) any gain (or loss), together with any related provisions for taxes on any such gain (or
the tax effect of any such loss), realized during such period by the Issuer, the Co-Issuer or any
Restricted Subsidiary upon (a) the acquisition of any securities, or the extinguishment of any
Indebtedness, or the sale or disposition of any Equity Interests of the Issuer, the Co-Issuer or
any Restricted Subsidiary or (b) any Asset Sale (without regard to the $2.50 million limitation set
forth in clause (5) of the definition thereof) by the Issuer, the Co-Issuer or any Restricted
Subsidiary;
(6) gains and losses due solely to fluctuations in currency values and the related tax effects
according to GAAP;
(7) unrealized gains and losses with respect to Hedging Obligations;
(8) any extraordinary or nonrecurring gain (or extraordinary or nonrecurring loss), together
with any related provision for taxes on any such gain (or the tax effect of any such loss),
realized by the Issuer, the Co-Issuer or any Restricted Subsidiary during such period;
(9) any impairment charge or asset write-off or write-down, including impairment charges or
asset writeoffs or write-downs related to goodwill, intangible assets, deferred financing costs,
inventory, long-lived assets, investments in debt and equity securities in connection with any past
or future acquisition, merger, consolidation or similar transaction (excluding any non-cash items
to the extent that it represents an accrual of or reserve for cash expenditures in any future
period except to the extent such item is subsequently reserved or as a result of a change in law or
regulation, in each case, pursuant to GAAP, and the amortization of intangibles arising pursuant to
GAAP;
(10) effects of adjustments (including the effects of such adjustments pushed down to the
Issuer, the Co- Issuer and Restricted Subsidiaries) in Issuers consolidated financial statements
pursuant to GAAP (including in the inventory, property and equipment, software, goodwill,
intangible assets, in-process research and development, deferred revenue and debt line items
thereof) resulting from the application of purchase accounting, as the case may be, in relation to
any consummated transaction or the amortization or write-off of any amounts thereof, net of taxes;
provided, that this clause (10) shall not include the recognition of ROVA deferred revenue for any
period subsequent to the Issue Date; and
(11) cumulative effect of a change in accounting principle(s) during such period.
For purposes of this definition of Consolidated Net Income, nonrecurring means any gain or
loss as of any date that is not reasonably likely to recur within the two years following such
date; provided, that if there was a gain or loss similar to such gain or loss within the two years
preceding such date, such gain or loss shall not be deemed nonrecurring.
Notwithstanding the foregoing, for the purposes of the covenant described under Certain
Covenants Limitations on Restricted Payments only, there shall be excluded from Consolidated
Net Income any repurchases, repayments or redemptions of Investments, proceeds realized on the sale
of Investments or return of capital to the Issuer, the Co-Issuer or a Restricted Subsidiary to the
extent such repurchases, repayments, redemptions, proceeds or returns increase the amount of
Restricted Payments
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permitted under such covenant pursuant to clause (3)(d) of the first paragraph thereof or decrease
the amount of Investments outstanding pursuant to the paragraph following clause (18) of the
definition of Permitted Investments.
Consolidated Total Indebtedness means, at any date of determination, an amount equal to the
sum, without duplication, of the aggregate amount of all outstanding Indebtedness of the Issuer,
the Co-Issuer and its Restricted Subsidiaries.
Covenant Defeasance has the meaning assigned to that term in the second paragraph under the
heading Legal Defeasance and Covenant Defeasance.
Coverage Ratio Exception has the meaning assigned to that term in the first paragraph under
the subheading Certain Covenants Limitations on Additional Indebtedness and Preferred
Stock.
Co-Issuer has the meaning assigned to that term in the first paragraph of the preamble of
the Description of the Notes section.
Custodian means any receiver, trustee, assignee, liquidator or similar official under any
applicable bankruptcy law.
Default means (1) any Event of Default or (2) any event, act or condition that, after notice
or the passage of time or both, would be an Event of Default.
Designated Preferred Stock means Preferred Stock of the Issuer (other than in the form of
Disqualified Equity Interests) that is issued for cash (other than to the Co-Issuer or a Restricted
Subsidiary) and is so designated as Designated Preferred Stock pursuant to an Officers Certificate
on the issuance date thereof.
Designation has the meaning assigned to that term in the first paragraph under the
subheading Certain Covenants Limitations on Designation of Unrestricted Subsidiaries.
Designation Amount has the meaning assigned to that term in clause (2) of the first
paragraph under the subheading Certain Covenants Limitations on Designation of Unrestricted
Subsidiaries.
DIP Financing has the meaning assigned to that term in the eleventh paragraph under the
subheading Security Intercreditor Agreement to be Entered into in Connection with a Future
Revolving Credit Facility.
Disqualified Equity Interests of any Person means any class of Equity Interests of such
Person that, by its terms, or by the terms of any related agreement or of any security into which
it is convertible, puttable or exchangeable, is, or upon the happening of any event or the passage
of time would be, required to be redeemed by such Person, whether or not at the option of the
holder thereof, or matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, in whole or in part, on or prior to the date which is 91 days after the final maturity
date of the Notes; provided, however, that any class of Equity Interests of such Person that, by
its terms, authorizes such Person to satisfy in full its obligations with respect to the payment of
dividends or upon maturity, redemption (pursuant to a sinking fund or otherwise) or repurchase
thereof or otherwise by the delivery of Equity Interests that are not Disqualified Equity
Interests, and that is not convertible, puttable or exchangeable for Disqualified Equity Interests
or Indebtedness, will not be deemed to be Disqualified Equity Interests so long as such Person
satisfies its obligations with respect thereto solely by the delivery of Equity Interests that are
not Disqualified Equity Interests; provided, further,
that any Equity Interests that would not constitute Disqualified Equity Interests but for
provisions thereof giving holders thereof (or the holders of any security into or for which such
Equity Interests are convertible, exchangeable or exercisable) the right to require the Issuer to
redeem such Equity Interests upon the occurrence of a change in control or asset sale occurring
prior to the final maturity date of the Notes shall not constitute Disqualified Equity Interests if
the change in control or asset sale provisions applicable to such Equity Interests are no more
favorable to such holders than the provisions described under Change of Control and
Certain Covenants Limitations on Asset Sales, respectively, and such Equity Interests
specifically provide that the Issuer will not redeem any such Equity Interests pursuant to such
provisions prior to the Issuers purchase of the Notes as required pursuant to the provisions
described under Change of Control and Certain Covenants Limitations on Asset Sales,
respectively.
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Equity Interests of any Person means (1) any and all shares or other equity interests
(including common stock, preferred stock, limited liability company interests and partnership
interests) in such Person and (2) all rights to purchase, warrants or options (whether or not
currently exercisable), participations or other equivalents of or interests in (however designated)
such shares or other interests in such Person (but excluding any debt security that is convertible
into, or exchangeable for, common stock).
Event of Default has the meaning assigned to that term in the first paragraph under the
heading Events of Default.
Event of Loss means, with respect to any Collateral, whether in respect of a single event or
a series of related events, any (1) loss, destruction or damage of such Collateral, (2)
condemnation, seizure or taking by exercise of the power of eminent domain or otherwise of such
Collateral, or confiscation of such Collateral or the requisition of the use of such Collateral or
(3) settlement in lieu of clause (2) above.
Excess Cash Flow means for any period an amount equal to the excess of (i) the sum, without
duplication, of
(A) Consolidated EBITDA for such period plus
(B) the decrease, if any, in Consolidated Adjusted Working Capital from the first day to the
last day of such period, plus
(C) the increase, if any, in deferred revenue liabilities (including both the current and
non-current portion of such liabilities) from the first day to the last day of such period, plus
(D) the increase, if any, in amounts drawn by the Issuer or any of its consolidated
Subsidiaries under any revolving credit facility from the first day to the last day of such period,
over
(ii) the sum, without duplication, of
(A) Consolidated Interest Expense for such period paid in cash,
(B) Consolidated Income Tax Expense actually paid by the Issuer on a consolidated basis during
such period in respect of any period ending on or after the Issue Date,
(C) the increase, if any, in Consolidated Adjusted Working Capital from the first day to the
last day of such period,
(D) the decrease, if any, in deferred revenue liabilities (including both the current and
non-current portion of such liabilities) from the first day to the last day of such period,
(E) the aggregate amount of any permitted optional redemptions of Notes during such period
under Optional Redemption,
(F) cash payments made during such period in respect of Consolidated Capital Expenditures,
(G) consolidated cash payments (or repayments) in respect of outstanding Indebtedness
(excluding any Indebtedness outstanding under any revolving credit facility) of the Issuer or any
of its consolidated Subsidiaries, including principal payments in respect of capital leases and
payments of any make-whole
amounts, actually paid by the Issuer or any of its consolidated Subsidiaries during such
period,
(H) consolidated cash payments or repayments (whether or not resulting in a permanent
commitment reduction) made in respect of outstanding Indebtedness of the Issuer or any of its
consolidated Subsidiaries under any revolving credit facility, actually paid by the Issuer or any
of its consolidated Subsidiaries during such period,
(I) consolidated cash payments made by the Issuer or any of its consolidated Subsidiaries
during such period related to post-retirement medical and heritage costs, in excess of amounts
included in Consolidated EBITDA,
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(J) consolidated cash payments made by the Issuer or any of its consolidated Subsidiaries
during such period related to pension plans, in excess of amounts included in Consolidated EBITDA,
(K) consolidated cash payments made by the Issuer or any of its consolidated Subsidiaries
during such period related to asset reclamation,
(L) cash amounts contributed by the Issuer or any of its consolidated Subsidiaries to fund the
WML debt service reserve account during such period; provided, that such amounts shall not exceed
the minimum amounts required to fund such reserve account and
(M) cash payments made by the Issuer or any of its consolidated Subsidiaries to fund the WML
working capital reserve account during such period; provided, that such amounts shall not exceed
the minimum amounts required to fund such reserve account.
Excess Cash Flow Amount means, as of the date of determination, an aggregate amount equal to
75% of the Excess Cash Flow for such prior fiscal year. For example, if the date of determination
is April 30, 2012, Excess Cash Flow shall be calculated for the fiscal year ended December 31,
2011.
Excess Cash Flow Offer has the meaning assigned to that term in clause (1) of the first
paragraph under the subheading Certain Covenants Excess Cash Flow.
Excess Cash Flow Offer Deficiency has the meaning assigned to that term in the second
paragraph under the subheading Certain Covenants Excess Cash Flow.
Excess Cash Flow Offered Price has the meaning assigned to that term in clause (2) of the
first paragraph under the subheading Certain Covenants Excess Cash Flow.
Excess Cash Flow Payment Amount has the meaning assigned to that term in clause (1) of the
first paragraph under the subheading Certain Covenants Excess Cash Flow.
Excess Loss Proceeds has the meaning assigned to that term in the third paragraph under the
subheading Certain Covenants Events of Loss.
Excess Proceeds has the meaning assigned to that term in the fifth paragraph under the
subheading Certain Covenants Limitations on Asset Sales.
Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Exchange Notes means any Notes issued pursuant to the Registration Rights Agreement in
exchange for the Notes issued on the Issue Date or in exchange for any Additional Notes.
Excluded Property means (A) shares of any first-tier Subsidiary of the Issuer that is a
controlled foreign corporation (as defined in Section 957(a) of the Code) in excess of 66% of all
of the issued and outstanding Equity Interests in such Subsidiary entitled to vote (within the
meaning of Treasury Regulation Section 1.956-2(c)(2)) and (B) any right, title or interest in any
permit, lease, capital lease, license, contract, agreement, account receivable, inventory or
equipment held by the Issuer, the Co-Issuer or any Subsidiary Guarantor or to which any of the
Issuer, the Co-Issuer or any Subsidiary Guarantor is a party or any of its right, title or interest
thereunder to the extent, but only to the extent, that the creation of a security interest
would, under the terms of such permit, lease, capital lease, license, contract, agreement,
account receivable, inventory or equipment, or as a matter of law, result in a breach of the terms
of, or constitute a default under, any permit, lease, capital lease, license, contract, agreement,
account receivable, inventory or equipment held by the Issuer, the Co-Issuer or any Subsidiary
Guarantor or to which any of the Issuer, the Co-Issuer or any Subsidiary Guarantor is a party or
render void the security interest therein (other than to the extent that any such term would be
rendered ineffective pursuant to Section 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor
provision or provisions); provided, that immediately upon the ineffectiveness, lapse or termination
of any such provision or upon obtaining a required consent to cure any potential breach, such
right, title or interest in such permit, lease, capital lease, license, contract, agreement,
account receivable, inventory or equipment shall cease to be an Excluded Property. For the
avoidance of doubt, Excluded Property shall not include any right to receive any payment of money
or the proceeds, substitutions or replacements of any
113
Excluded Property (unless such proceeds, substitutions or replacements would constitute an
Excluded Property).
Fair Market Value means, with respect to any asset, the price (after taking into account any
liabilities relating to such assets) that would be negotiated in an arms-length transaction for
cash between a willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction, as such price is determined in good faith by the Board of
Directors of the Issuer or a duly authorized committee thereof, as evidenced by a resolution of
such Board or committee.
First Lien Collateral has the meaning assigned to that term in clause (i) of the first
paragraph under the subheading Security General.
First Lien Security Documents means any security document granting or evidencing a
first-priority security interest in or Liens on any assets of any Person to secure the Obligations
under the Indenture, the Notes and the Note Guarantees, as each may be amended, restated,
supplemented or otherwise modified from time to time.
Fixed Charge Coverage Ratio means the ratio of Consolidated EBITDA during the Four-Quarter
Period ending on or prior to the date of the transaction giving rise to the need to calculate the
Fixed Charge Coverage Ratio (the Transaction Date) to Consolidated Interest Expense for the
Four-Quarter Period. For purposes of this definition, Consolidated EBITDA and Consolidated Interest
Expense shall be calculated after giving effect on a pro forma basis for the period of such
calculation to:
(1) the incurrence of any Indebtedness or the issuance of any Preferred Stock or Disqualified
Equity Interests of the Issuer, the Co-Issuer or any Restricted Subsidiary (and the application of
the proceeds thereof) and any repayment of other Indebtedness or redemption of other Preferred
Stock or Disqualified Equity Interests (and the application of the proceeds therefrom) (other than
the incurrence or repayment of Indebtedness in the ordinary course of business for working capital
purposes pursuant to any revolving credit arrangement) occurring during the Four-Quarter Period or
at any time subsequent to the last day of the Four-Quarter Period and on or prior to the
Transaction Date, as if such incurrence, repayment, issuance or redemption, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four-Quarter Period; and
(2) any Asset Sale or Asset Acquisition (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of the Issuer, the Co-Issuer or any
Restricted Subsidiary (including any Person who becomes a Restricted Subsidiary as a result of such
Asset Acquisition) incurring Acquired Indebtedness and also including any Consolidated EBITDA
associated with any such Asset Acquisition) occurring during the Four-Quarter Period or at any time
subsequent to the last day of the Four-Quarter Period and on or prior to the Transaction Date, as
if such Asset Sale or Asset Acquisition (including the incurrence of, or assumption of liability
for, any such Indebtedness or Acquired debtedness) occurred on the first day of the Four-Quarter
Period; provided, that with respect to any Asset Sale, in the case of Consolidated Interest
Expense, only to the extent that the obligations giving rise to such Consolidated Interest Expense
will not be obligations of the Issuer, the Co-Issuer or any Restricted Subsidiary following the
Transaction Date.
If the Issuer, the Co-Issuer or any Restricted Subsidiary directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if the Issuer, the Co-Issuer or such Restricted Subsidiary had directly
incurred or otherwise assumed such guaranteed Indebtedness.
In calculating Consolidated Interest Expense for purposes of determining the denominator (but
not the numerator) of this Fixed Charge Coverage Ratio:
(1) interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on
the Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally
be determined at an interest rate based upon a factor of a prime or similar rate, a euro currency
interbank offered
114
rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed
to have been in effect during the Four-Quarter Period; and
(3) notwithstanding clause (1) or (2) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating to Hedging
Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the
operation of these agreements.
For purposes of this definition, whenever pro forma effect is to be given to any pro forma
event, the pro forma calculations will be made on a basis that is consistent with Article 11 of
Regulation S-X under the Securities Act and shall include, for the avoidance of doubt, synergies,
operating expense reductions and other cost savings to the extent allowable, calculated in
accordance with Article 11 of Regulation S-X under the Securities Act.
Foreign Subsidiary means, with respect to any Person, any Restricted Subsidiary of such
Person that is not organized or existing under the laws of the United States of America, any state
thereof, the District of Columbia, or any territory thereof.
Four-Quarter Period with respect to any Person means the most recent four consecutive full
fiscal quarters for which internal financial statements are available at such Person.
GAAP means generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant segment of the
accounting profession of the United States, as in effect on the Issue Date (without giving effect
to Accounting Standards Codification Topic 825-10-25, The Fair Value Option).
guarantee means a direct or indirect guarantee by any Person of any Indebtedness of any
other Person and includes any obligation, direct or indirect, contingent or otherwise, of such
Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of)
Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services (unless such purchase
arrangements are on arms-length terms and are entered into in the ordinary course of business), to
take-or-pay, or to maintain financial statement conditions or otherwise); or (2) entered into for
purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part); guarantee, when
used as a verb, and guaranteed have correlative meanings.
Guarantors means the Issuer, the Co-Issuer and Subsidiary Guarantors, and each other Person
that is required to, or at the election of the Issuer does, become a Guarantor by the terms of the
Indenture after the Issue Date, in each case, until such Person is released from its Note Guarantee
in accordance with the terms of the Indenture.
Hedging Obligations of any Person means the obligations of such Person pursuant to (1) any
interest rate swap agreement, interest rate collar agreement or other similar agreement or
arrangement, (2) agreements or arrangements relating to, or designed to protect such Person
against, fluctuations in foreign currency exchange rates, or (3) any forward contract, commodity
swap agreement, commodity option agreement or other similar agreement or arrangement.
Holder means any registered holder, from time to time, of the Notes.
Holder Buy-out Right has the meaning assigned to that term in the eighth paragraph under the
subheading Security Intercreditor Agreement to be Entered into in Connection with a Future
Revolving Credit Facility.
incur means, with respect to any Indebtedness or Obligation, incur, create, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with
respect to such Indebtedness or Obligation; provided, that (1) the Indebtedness of a Person
existing at the time such Person became a Restricted Subsidiary shall be deemed to have been
incurred by such Restricted Subsidiary and (2) neither the accrual of interest nor the accretion of
original issue discount shall be deemed to be an incurrence of Indebtedness.
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Indebtedness means, with respect to any specified Person:
(1) all liabilities, contingent or otherwise, of such Person for borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such Person or only to a portion
thereof);
(2) all obligations of such Person evidenced by bonds, debentures, Notes or other similar
instruments other than obligations in respect of asset reclamation obligations;
(3) all letters of credit or reimbursement obligations of such Person in respect of letters of
credit, letters of guaranty, bankers acceptances and similar credit transactions;
(4) all obligations of such Person to pay the deferred and unpaid purchase price of property
or services, except trade payables, pension and other retirement related benefits and accrued
expenses incurred by such Person in the ordinary course of business in connection with obtaining
goods, materials or services;
(5) the maximum fixed redemption or repurchase price of all Disqualified Equity Interests of
such Person;
(6) all Capital Lease Obligations of such Person;
(7) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not
such Indebtedness is assumed by such Person;
(8) all Indebtedness of others guaranteed by such Person to the extent of such guarantee;
provided, that Indebtedness of the Issuer, the Co-Issuer or its Subsidiaries that is guaranteed by
the Issuer, the Co-Issuer or the Issuers Subsidiaries shall only be counted once in the
calculation of the amount of Indebtedness of the Issuer, the Co-Issuer and its Subsidiaries on a
consolidated basis;
(9) all Attributable Indebtedness;
(10) all Preferred Stock of such Person;
(11) to the extent not otherwise included in this definition, Hedging Obligations of such
Person; and
(12) all obligations of such Person under conditional sale or other title retention agreements
relating to assets purchased by such Person;
if and to the extent any of the preceding items (other than letters of credit, Attributable
Indebtedness and Hedging Obligations) would appear as a liability on a balance sheet of the
specified Person prepared in accordance with GAAP.
The amount of any Indebtedness which is incurred at a discount to the principal amount at
maturity thereof as of any date shall be deemed to have been incurred at the accreted value thereof
as of such date. The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above, the maximum liability of
such Person for any such contingent obligations at such date and, in the case of clause (7), the
lesser of (a) the Fair Market Value of any asset subject to a Lien securing the Indebtedness of
others on the date that the Lien attaches and (b) the amount of the Indebtedness secured. For
purposes of clause (5), the maximum fixed redemption or repurchase price
of any Disqualified Equity Interests that do not have a fixed redemption or repurchase price
shall be calculated in accordance with the terms of such Disqualified Equity Interests as if such
Disqualified Equity Interests were redeemed or repurchased on any date on which an amount of
Indebtedness outstanding shall be required to be determined pursuant to the Indenture.
Indenture has the meaning assigned to that term in the first paragraph of the preamble of
the Description of the Notes section.
Independent Financial Advisor means an accounting, appraisal or investment banking firm of
nationally recognized standing that is, in the reasonable judgment of the Issuers Board of
Directors, qualified
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to perform the task for which it has been engaged and disinterested and independent with
respect to the Issuer and its Affiliates.
Initial Purchaser means Gleacher & Company, Inc. and such other initial purchasers party to
the purchase agreement entered into in connection with the offer and sale of the Notes issued on
the Issue Date.
Intercreditor Agreement has the meaning assigned to that term in the first paragraph under
Security Intercreditor Agreement to be Entered into in Connection with a Future Revolving
Credit Facility.
interest means, with respect to the Notes, interest on the Notes.
Investments of any Person means:
(1) all direct or indirect investments by such Person in any other Person in the form of joint
ventures, loans, advances or capital contributions or other credit extensions constituting
Indebtedness of such other Person, and any guarantee of Indebtedness of any other Person;
(2) all purchases (or other acquisitions for consideration) by such Person of Indebtedness,
Equity Interests or other securities of any other Person (other than any such purchase that
constitutes a Restricted Payment of the type described in clause (2) of the definition thereof);
(3) all other items that would be classified as investments (including purchases of assets
outside the ordinary course of business) on a balance sheet of such Person prepared in accordance
with GAAP; and
(4) the Designation of any Subsidiary as an Unrestricted Subsidiary.
Except as otherwise expressly specified in this definition, the amount of any Investment
(other than an Investment made in cash) shall be the FairMarket Value thereof on the date such
Investment is made. The amount of Investment pursuant to clause (4) shall be the Designation Amount
determined in accordance with the covenant described under Certain Covenants Limitations on
Designation of Unrestricted Subsidiaries. If the Issuer, the Co-Issuer or any Subsidiary sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary such that, after
giving effect to any such sale or disposition, such Person is no longer a Subsidiary, the Issuer
shall be deemed to have made an Investment on the date of any such sale or other disposition equal
to the Fair Market Value of the Equity Interests of and all other Investments in such Subsidiary
not sold or disposed of, which amount shall be determined in good faith by the Board of Directors.
The acquisition by the Issuer, the Co-Issuer or any Restricted Subsidiary of a Person that holds an
Investment in a third Person shall be deemed to be an Investment by the Issuer, the Co-Issuer or
such Restricted Subsidiary in the third Person in an amount equal to the Fair Market Value of the
Investment held by the acquired Person in the third Person.
Issue Date means the date on which the Notes are originally issued.
Issuer has the meaning assigned to that term in the first paragraph of the preamble of the
Description of the Notes section.
Legal Defeasance has the meaning assigned to that term in the first paragraph under the
heading Legal Defeasance and Covenant Defeasance.
Lien means, with respect to any asset, any mortgage, deed of trust, lien (statutory or
other), pledge, lease, easement, restriction, covenant, charge, security interest or other
encumbrance of any kind or nature in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law, including any conditional sale or other title retention
agreement, and any lease in the nature thereof, any option or other agreement to sell, and any
filing of, or agreement to give, any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction (other than cautionary filings in respect of operating
leases).
Loss Proceeds Offer has the meaning assigned to that term in the third paragraph under the
subheading Certain Covenants Events of Loss.
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Moodys means Moodys Investors Service, Inc., and its successors.
Mortgage means any mortgage or deed of trust with respect to Real Property owned in fee
simple by the Issuer, the Co-Issuer or any Guarantor, including any assignment of leases and rents,
security agreement and fixture filing relating thereto, entered into by the Issuer, the Co-Issuer
or any Guarantor in favor of the Note Collateral Agent for its benefit and the benefit of the
Trustee and the Holders of Notes.
Mortgaged Property has the meaning assigned to that term in the first paragraph under the
subheading Security Certain Covenants with Respect to the Note Collateral Real estate
mortgages and filings.
Net Available Proceeds means, with respect to any Asset Sale, the proceeds of such Asset
Sale in the form of cash or Cash Equivalents, net of:
(1) brokerage commissions and other fees and expenses (including fees and expenses of legal
counsel, accountants and investment banks) of such Asset Sale;
(2) provisions for taxes payable as a result of such Asset Sale (after taking into account any
available tax credits or deductions and any tax sharing arrangements);
(3) amounts required to be paid to any Person (other than the Issuer, the Co-Issuer or any
Restricted Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale or to
repay Indebtedness outstanding at the time of the Asset Sale that is secured by a Lien on the
property or assets sold; and
(4) appropriate amounts to be provided by the Issuer, the Co-Issuer or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with GAAP against any
adjustment in the sale price of such asset or assets or liabilities associated with such Asset Sale
and retained by the Issuer, the Co-Issuer or any Restricted Subsidiary, as the case may be, after
such Asset Sale, including pensions and other post employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification obligations associated
with such Asset Sale, all as reflected in an Officers Certificate delivered to the Trustee;
provided, however, that any amounts remaining after adjustments, revaluations or liquidations of
such reserves shall constitute Net Available Proceeds.
Net Loss Proceeds means, with respect to any Event of Loss, the aggregate proceeds in the
form of cash or Cash Equivalents including, without limitation, insurance proceeds from
condemnation awards or damages awarded by any judgment, in each case received by the Issuer, the
Co-Issuer or any of its Restricted Subsidiaries from such Event of Loss, net of:
(1) reasonable out-of-pocket expenses and fees relating to such Event of Loss (including
without limitation legal, accounting, appraisal or insurance adjuster fees);
(2) taxes paid or payable after taking into account any reduction in consolidated tax
liability due to available tax credits or deductions and any tax sharing arrangements;
(3) any repayment of Indebtedness that is secured by, or directly related to, the property or
assets that are the subject of such Event of Loss;
(4) amounts required to be paid to any Person (other than the Issuer, the Co-Issuer or any
Restricted Subsidiary) owning a beneficial interest in the assets subject to the Event of Loss; and
(5) appropriate amounts to be provided by the Issuer, the Co-Issuer or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Event of Loss and retained by the Issuer, the Co-Issuer or any Restricted
Subsidiary, as the case may be, after such Event of Loss, including, without limitation,
liabilities related to environmental matters and liabilities under any indemnification obligations
associated with such Event of Loss.
Net Proceeds Deficiency has the meaning assigned to that term in the seventh paragraph under
the subheading Certain Covenants Limitations on Asset Sales.
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Net Proceeds Offer has the meaning assigned to that term in clause (1) of the sixth
paragraph under the subheading Certain Covenants Limitations on Asset Sales.
Non-Recourse Debt means Indebtedness of an Unrestricted Subsidiary:
(1) as to which none of the Issuer, the Co-Issuer or any Restricted Subsidiary (a) provides
credit support of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the holders thereof may have
to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of
time or both any holder of any other Indebtedness of the Issuer, the Co-Issuer or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will not have any recourse
to the Equity Interests or assets of the Issuer, the Co-Issuer or any Restricted Subsidiary.
Note Collateral has the meaning assigned to that term in the first paragraph under the
subheading Security General.
Note Collateral Agent has the meaning assigned to that term in the first paragraph of the
preamble of the Description of the Notes section.
Note First-Priority Liens means the liens on the Note Collateral created in favor of the
Note Collateral Agent for its benefit and the benefit of the Trustee and the Holders of the Notes,
subject solely to Permitted Liens.
Note Guarantees has the meaning assigned to that term under the first paragraph of the
heading Note Guarantees.
Note Liens means, collectively, the Note First-Priority Liens and the Note Second-Priority
Liens.
Note Second-Priority Liens means the Liens on the Revolving Facility First-Priority
Collateral created in favor of the Note Collateral Agent for its benefit and the benefit of the
Trustee and the Holders of the Notes, subject solely to Permitted Liens and Revolving Facility
First-Priority Liens.
Notes has the meaning assigned to that term in the first paragraph of the preamble of the
Description of the Notes section.
Obligations means any principal, premium, interest, penalties, fees, indemnification,
reimbursements, costs, expenses, damages and other liabilities payable under the documentation
governing any Indebtedness.
Offered Price has the meaning assigned to that term in clause (2) of the sixth paragraph
under the subheading Certain Covenants Limitations on Asset Sales.
Officer means any of the following of the Issuer: the Chairman of the Board of Directors,
the Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the
Treasurer or the Secretary.
Officers Certificate means a certificate signed in the name of the Issuer (i) by the
chairman of the Board of Directors, the president or chief executive officer or a vice president
and (ii) by the chief financial officer, the treasurer or any assistant treasurer or the secretary
or any assistant secretary.
Opinion of Counsel means a written opinion from legal counsel who is reasonably acceptable
to the Trustee. The counsel may be an employee of or counsel to the Issuer.
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Pari Passu Indebtedness means any Indebtedness of the Issuer, the Co-Issuer or any Guarantor
that ranks pari passu in right of payment with the Notes or the Note Guarantees, as applicable, and
is secured by a Lien on the Note Collateral that has the same priority as the Lien securing the
Notes and the Note Guarantees.
Pari Passu Indebtedness Price has the meaning assigned to that term in clause (2) of the
sixth paragraph under the subheading Certain Covenants Limitations on Asset Sales.
Paying Agent has the meaning assigned to that term under the heading Methods of
Receiving Payments on the Notes.
Payment Amount has the meaning assigned to that term in clause (1) of the sixth paragraph
under the subheading Certain Covenants Limitations on Asset Sales.
Permitted Business means the businesses engaged in by the Issuer, the Co-Issuer and its
Subsidiaries on the Issue Date as described in this offering memorandum and businesses that are
reasonably related thereto or reasonable extensions thereof.
Permitted Collateral Liens shall mean (a) in the case of Collateral other than Mortgaged
Property and any pledged securities, Permitted Liens, (b) in the case of Mortgaged Property,
Permitted Collateral Liens shall mean the Liens described in clauses (1), (2), (3), (5), (6),
(10), (13), (14), (16), (18), (19), (20), (21) (insofar as it relates to Liens to secure
Obligations in respect of Refinancing Indebtedness of Indebtedness secured by Liens referred to in
clause (12), (15), (18), (19), (20), (27), (30) or (33) of the definition of Permitted Liens) and
(22), (27), (29), (30), (32) and (33) of the definition of Permitted Liens and (c) in the case of
Collateral consisting of pledged securities, shall mean the Liens described in clause (1), (3),
(5), (8), (16), (17), (20), (21), (30), (32) and (33) of the definition of Permitted Liens.
Permitted Indebtedness has the meaning assigned to that term in the second paragraph under
the subheading Certain Covenants Limitations on Additional Indebtedness and Preferred
Stock.
Permitted Investment means:
(1) (a) Investments by the Issuer, the Co-Issuer or any Restricted Subsidiary in (i) the
Issuer, any Guarantor or the Co-Issuer or (ii) in any Person that is or will become immediately
after such Investment a Restricted Subsidiary and a Guarantor or that will merge or consolidate
into the Issuer, the Co-Issuer or a Guarantor, including any Investment of such Person not made in
contemplation of such transaction and (b) Investments by any Restricted Subsidiary that is not a
Guarantor in (i) any Restricted Subsidiary or (ii) any Person that is or will become immediately
after such Investment a Restricted Subsidiary or that will merge or consolidate into the Issuer,
the Co-Issuer or a Restricted Subsidiary, including any Investment of such Person not made in
contemplation of such transaction;
(2) Investments in the Issuer by any Restricted Subsidiary or the Co-Issuer;
(3) Hedging Obligations incurred pursuant to clause (4) of the second paragraph under the
covenant described under Certain Covenants Limitations on Additional Indebtedness and
Preferred Stock;
(4) cash and Cash Equivalents;
(5) receivables owing to the Issuer, the Co-Issuer or any Restricted Subsidiary if created or
acquired in the ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include such concessionary
trade terms as the Issuer, the Co-Issuer or any such Restricted Subsidiary deems reasonable under
the circumstances;
(6) ordinary course trade credit, advances to customers, commissions, tranche and other
similar advances to officers, directors and employees made in each case in the ordinary course of
business.
(7) Investments in securities of trade creditors or customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers;
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(8) Investments made by the Issuer, the Co-Issuer or any Restricted Subsidiary as a result of
consideration received in connection with an Asset Sale made (to the extent applicable) in
compliance with clauses (1) and (2) of the first paragraph of the covenant described under
Certain Covenants Limitations on Asset Sales;
(9) prepaid expenses, surety, reclamation and performance bonds and lease, tax, utilities,
workers compensation, performance and similar deposits made in the ordinary course of business;
(10) stock, obligations or securities received in settlement of debts created in the ordinary
course of business and owing to the Issuer, the Co-Issuer or any Restricted Subsidiary or in
satisfaction of judgments;
(11) Investments, to the extent Qualified Equity Interests are used to make the Investment;
(12) Investments existing on the Issue Date and any modification, replacement, renewal or
extension thereof; provided, that the amount of any such Investment may be increased (1) (x) as
required by the terms of such Investment as in existence on the Issue Date or (y) as otherwise
permitted under the Indenture, or (2) with respect to Absaloka, as required to meet the
requirements of the Internal Revenue Code;
(13) Investments represented by guarantees otherwise permitted to be made by the Indenture;
(14) Investments not to exceed the greater of (a) $1.0 million per any calendar year at WRM
and (b) contributions required to maintain statutorily-defined minimum capitalization at WRM;
provided, that such Investments are in the ordinary course of business, consistent with past
practice and made on an arms length basis;
(15) Investments from the Issuer up to $1.0 million per any calendar year to Basin Resources
Inc. and Westmoreland Power Inc. and Investments from the Issuer in an aggregate amount not to
exceed $5,000 to Westmoreland Terminal Company, Eastern Coal & Coke Company, and Criterion Coal
Company, in each case in connection with their respective dissolution;
(16) Investments made after the date hereof in Restricted Subsidiaries that are not Guarantors
in an aggregate amount not to exceed $10.0 million at any one time outstanding (with each
Investment being valued as of the date made and without regard to subsequent changes in value);
(17) any Investment by Issuer, the Co-Issuer or a Restricted Subsidiary in a Permitted
Business having an aggregative fair market value, taken together with all other Investments made
pursuant to this clause (17) that are at that time outstanding (without giving effect to the sale
of an Unrestricted Subsidiary to the extent the proceeds of such sale do not consist of cash and/or
marketable securities), not to exceed $5.0 million;
(18) other Investments in an aggregate amount not to exceed $10.0 million at any one time
outstanding (with each Investment being valued as of the date made and without regard to subsequent
changes in value); provided, that no Investment made in reliance on clauses (17) and (18) shall be
made in any Person that is the direct or indirect holder of a majority of the outstanding Equity
Interests of the Issuer; and
(19) An investment made by the Issuers in WML and its Subsidiaries with the proceeds of the
issuance and sale of Additional Notes as permitted to be incurred under the Limitations on
Additional Indebtedness and Preferred Stock covenant and the other terms of the Indenture for the
purpose of the concurrent refinancing of the WML Notes.
The amount of Investments outstanding at any time pursuant to clauses (16), (17) and (18)
above shall be deemed to be reduced:
(a) upon the disposition or repayment of or return on any Investment made pursuant to
clauses (16), (17) and (18) above, by an amount equal to the return of capital with respect
to such Investment to the Issuer, the Co-Issuer or any Restricted Subsidiary (to the extent
not included in the computation of Consolidated Net Income), less the cost of the
disposition of such Investment and net of taxes); and
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(b) upon a Redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, by
an amount equal to the lesser of (x) the Fair Market Value of the Issuers proportionate
interest in such Subsidiary immediately following such Redesignation, and (y) the aggregate
amount of Investments in such Subsidiary that increased (and did not previously decrease)
the amount of Investments outstanding pursuant to clauses (16), (17) and (18) above.
Permitted Liens means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims, Liens otherwise existing
under applicable law, or Liens or encumbrances upon, and defects of title to, real or personal
property other than the Collateral or the WML Collateral, including any attachment of personal or
real property or other legal process prior to adjudication of a dispute on the merits, in each
case, that are either (a) not delinquent or (b) contested in good faith by appropriate proceedings
and as to which the Issuer, Co-Issuer or the Restricted Subsidiaries shall have set aside on its
books such reserves as may be required pursuant to GAAP and such proceedings have the effect of
preventing forfeiture or sale of the property or assets subject to any such Lien;
(2) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business
for sums not yet delinquent or being contested in good faith by appropriate proceedings, if
adequate reserves or other appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof and such proceedings have the effect of preventing forfeiture or sale
of the property or assets subject to any such Lien;
(3) pledges incurred, deposits made or bonds given in the ordinary course of business in
connection with workers compensation, unemployment insurance and other types of social security,
or to secure the performance of tenders, statutory obligations, reclamation, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money bonds and other ordinary
course obligations (exclusive of obligations for the payment of borrowed money);
(4) Liens upon specific items of inventory or other goods and proceeds of any Person securing
such Persons obligations in respect of bankers acceptances issued or created for the account of
such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(5) judgment Liens not giving rise to a Default so long as such Liens are adequately bonded
and any appropriate legal proceedings which may have been duly initiated for the review of such
judgment have not been finally terminated or the period within which the proceedings may be
initiated has not expired;
(6) survey exceptions, easements, rights-of-way, zoning restrictions and other similar
charges, restrictions or encumbrances in respect of real property or immaterial imperfections of
title that were not incurred in connection with Indebtedness and which do not, in the aggregate,
impair in any material respect the ordinary conduct of the business of the Issuer, the Co-Issuer
and the Restricted Subsidiaries taken as a whole, including without limitation, encumbrances and
exceptions to title expressly set forth as an exception to the policies of title insurance obtained
to insure the lien of each Mortgage granted in connection with the Notes or the Revolving Credit
Facility or the mortgages granted in connection with the WML Credit Agreements;
(7) Liens securing reimbursement obligations with respect to commercial letters of credit
which encumber documents and other assets relating to such letters of credit and products and
proceeds thereof;
(8) Liens encumbering deposits made to secure obligations arising from statutory, regulatory,
contractual or warranty requirements of the Issuer, the Co-Issuer or any Restricted Subsidiary,
including rights of offset and setoff;
(9) bankers Liens, rights of setoff and other similar Liens existing solely with respect to
cash and Cash Equivalents on deposit in one or more of accounts maintained by the Issuer, the
Co-Issuer or any Restricted Subsidiary, in each case granted in the ordinary course of business in
favor of the bank or banks with which such accounts are maintained, securing amounts owing to such
bank with respect to cash management and operating account arrangements, including those involving
pooled accounts and netting arrangements; provided, that in no case shall any such Liens secure
(either directly or indirectly) the repayment of any Indebtedness;
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(10) Liens on leases or subleases arising from the provisions of such lease and subleases and
granted to others in the ordinary course of business that do not materially interfere with the
ordinary course of business of the Issuer, Co-Issuer or any Restricted Subsidiary, and Liens on
property leased under operating leases existing under the WML Credit Agreements;
(11) Liens arising from filing Uniform Commercial Code (or equivalent statutes) financing
statements regarding operating leases entered into in the ordinary course of business;
(12) (a) Liens securing the Notes (other than any Additional Notes, except as otherwise
provided in this clause (12)) and any Note Guarantee and (b) Liens securing Additional Notes to the
extent such Liens secure Refinancing Indebtedness represented by Additional Notes and Note
Guarantees of Indebtedness incurred under clause 1(b) and, with respect to WML Notes only, clause 3
in the covenant described under Limitations on Additional Indebtedness and Preferred Stock;
(13) Liens in respect of royalty, production payment and other obligations under coal leases
and similar agreements entered into in the ordinary course of business and to the extent such Liens
do not secure any obligation for borrowed money;
(14) Liens in respect of supply, sales, surface use and other operational agreements entered
into consistent with normal practices in the mining industry, in each case to the extent such
agreements are entered into in the ordinary course of business and such Liens do not secure any
obligation for borrowed money;
(15) (a) Liens existing on the Issue Date securing Indebtedness outstanding on the Issue Date
and (b) Liens with respect to the assets and common stock, and the products and proceeds thereof,
of WMLs Subsidiary Texas Westmoreland Coal Co. in favor of NRG Texas Power LLC as contemplated by
the WML Credit Agreements;
(16) Liens in favor of the Issuer, the Co-Issuer or a Guarantor;
(17) Liens securing Obligations in respect of Indebtedness under the Revolving Credit
Facility, but only to the extent such Indebtedness is incurred in reliance on and outstanding under
clause (1)(a) in the covenant described under Limitations on Additional Indebtedness and
Preferred Stock and only for so long as the Liens securing such Obligations are subject to the
Intercreditor Agreement;
(18) Liens securing Obligations in respect of Indebtedness under the Amended and Restated WML
Credit Agreement, but only to the extent such Indebtedness is incurred in reliance on and
outstanding under clause 1(b) in the covenant described under Limitations on Additional
Indebtedness and Preferred Stock;
(19) Liens securing Purchase Money Indebtedness;
(20) Liens on assets or shares of stock of a Person existing at the time such Person becomes a
Restricted Subsidiary of the Issuer or at the time the Issuer, the Co-Issuer or the Restricted
Subsidiary acquires the asset or shares including by merger or consolidation or otherwise;
provided, that such Liens were in existence prior to the contemplation of such Person becoming a
Restricted Subsidiary of the Issuer or such acquisition and do not extend to any assets other than
those of the Person that becomes a Restricted Subsidiary of the Issuer, or is merged with or into
or consolidated with the Issuer, the Co-Issuer or any Restricted Subsidiary of the Issuer or
otherwise acquired;
(21) Liens to secure Obligations in respect of Refinancing Indebtedness of Indebtedness
secured by Liens referred to in the foregoing clauses (12) (with respect to Notes and Additional
Notes), (15) (other than with respect to the WML Notes), (17), (18), (20), (30) and (33) (but only
to the extent any such Indebtedness
secured by such Lien is permitted to be refinanced pursuant to the covenant entitled
Certain Covenants Limitations on Additional Indebtedness and Preferred Stock); provided, that
in each case:
(a) such Liens do not extend to any additional assets (other than improvements thereon
and replacements thereof); and
(b) the Indebtedness secured by such Lien is not increased to any amount greater than
the sum of (x) the outstanding principal amount plus accrued and unpaid interest, or, if
greater, the committed amount, of the Indebtedness renewed, refunded, refinanced, replaced,
defeased or
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discharged with such Refinancing Indebtedness and (y) an amount necessary to pay any fees
and expenses, including premiums, related to such renewal, refunding, refinancing,
replacement, defeasance or discharge;
(22) Liens to secure Attributable Indebtedness incurred pursuant to the covenant described
under Limitations on Sale and Leaseback Transactions; provided, that any such Lien shall not
extend to or cover any assets of the Issuer, the Co-Issuer or any Restricted Subsidiary other than
the assets which are the subject of the Sale and Leaseback Transaction in which the Attributable
Indebtedness is incurred;
(23) Liens in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods in the ordinary course of
business;
(24) Liens incurred in the ordinary course of business of the Issuer, the Co-Issuer or any
Restricted Subsidiary with respect to obligations (other than Indebtedness) that do not in the
aggregate exceed $5.0 million at any one time outstanding; provided, that such Lien shall in no
event extend to any Mortgaged Property;
(25) Liens securing Hedging Obligations permitted to be incurred by clause (4) in the covenant
described under Limitations on Additional Indebtedness and Preferred Stock so long as to the
extent such Liens relate to Collateral they are subject to the Intercreditor Agreement;
(26) Liens to secure Obligations in respect of Cash Management Obligations permitted to be
incurred by clause (16) in the covenant described under Limitations on Additional Indebtedness
and Preferred Stock so long as to the extent such Liens relate to Collateral, they are subject to
the Intercreditor Agreement;
(27) Liens on cash, Cash Equivalents or other property arising in connection with the
defeasance, discharge or redemption of Indebtedness or other Obligations in compliance with the
Indenture;
(28) licenses of intellectual property granted by the Issuer, the Co-Issuer or any Restricted
Subsidiary in the ordinary course of business and not interfering in any material respect with the
ordinary conduct of business of the Issuer, the Co-Issuer or the Restricted Subsidiaries;
(29) encumbrances or exceptions expressly permitted pursuant to the Mortgages;
(30) Liens securing Indebtedness permitted to be incurred by clause (18) in the covenant
described under Limitations on Additional Indebtedness and Preferred Stock
(31) Liens on cash advances in favor of the seller of any property to be acquired in an
Investment permitted pursuant to Permitted Investments to be applied against the purchase price for
such Investment, solely to the extent such Investment would have been permitted on the date of the
creation of such Lien;
(32) Liens arising by operation of law or contract on insurance policies and the proceeds
thereof to secure premiums thereunder; and
(33) Liens on Collateral in favor of an Agent for the benefit of the Holders or the Revolving
Lenders relating to such Agents administrative expenses with respect to the Collateral;
provided, however, that no consensual Liens shall be permitted to exist, directly or indirectly, on
any Collateral, other than Permitted Collateral Liens and Liens granted pursuant to the Security
Documents (including Mortgages), any First Lien Security Document or any Second Lien Security
Document.
Person means any individual, corporation, partnership, limited liability company, joint
venture, incorporated or unincorporated association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof or other entity of any
kind.
Plan of Liquidation with respect to any Person, means a plan that provides for, contemplates
or the effectuation of which is preceded or accompanied by (whether or not substantially
contemporaneously, in phases or otherwise): (1) the sale, lease, conveyance or other disposition of
all or substantially all of the assets of such Person; and (2) the distribution of all or
substantially all of the proceeds of such sale, lease,
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conveyance or other disposition of all or substantially all of the remaining assets of such Person
to holders of Equity Interests of such Person.
Preferred Stock means, with respect to any Person, any and all preferred or preference stock
or other equity interests (however designated) of such Person whether now outstanding or issued
after the Issue Date.
principal means, with respect to the Notes, the principal of, and premium, if any, on the
Notes.
Purchase Money Indebtedness means Indebtedness, including Capital Lease Obligations, of the
Issuer, the Co-Issuer or any Restricted Subsidiary incurred for the purpose of financing all or any
part of the purchase price of property, plant or equipment used in the business of the Issuer, the
Co-Issuer or any Restricted Subsidiary or the cost of installation, construction or improvement
thereof; provided, however, that (1) the amount of such Indebtedness shall not exceed such purchase
price or cost, (2) such Indebtedness shall not be secured by any asset other than the specified
asset being financed or assets securing any letter of credit supporting the Issuer, the Co-Issuer
or Restricted Subsidiarys ability to pay such purchase price or, in the case of real property or
fixtures, including additions and improvements, the real property (other than any Mortgaged
Property) to which such asset is attached and (3) such Indebtedness shall be incurred within 180
days after such acquisition of such asset by the Issuer, the Co-Issuer or such Restricted
Subsidiary or such installation, construction or improvement.
Qualified Equity Interests of any Person means Equity Interests of such Person other than
Disqualified Equity Interests; provided, that such Equity Interests shall not be deemed Qualified
Equity Interests to the extent sold or owed to a Subsidiary of such Person or financed, directly or
indirectly, using funds (1) borrowed from such Person or any Subsidiary of such Person until and to
the extent such borrowing is repaid or (2) contributed, extended, guaranteed or advanced by such
Person or any Subsidiary of such Person (including, without limitation, in respect of any employee
stock ownership or benefit plan). Unless otherwise specified, Qualified Equity Interests refer to
Qualified Equity Interests of the Issuer.
Qualified Equity Offering means the issuance and sale of Qualified Equity Interests of the
Issuer to Persons other than any Person who is, prior to such issuance and sale, an Affiliate of
the Issuer; provided, however, that cash proceeds therefrom equal to not less than 100% of the
aggregate principal amount of any Notes to be redeemed are received by the Issuer as a capital
contribution immediately prior to such redemption.
Real Property means, collectively, all right, title and interest (including any leasehold,
mineral or other estate) in and to any and all parcels of or interests in real property owned,
leased or operated by any Person, whether by lease, license or other means, together with, in each
case, all easements, hereditaments and appurtenances relating thereto, all improvements and
appurtenant fixtures and rights incidental to the ownership, lease or operation thereof.
redeem means to redeem, repurchase, purchase, defease, retire, discharge or otherwise
acquire or retire for value; and redemption shall have a correlative meaning; provided, that this
definition shall not apply for purposes of Optional Redemption.
Redesignation has the meaning assigned to that term in the fourth paragraph under the
subheading Certain Covenants Limitations on Designation of Unrestricted Subsidiaries.
refinance means to refinance, repay, prepay, replace, renew or refund.
Refinancing Indebtedness means Indebtedness of the Issuer, the Co-Issuer or a Restricted
Subsidiary issued in exchange for, or the proceeds from the issuance and sale or disbursement of
which are
used substantially concurrently to redeem, extend, refinance, renew, replace, defease or
refund in whole or in part, or constituting an amendment of, any Indebtedness of the Issuer, the
Co-Issuer or any Restricted Subsidiary (the Refinanced Indebtedness) in a principal amount not in
excess of the principal amount (plus premium, if any) of the Refinanced Indebtedness so repaid or
amended (or, if such Refinancing Indebtedness refinances Indebtedness under a revolving credit
facility or other agreement providing a commitment for subsequent borrowings, with a maximum
commitment plus costs and fees not to exceed the maximum commitment under such revolving credit
facility or other agreement, less the amount of any permanent repayment and/or commitment reduction
that was required thereunder at any time); provided, that:
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(1) the Refinancing Indebtedness is the obligation of the same Person as that of the
Refinanced Indebtedness;
(2) if the Refinanced Indebtedness was subordinated to or pari passu with the Notes or the
Note Guarantees, as the case may be, then such Refinancing Indebtedness, by its terms, is expressly
pari passu with (in the case of Refinanced Indebtedness that was pari passu with) or subordinate in
right of payment to (in the case of Refinanced Indebtedness that was subordinated to) the Notes or
the Note Guarantees, as the case may be, at least to the same extent as the Refinanced
Indebtedness;
(3) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the
Refinanced Indebtedness being repaid or amended or (b) at least 91 days after the maturity date of
the Notes;
(4) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or
prior to the maturity date of the Notes has a Weighted Average Life to Maturity at the time such
Refinancing Indebtedness is incurred that is equal to or greater than the Weighted Average Life to
Maturity of the portion of the Refinanced Indebtedness being repaid that is scheduled to mature on
or prior to the maturity date of the Notes; and
(5) the Refinancing Indebtedness is secured only to the extent, if at all, and by the assets,
that the Refinanced Indebtedness being repaid or amended is secured, and such security interest
encumbering such assets is of the same priority as, or a lower priority than, the security interest
that secured the Refinanced Indebtedness being repaid or amended.
Registrar has the meaning assigned to that term under the heading Methods of Receiving
Payments on the Notes.
Registration Rights Agreement means the Registration Rights Agreement related to the Notes,
to be executed on the Issue Date, among the Issuer, the Co-Issuer, the Guarantors and the Initial
Purchasers set forth therein.
Required Filing Date has the meaning assigned to that term in the first paragraph under the
subheading Certain Covenants Reports and Other Information.
Restricted Payment means any of the following:
(1) the declaration or payment of any dividend or any other distribution on Equity Interests
of the Issuer, the Co-Issuer or any Restricted Subsidiary or any payment made to the direct or
indirect holders (in their capacities as such) of Equity Interests of the Issuer, the Co-Issuer or
any Restricted Subsidiary, including, without limitation, any payment of any dividend or other
distribution in connection with any merger or consolidation involving the Issuer (but not included
in or part of merger consideration) but excluding (a) dividends or distributions payable solely in
Qualified Equity Interests, (b) in the case of the Co-Issuer and Restricted Subsidiaries, dividends
or distributions payable to the Issuer, the Co-Issuer or to a Guarantor, (c) in the case of
Restricted Subsidiaries that are not Guarantors, dividends or distributions payable to the Issuer
or to a Restricted Subsidiary that is not a Guarantor and (d) in the case of any dividend or
distribution payable on or in respect of any class of series of securities issued by a Restricted
Subsidiary other than a Wholly Owned Subsidiary, pro rata dividends or distributions to minority
stockholders of such Restricted Subsidiary (or owners of an equivalent interest in the case of a
Subsidiary that is an entity other than a corporation in accordance with the organizational
documents of such entities); provided, that the Issuer, the Co-Issuer or a Restricted Subsidiary
receives at least its pro rata share of such dividend or distribution in accordance with its Equity
Interests in such class or series of securities or in accordance with the organizational documents
of such entities;
(2) the purchase, redemption or other acquisition or retirement of any Equity Interests of the
Issuer, the Co-Issuer, any Restricted Subsidiary or any equity holder of the Issuer, including,
without limitation, any purchase, redemption or other acquisition or retirement in connection with
any merger or consolidation involving the Issuer (other than an exchange of stock as part of merger
consideration in connection with a merger or consolidation) but excluding any such Equity Interests
held by the Issuer, the Co-Issuer or any Restricted Subsidiary;
(3) any Investment other than a Permitted Investment; or
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(4) any payment or redemption, repurchase, defeasance or other acquisition or retirement in
each case prior to the scheduled maturity or prior to any scheduled repayment of principal or
sinking fund payment, as the case may be, on or in respect of Subordinated Indebtedness.
Restricted Payments Basket has the meaning assigned to that term in clause (3) of the first
paragraph under the subheading Certain Covenants Limitations on Restricted Payments.
Restricted Subsidiary means any current or future Subsidiary of the Issuer other than an
Unrestricted Subsidiary, including Absaloka. For the avoidance of doubt, on the date of the
Indenture, WELLC and each Subsidiary of WELLC, WRI and each Subsidiary of WRI, Westmoreland Mining
Services, Inc., WML, WRM, Westmoreland Coal Sales Co., WCC Land Holding Company, Inc. and
Westmoreland Power Inc. will be Restricted Subsidiaries unless and until designated as Unrestricted
Subsidiaries.
Revolving Buy-out Price has the meaning assigned to that term in the eighth paragraph under
the subheading Security Intercreditor Agreement to be Entered into in Connection with a
Future Revolving Credit Facility.
Revolving Collateral Agent has the meaning assigned to that term in the first paragraph
under the subheading Security Intercreditor Agreement to be Entered into in Connection with
a Future Revolving Credit Facility.
Revolving Credit Facility means a revolving credit facility that may be entered into after
the date of the Indenture and under which the Issuer, the Co-Issuer, the Subsidiary Guarantors and
Absaloka would be a borrower or guarantor, including any Notes, guarantees, collateral and security
documents, instruments and agreements executed in connection therewith, and in each case as
amended, amended and restated, supplemented, modified, refinanced, replaced or otherwise
restructured, in whole or in part, from time to time.
Revolving Credit Facility Obligations means the indebtedness outstanding under the Revolving
Credit Facility that is secured by a Permitted Lien described in clause (17) of the definition
thereof, and all other obligations of the Issuer, the Co-Issuer, any Guarantor or Absaloka under
the Revolving Credit Facility, all Cash Management Obligations permitted by the Indenture and
secured by the collateral securing any Obligations under the Revolving Credit Facility, and all
Hedging Obligations permitted by the Indenture and secured by the collateral securing any
Obligations under the Revolving Credit Facility.
Revolving Facility First-Priority Collateral means substantially all of the accounts
receivable and inventory of the Issuer, the Co-Issuer, the Subsidiary Guarantors (whether now owned
or hereinafter arising or acquired) and Absaloka (if it is a guarantor under the Revolving Credit
Facility) and the proceeds and products thereof.
Revolving Facility First-Priority Liens means Liens on the Revolving Facility First-Priority
Collateral securing any Revolving Credit Facility Obligations on a first-priority basis.
Revolving Lenders has the meaning assigned to that term in the seventh paragraph under the
subheading Security Intercreditor Agreement to be Entered into in Connection with a Future
Revolving Credit Facility.
Rights Plan means that certain amended and restated rights agreement entered into by the
Issuer on February 7, 2003, as subsequently amended, and any successor plan. S&P means Standard &
Poors Ratings Services, a division of the McGraw-Hill Companies, Inc., and its successors.
Sale and Leaseback Transactions means with respect to any Person an arrangement with any
bank, insurance company or other lender or investor or to which such lender or investor is a party,
providing for the leasing by such Person of any asset of such Person which has been or is being
sold or transferred by such Person to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such asset.
SEC means the U.S. Securities and Exchange Commission.
Second Lien Collateral has the meaning assigned to that term in the first paragraph under
the subheading Security General.
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Second Lien Security Document means any security document granting or evidencing a
second-priority security interest in or Liens on any assets of any Person to secure the Obligations
under the Indenture, the Notes and the Note Guarantees, as each may be amended, restated,
supplemented or otherwise modified from time to time.
Secretarys Certificate means a certificate signed by the Secretary of the Issuer.
Securities Act means the U.S. Securities Act of 1933, as amended.
Security Documents means collectively, the First Lien Security Documents and the Second Lien
Security Documents.
Senior Indebtedness means
(1) all Indebtedness of the Issuer, the Co-Issuer or any of the Restricted
Subsidiaries outstanding under the Revolving Credit Facility and all Hedging Obligations
with respect thereto;
(2) any other Indebtedness of the Issuer, the Co-Issuer or any of the Restricted
Subsidiaries permitted to be incurred under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it is
subordinated in right of payment to the Notes or any Note Guarantee; and
(3) all Obligations with respect to the items listed in the preceding clauses (1) and
(2).
Notwithstanding anything to the contrary in the preceding sentence, Senior Indebtedness will
not include:
(a) any intercompany Indebtedness of the Issuer, the Co-Issuer or any of the
Restricted Subsidiaries to the Issuer or any of its Restricted Subsidiaries; or
(b) any Indebtedness that is incurred in violation of the Indenture. For the avoidance
of doubt, Senior Indebtedness will not include any trade payables or taxes owed or owing
by the Issuer, the Co-Issuer or any Restricted Subsidiary.
Series A Preferred Stock means the Series A Convertible Exchangeable Preferred Stock, par
value $1.00 per share, of the Issuer.
Significant Subsidiary means (1) any Restricted Subsidiary that would be a significant
subsidiary as defined in Rule 1-02(w)(1) or (2) of Regulation S-X promulgated pursuant to the
Securities Act as such Regulation is in effect on the Issue Date and (2) any Restricted Subsidiary
that, when aggregated with all other Restricted Subsidiaries that are not otherwise Significant
Subsidiaries and as to which any event described in clause (8) or (9) under Events of Default
has occurred and is continuing, would constitute a Significant Subsidiary under clause (1) of this
definition.
Standstill Period has the meaning assigned to that term in the seventh paragraph under the
subheading Security Intercreditor Agreement to be Entered into in Connection with a Future
Revolving Credit Facility.
Subordinated Indebtedness means (a) with respect to the Issuer or the Co-Issuer, any
Indebtedness of the Issuer or the Co-Issuer that is by its terms subordinated in right of payment
to the Notes pursuant to a written agreement and (b) with respect to any Guarantor, any
Indebtedness of such Guarantor that is by its terms subordinated in right of payment to the Note
Guarantee of such Guarantor pursuant to a written agreement. For the purposes of the foregoing, for
the avoidance of doubt, no Indebtedness shall be deemed to be subordinated in right of payment to
any other Indebtedness solely by virtue of being unsecured or secured by a lower priority Lien or by virtue of the fact that the holders of
such Indebtedness have entered into intercreditor agreements or other arrangements giving one or
more of such holders priority over the other holders in the collateral held by them.
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Subsidiary means, with respect to any Person:
(1) any corporation, limited liability company, association or other business entity
of which more than 50% of the total voting power of the Equity Interests entitled (without
regard to the occurrence of any contingency) to vote in the election of the Board of
Directors thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination thereof);
and
(2) any partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general partners of
which are such Person or one or more Subsidiaries of such Person (or any combination
thereof);
provided, that Absaloka shall be considered a Subsidiary of the Issuer. Unless otherwise specified,
Subsidiary refers to a Subsidiary of the Issuer.
Subsidiary Guarantors means (i) WELLC, Westmoreland North Carolina Power LLC, WEI-Roanoke
Valley, Inc., Westmoreland-Roanoke Valley, LP, WRI, WRI Partners, Westmoreland Mining Services,
Inc., Westmoreland Coal Sales Co., WCC Land Holding Company, Inc. and Westmoreland Power Inc., (ii)
each other domestic Subsidiary of WELLC and WRI as may be formed after the Issue Date and (iii)
each other domestic Subsidiary of the Issuer, the Co-Issuer or a Guarantor that becomes a
Restricted Subsidiary after the Issue Date.
Successor has the meaning assigned to that term in clause (1)(b) of the first paragraph
under the subheading Certain Covenants Limitations on Mergers, Consolidations, Etc.
Total Assets means the total amount of all assets of the Issuer, the Co-Issuer and the
Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP as shown on the
most recent internal balance sheet of the Issuer.
Total Leverage Ratio means the ratio, as of any date of determination, of (i) Consolidated
Total Indebtedness of the Issuer, the Co-Issuer and the Restricted Subsidiaries as of such date to
(ii) Consolidated EBITDA for the most recently ended four full fiscal quarters for which internal
consolidated financial statements are available immediately preceding such date.
Transactions means (a) the entering into and initial borrowing, if any, under the Revolving
Credit Facility,(b) the issuance of the Notes offered by this offering memorandum (including the
grant of the security interests and Liens pursuant to the Security Documents) and issuance of
Exchange Notes, (c) the repayment of the Issuers existing PIK senior secured convertible Notes,
(d) the repayment of WRIs existing revolving credit facility and term loan, (e) the repayment of
WELLCs existing term loan, (f) redemption or repayment of the outstanding accrued dividends on the
Issuers Series A Convertible Preferred Stock and (f) all transactions (including the payment of
fees and expenses) related to any of the foregoing.
Trust Indenture Act means the Trust Indenture Act of 1939, as amended.
Trustee has the meaning assigned to that term in the first paragraph of the preamble of the
Description of the Notes section.
UCC means the Uniform Commercial Code as in effect in the State of New York, and any
successor statute, as in effect from time to time (except that terms used herein which are defined
in the Uniform Commercial Code as in effect in the State of New York on the date hereof shall
continue to have the same meaning notwithstanding any replacement or amendment of such statute
except as the Note Collateral Agent may otherwise determine).
Unrestricted Subsidiary means (1) Basin Resources Inc.; (2) any Subsidiary that at the time
of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of the
Issuer in accordance with the covenant described under Certain Covenants Limitations on
Designation of Unrestricted Subsidiaries; and (3) any Subsidiary of an Unrestricted Subsidiary.
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U.S. Government Obligations means direct non-callable obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee or obligations the
full faith and credit of the United States is pledged.
Voting Stock with respect to any Person, means securities of any class of Equity Interests
of such Person (in the case of a partnership, the sole general partner or managing general partner
of such Person) entitling the holders thereof (whether at all times or only so long as no senior
class of stock or other relevant equity interest has voting power by reason of any contingency) to
vote in the election of members of the Board of Directors of such Person.
Weighted Average Life to Maturity when applied to any Indebtedness at any date, means the
number of years obtained by dividing (1) the sum of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and the making of such
payment by (2) the then outstanding principal amount of such Indebtedness.
WELLC means Westmoreland Energy LLC.
Wholly Owned means, with respect to any Restricted Subsidiary, a Restricted Subsidiary of
which 100% of the Equity Interests (except for directors qualifying shares) are owned directly by
the Issuer or through one or more Wholly Owned Restricted Subsidiaries (or a combination thereof).
WML means Westmoreland Mining LLC.
WML Collateral means all assets that secure Indebtedness under the WML Credit Agreements.
WML Credit Agreements means (A) the Amended and Restated WML Credit Agreement and (B) the
WML Notes.
WML Lien has the meaning assigned to that term in under the subheading Security
General.
WML Notes means the Note Purchase Agreement regarding $125,000,000 8.02% Senior Guaranteed
Secured Notes due March 31, 2018 among Westmoreland Mining LLC and each of the purchasers named in
Schedule A thereto, dated as of June 26, 2008.
WML Payments Collateral has the meaning assigned to that term in clause (ii) of the first
paragraph under the subheading Security General.
WML Repayment Date has the meaning assigned to that term in under the heading Note
Guarantees.
WML Security Agreements means that certain Security Agreement dated as of June 26, 2008,
entered into between WML and certain of its Subsidiaries and U.S. Bank National Association, the
Amended and Restated Security Agreement dated June 26, 2008 among WML and certain of its
Subsidiaries and US Bank National Association, the Pledge Agreement dated June 26, 2008 among the
Issuer, WML and US Bank National Association, and the Amended and Restated Pledge Agreement dated
June 26, 2008 among Issuer, WML and US Bank National Association.
WRI means Westmoreland Resources Inc.
WRM means Westmoreland Risk Management Ltd.
WRM Collateral has the meaning assigned to that term in clause (iii) of the first paragraph
under the subheading Security General.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material U.S. federal income tax considerations relating to the
exchange of Restricted Notes for Exchange Notes in the exchange offer. It does not contain a
complete analysis of all the potential tax considerations relating to the exchange. This summary is
limited to holders of Restricted Notes that hold the Restricted Notes as capital assets (in
general, assets held for investment). Special situations, such as the following, are not addressed:
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tax consequences to holders that may be subject to special tax treatment, such as
tax-exempt entities, dealers in securities or foreign currencies, brokers, certain financial
institutions or financial services entities, insurance companies, regulated investment
companies, traders in securities that elect to use a mark-to-market method of accounting for
their securities holdings, retirement plans, real estate investment trusts, controlled foreign
corporations and shareholders of such corporations, passive foreign investment companies and
shareholders of such companies, former citizens or long-term residents of the United States,
certain U.S. expatriates or corporations that accumulate earnings to avoid U.S. federal income
tax; |
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tax consequences to persons holding notes as part of a hedging, integrated, constructive
sale or conversion transaction or a straddle or other risk reduction transaction; |
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tax consequences to holders whose functional currency is not the U.S. Dollar; |
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tax consequences to persons who hold notes through a partnership or similar pass-through
entity; |
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alternative minimum tax, gift tax or estate tax consequences, if any; or |
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any state, local or foreign tax consequences. |
The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as
amended, existing and proposed Treasury regulations promulgated thereunder, and rulings, judicial
decisions and administrative interpretations thereunder, as of the date hereof. Those authorities
may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences
different from those discussed below.
Consequences of Tendering Notes
The exchange of the Restricted Notes for the Exchange Notes in the exchange offer will not
constitute a taxable exchange. As a result, you will not recognize taxable gain or loss as a result
of such exchange, the holding period of the Exchange Notes you receive will include the holding
period of the Restricted Notes you exchange and the adjusted tax basis of the Exchange Notes you
receive will be the same as the adjusted tax basis of the Restricted Notes you exchange.
The preceding discussion of certain material U.S. federal income tax consequences is for
general information only and is not tax advice. Accordingly, each investor is urged to consult its
own tax advisor as to the particular tax consequences to it of exchanging Restricted Notes for
Exchange Notes, including the applicability and effect of any U.S. federal, state, local or foreign
tax laws, and of any proposed changes in applicable laws.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes in the exchange offer for its own account must
acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such Exchange Notes. Broker-dealers who acquired the Restricted
Notes directly from us in the initial offering must, in the absence of an exemption, comply with
the registration and prospectus delivery requirements of the Securities Act in connection with the
resales of the Exchange Notes and cannot rely on the position of the staff of the Commission
enunciated in the Exxon Capital no-action letter. In addition, broker-dealers who acquired
Restricted Notes directly from us in the initial offering cannot use this prospectus in connection
with resales of the Exchange Notes. We reserve the right in our sole discretion to purchase or make
offers for, or to offer Exchange Notes for, any Restricted Notes that remain outstanding subsequent
to the expiration of the exchange offer pursuant to this prospectus or otherwise and, to the extent
permitted by applicable law, purchase Restricted Notes in the open market, in privately negotiated transactions or otherwise. This prospectus, as it may be amended or supplemented
from time to time, may be used by all persons subject to the prospectus delivery requirements of
the Securities Act, including broker-dealers in connection with resales of Exchange Notes received
in the exchange offer, where such Exchange Notes were acquired as a result of market-making
activities or other trading activities and may be used by us to purchase any Restricted Notes
outstanding after expiration of the exchange offer. We have agreed that, for a period of up to 180
days from the date on which the exchange offer is completed, we will make this prospectus, as
amended or
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supplemented, available to any broker-dealer for use in connection with any such resale
if such broker-dealer indicates in the letter of transmittal that it
will do so. In addition, until October 27, 2011, all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
We will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange
Notes received by broker-dealers in the exchange offer for their own account may be sold from time
to time in one or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such prevailing market prices
or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it in the
exchange offer for its own account and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an underwriter within the meaning of the Securities Act
and any profit on any such resale of such Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus meeting the requirements of the Securities Act, a broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the Securities Act.
For a period of up to 180 days from the date on which the exchange offer is completed, we will
promptly send additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents. We have agreed to pay all expenses
incident to the exchange offer, other than commissions or concessions of any brokers or dealers and
will indemnify holders of the Notes, including any broker-dealers, against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the exchange Notes and the related guarantees will be passed upon for us by
Davis Graham & Stubbs LLP, our outside legal counsel.
EXPERTS
The consolidated financial statements of the Company as of December 31, 2010 and 2009 and for the years then ended included
in this Form S-4 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in
their report appearing herein dated March 11, 2011, except for Note 19 as to which the date is June 3, 2011. Such
consolidated financial statements are included herein in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Westmoreland Energy LLC as of December 31, 2010 and 2009 and for the years then
ended included in this Form S-4 have been audited by Ernst & Young LLP, independent registered public accounting firm, as
set forth in their report appearing herein dated June 3, 2011. Such consolidated financial statements are included herein
in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Westmoreland Resources Inc. as of December 31, 2010 and
2009 and for the years then ended included in this Form S-4 have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in their report appearing herein dated June 3,
2011. Such consolidated financial statements are included herein in reliance upon such report given on
the authority of such firm as experts in accounting and auditing.
The consolidated statements of
operations, shareholders deficit and comprehensive loss, cash
flows and the related financial statement schedule of Westmoreland Coal Company for the year ended
December 31, 2008, the consolidated statements of operations, shareholders deficit and
comprehensive loss, and cash flows of Westmoreland Resources, Inc for the year ended December 31,
2008, and the consolidated statements of operations, members equity and comprehensive income(loss)
and cash flows of Westmoreland Energy LLC for the year ended December 31, 2008, have been included
herein in reliance upon the reports of KPMG LLP, an independent registered public accounting firm,
included herein, and upon the authority of said firm as experts in accounting and auditing. The audit reports
covering these consolidated financial statements contain an explanatory paragraph that states that
during the year ended December 31, 2008, Westmoreland Coal Company had suffered recurring losses
from operations, had a working capital deficit, and had a net capital deficiency, which raised
substantial doubt about its ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of these
uncertainties.
Estimates of our coal reserves
included in this prospectus were prepared by Norwest
Corporation. The estimates have been included in this prospectus in reliance upon the authority of
Norwest Corporation as experts in such matters.
132
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the Securities Act with
respect to the Exchange Notes. This prospectus, which forms a part of the registration statement,
does not contain all of the information set forth in the registration statement. For further
information with respect to us and the Exchange Notes, reference is made to the registration
statement. Statements contained in this prospectus as to the contents of any contract or other
documents are not necessarily complete.
We have historically filed annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we have or will file with the SEC at
the SECs public website (www.sec.gov) or at the Public Reference Room of the SEC located at 100 F
Street, N.E., Washington, DC 20549. Copies of such materials can be obtained from the Public
Reference Room of the SEC at prescribed rates. You can call the SEC at 1-800-SEC-0330 to obtain
information on the operation of the Public Reference Room.
So long as we are subject to the reporting requirements of the Exchange Act, we and the
guarantors are required to make available to the trustee and the holders of the Notes the
information required to be filed with the SEC. Regardless of whether we are subject to the
reporting requirements of the Exchange Act, we have agreed that for as long as any of the Notes
remain outstanding, we will furnish to the trustee and holders of the Notes certain information
that would otherwise be required to be filed with the SEC under Sections 13 or 15(d) of the
Exchange Act.
This prospectus contains summaries of certain agreements that we have entered into in
connection with the exchange offer, such as the Indenture and related agreements. The descriptions
contained in this prospectus of these agreements do not purport to be complete and are subject to,
or qualified in their entirety by reference to, the definitive agreements.
133
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
Page |
Westmoreland Coal Company and Subsidiaries |
|
|
|
|
Consolidated Balance Sheets (Unaudited) as of March 31, 2011 and December 31, 2010 |
|
|
136 |
|
Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2011 and 2010 |
|
|
138 |
|
Consolidated Statement of Shareholders Deficit (Unaudited) for the Three Months Ended March 31, 2011 |
|
|
139 |
|
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2011 and 2010 |
|
|
140 |
|
Notes to Consolidated Financial Statements (Unaudited) for the Three Months Ended March 31, 2011 and 2010 |
|
|
141 |
|
Reports of Independent Registered Public Accounting Firms |
|
|
162 |
|
Consolidated Balance Sheets as of December 31, 2010 and 2009 |
|
|
164 |
|
Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008 |
|
|
166 |
|
Consolidated Statements of Shareholders Deficit and Comprehensive Loss for the Years Ended
December 31, 2010, 2009 and 2008 |
|
|
167 |
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 |
|
|
168 |
|
Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |
|
|
169 |
|
Other Financial Statements of Certain Westmoreland Coal Company Subsidiaries |
|
|
|
|
The following financial statements for certain of Westmoreland Coal Companys wholly owned
subsidiaries are included pursuant to Regulation S-X, Rule 3-16, Financial Statements of
Affiliates Whose Securities Collateralize an Issue Registered of Being Registered. |
|
|
|
|
Westmoreland Resources, Inc. and subsidiary |
|
|
|
|
Reports of Independent Registered Public Accounting Firms |
|
|
216 |
|
Consolidated Balance Sheets as of December 31, 2010 and 2009 |
|
|
218 |
|
Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008 |
|
|
219 |
|
Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss) for the Years Ended
December 31, 2010, 2009 and 2008 |
|
|
220 |
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 |
|
|
221 |
|
Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |
|
|
222 |
|
134
|
|
|
|
|
|
|
|
Page |
Westmoreland Energy LLC |
|
|
|
|
Reports of Independent Registered Public Accounting Firms |
|
|
236 |
|
Consolidated Balance Sheets as of December 31, 2010 and 2009 |
|
|
238 |
|
Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008 |
|
|
239 |
|
Consolidated Statements of Members Equity and Comprehensive Income (Loss) for the Years Ended
December 31, 2010, 2009 and 2008 |
|
|
240 |
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 |
|
|
241 |
|
Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |
|
|
242 |
|
135
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
|
(Audited) |
|
|
|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
44,984 |
|
|
$ |
5,775 |
|
Receivables: |
|
|
|
|
|
|
|
|
Trade |
|
|
49,776 |
|
|
|
50,578 |
|
Contractual third-party reclamation receivables |
|
|
7,638 |
|
|
|
7,743 |
|
Other |
|
|
3,620 |
|
|
|
4,545 |
|
|
|
|
|
|
|
|
|
|
|
61,034 |
|
|
|
62,866 |
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
26,180 |
|
|
|
23,571 |
|
Other current assets |
|
|
5,461 |
|
|
|
5,335 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
137,659 |
|
|
|
97,547 |
|
|
|
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
Land and mineral rights |
|
|
83,893 |
|
|
|
83,824 |
|
Capitalized asset retirement cost |
|
|
114,856 |
|
|
|
114,856 |
|
Plant and equipment |
|
|
509,013 |
|
|
|
506,661 |
|
|
|
|
|
|
|
|
|
|
|
707,762 |
|
|
|
705,341 |
|
Less accumulated depreciation, depletion and amortization |
|
|
(299,381 |
) |
|
|
(288,386 |
) |
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
408,381 |
|
|
|
416,955 |
|
|
|
|
|
|
|
|
|
|
Advanced coal royalties |
|
|
3,532 |
|
|
|
3,695 |
|
Reclamation deposits |
|
|
73,007 |
|
|
|
72,274 |
|
Restricted investments and bond collateral |
|
|
55,701 |
|
|
|
55,384 |
|
Contractual third-party reclamation receivables, less current portion |
|
|
88,514 |
|
|
|
87,739 |
|
Deferred income taxes |
|
|
2,900 |
|
|
|
2,458 |
|
Intangible assets, net of accumulated amortization of $9.5 million
and $9.1 million at March 31, 2011, and December 31, 2010,
respectively |
|
|
6,137 |
|
|
|
6,555 |
|
Other assets |
|
|
12,156 |
|
|
|
7,699 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
787,987 |
|
|
$ |
750,306 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
136
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
|
(Audited) |
|
|
|
(In thousands) |
|
Liabilities and Shareholders Deficit |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current installments of long-term debt |
|
$ |
17,673 |
|
|
$ |
14,973 |
|
Accounts payable and accrued expenses: |
|
|
|
|
|
|
|
|
Trade |
|
|
44,354 |
|
|
|
46,247 |
|
Production taxes |
|
|
28,467 |
|
|
|
26,317 |
|
Workers compensation |
|
|
951 |
|
|
|
954 |
|
Postretirement medical benefits |
|
|
13,581 |
|
|
|
13,581 |
|
SERP |
|
|
304 |
|
|
|
304 |
|
Deferred revenue |
|
|
10,594 |
|
|
|
10,209 |
|
Asset retirement obligations |
|
|
15,235 |
|
|
|
14,514 |
|
Other current liabilities |
|
|
7,524 |
|
|
|
6,241 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
138,683 |
|
|
|
133,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current installments |
|
|
276,689 |
|
|
|
208,731 |
|
Revolving lines of credit |
|
|
|
|
|
|
18,400 |
|
Workers compensation, less current portion |
|
|
9,360 |
|
|
|
9,424 |
|
Excess of pneumoconiosis benefit obligation over trust assets |
|
|
2,726 |
|
|
|
2,246 |
|
Postretirement medical benefits, less current portion |
|
|
196,726 |
|
|
|
197,279 |
|
Pension and SERP obligations, less current portion |
|
|
19,683 |
|
|
|
20,462 |
|
Deferred revenue, less current portion |
|
|
73,025 |
|
|
|
75,395 |
|
Asset retirement obligations, less current portion |
|
|
227,117 |
|
|
|
227,129 |
|
Intangible liabilities, net of accumulated amortization $9.6
million at March 31, 2011, and $9.4 million at December 31,
2010, respectively |
|
|
8,409 |
|
|
|
8,663 |
|
Other liabilities |
|
|
9,496 |
|
|
|
11,592 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
961,914 |
|
|
|
912,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders deficit: |
|
|
|
|
|
|
|
|
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued and outstanding 160,129 shares at
March 31, 2011, and December 31, 2010 |
|
|
160 |
|
|
|
160 |
|
Common stock of $2.50 par value Authorized 30,000,000 shares;
Issued and outstanding 13,155,263 shares at
March 31, 2011, and 11,160,798 shares at
December 31, 2010 |
|
|
32,887 |
|
|
|
27,901 |
|
Other paid-in capital |
|
|
120,748 |
|
|
|
98,466 |
|
Accumulated other comprehensive loss |
|
|
(57,507 |
) |
|
|
(57,680 |
) |
Accumulated deficit |
|
|
(264,632 |
) |
|
|
(226,740 |
) |
|
|
|
|
|
|
|
Total Westmoreland Coal Company shareholders deficit |
|
|
(168,344 |
) |
|
|
(157,893 |
) |
Noncontrolling interest |
|
|
(5,583 |
) |
|
|
(4,462 |
) |
|
|
|
|
|
|
|
Total deficit |
|
|
(173,927 |
) |
|
|
(162,355 |
) |
|
|
|
|
|
|
|
Total Liabilities and Shareholders Deficit |
|
$ |
787,987 |
|
|
$ |
750,306 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
137
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands, except |
|
|
|
per share data) |
|
Revenues |
|
$ |
127,764 |
|
|
$ |
126,439 |
|
|
Cost, expenses and other: |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
97,510 |
|
|
|
97,677 |
|
Depreciation, depletion and amortization |
|
|
11,245 |
|
|
|
11,392 |
|
Selling and administrative |
|
|
9,305 |
|
|
|
9,976 |
|
Heritage health benefit expenses |
|
|
3,778 |
|
|
|
3,915 |
|
Loss on sales of assets |
|
|
83 |
|
|
|
71 |
|
Other operating income |
|
|
(1,597 |
) |
|
|
(1,906 |
) |
|
|
|
|
|
|
|
|
|
|
120,324 |
|
|
|
121,125 |
|
|
|
|
|
|
|
|
Operating income |
|
|
7,440 |
|
|
|
5,314 |
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(6,967 |
) |
|
|
(5,723 |
) |
Loss on extinguishment of debt |
|
|
(17,030 |
) |
|
|
|
|
Interest income |
|
|
382 |
|
|
|
410 |
|
Other loss |
|
|
(3,017 |
) |
|
|
(3,836 |
) |
|
|
|
|
|
|
|
|
|
|
(26,632 |
) |
|
|
(9,149 |
) |
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(19,192 |
) |
|
|
(3,835 |
) |
Income tax benefit from operations |
|
|
(460 |
) |
|
|
(90 |
) |
|
|
|
|
|
|
|
Net loss |
|
|
(18,732 |
) |
|
|
(3,745 |
) |
Less net loss attributable to noncontrolling interest |
|
|
(1,121 |
) |
|
|
(890 |
) |
|
|
|
|
|
|
|
Net loss attributable to the Parent company |
|
|
(17,611 |
) |
|
|
(2,855 |
) |
Less preferred stock dividend requirements |
|
|
340 |
|
|
|
340 |
|
|
|
|
|
|
|
|
Net loss applicable to common shareholders |
|
$ |
(17,951 |
) |
|
$ |
(3,195 |
) |
|
|
|
|
|
|
|
|
Net loss per share applicable to common shareholders: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(1.45 |
) |
|
$ |
(0.30 |
) |
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
12,369 |
|
|
|
10,521 |
|
|
Net loss (from above) |
|
$ |
(18,732 |
) |
|
$ |
(3,745 |
) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
Tax effect of other comprehensive income gains |
|
|
(110 |
) |
|
|
|
|
Amortization of accumulated actuarial gains or
losses and transition obligations, pension |
|
|
385 |
|
|
|
228 |
|
Amortization of accumulated actuarial gains or
losses transition obligations and prior service
costs, postretirement medical benefits |
|
|
(72 |
) |
|
|
(68 |
) |
Unrealized and realized gain on available-for-sale
securities |
|
|
(30 |
) |
|
|
(499 |
) |
Comprehensive loss |
|
$ |
(18,559 |
) |
|
$ |
(4,084 |
) |
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
138
Westmoreland Coal Company and Subsidiaries
Consolidated Statement of Shareholders Deficit
Three Months Ended March 31, 2011
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable |
|
|
|
|
|
|
Other Paid-In |
|
|
Accumulated Other |
|
|
|
|
|
|
Non- |
|
|
Total
Shareholders |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Capital |
|
|
Compre-hensive Loss |
|
|
Accumulated Deficit |
|
|
controlling Interest |
|
|
Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 (160,129 preferred
shares and 11,160,798 common shares outstanding) |
|
$ |
160 |
|
|
$ |
27,901 |
|
|
$ |
98,466 |
|
|
$ |
(57,680 |
) |
|
$ |
(226,740 |
) |
|
$ |
(4,462 |
) |
|
$ |
(162,355 |
) |
Preferred dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,281 |
) |
|
|
|
|
|
|
(20,281 |
) |
Common stock issued as compensation (104,019
shares) |
|
|
|
|
|
|
260 |
|
|
|
1,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,653 |
|
Common stock options exercised (12,500 shares) |
|
|
|
|
|
|
31 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131 |
|
Conversion of convertible notes (1,877,946 shares) |
|
|
|
|
|
|
4,695 |
|
|
|
20,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,484 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,611 |
) |
|
|
(1,121 |
) |
|
|
(18,732 |
) |
Tax effect of other comprehensive income gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
|
(110 |
) |
Amortization of accumulated actuarial gains or
losses and transition obligations, pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
385 |
|
Amortization of accumulated actuarial gains or
losses, transition obligations and prior service
costs, postretirement medical benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
(72 |
) |
Unrealized losses on available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
Balance at March 31, 2011 (160,129 preferred shares
and 13,155,263 common shares outstanding) |
|
$ |
160 |
|
|
$ |
32,887 |
|
|
$ |
120,748 |
|
|
$ |
(57,507 |
) |
|
$ |
(264,632 |
) |
|
$ |
(5,583 |
) |
|
$ |
(173,927 |
) |
|
|
|
See accompanying Notes to Consolidated Financial Statements.
139
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(18,732 |
) |
|
$ |
(3,745 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
11,245 |
|
|
|
11,392 |
|
Accretion of asset retirement obligation and receivable |
|
|
2,700 |
|
|
|
3,003 |
|
Amortization of intangible assets and liabilities, net |
|
|
163 |
|
|
|
85 |
|
Non-cash tax benefits |
|
|
(110 |
) |
|
|
|
|
Share-based compensation |
|
|
1,653 |
|
|
|
1,363 |
|
Loss on sales of assets |
|
|
83 |
|
|
|
71 |
|
Non-cash interest expense |
|
|
|
|
|
|
388 |
|
Amortization of deferred financing costs |
|
|
635 |
|
|
|
523 |
|
Loss on extinguishment of debt |
|
|
17,030 |
|
|
|
|
|
Gain on impairment and sales of investment securities |
|
|
|
|
|
|
(659 |
) |
Loss on derivative instruments |
|
|
3,079 |
|
|
|
4,515 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables, net |
|
|
3,630 |
|
|
|
(3,866 |
) |
Inventories |
|
|
(2,609 |
) |
|
|
(1,502 |
) |
Excess of pneumoconiosis benefit obligation over trust assets |
|
|
480 |
|
|
|
347 |
|
Accounts payable and accrued expenses |
|
|
2,009 |
|
|
|
3,770 |
|
Deferred revenue |
|
|
(1,985 |
) |
|
|
617 |
|
Accrual for workers compensation |
|
|
(67 |
) |
|
|
(51 |
) |
Asset retirement obligation |
|
|
(2,661 |
) |
|
|
(1,875 |
) |
Accrual for postretirement medical benefits |
|
|
(625 |
) |
|
|
(361 |
) |
Pension and SERP obligations |
|
|
(394 |
) |
|
|
(39 |
) |
Other assets and liabilities |
|
|
658 |
|
|
|
(680 |
) |
|
|
|
|
|
|
|
Net cash provided by (used) in operating activities |
|
|
16,182 |
|
|
|
13,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(2,923 |
) |
|
|
(4,337 |
) |
Change in restricted investments and bond collateral and reclamation deposits |
|
|
(1,080 |
) |
|
|
(592 |
) |
Net proceeds from sales of assets |
|
|
22 |
|
|
|
379 |
|
Proceeds from the sale of investments |
|
|
|
|
|
|
1,119 |
|
Receivable from customer for property and equipment purchases |
|
|
(1,903 |
) |
|
|
(510 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(5,884 |
) |
|
|
(3,941 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Change in book overdrafts |
|
|
108 |
|
|
|
890 |
|
Borrowings from long-term debt, net of debt discount |
|
|
142,500 |
|
|
|
|
|
Repayments of long-term debt |
|
|
(60,391 |
) |
|
|
(8,112 |
) |
Borrowings on revolving lines of credit |
|
|
50,700 |
|
|
|
28,400 |
|
Repayments of revolving lines of credit |
|
|
(69,100 |
) |
|
|
(23,300 |
) |
Debt issuance and other refinancing costs |
|
|
(14,756 |
) |
|
|
|
|
Preferred dividends paid |
|
|
(20,281 |
) |
|
|
|
|
Exercise of stock options |
|
|
131 |
|
|
|
8 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
28,911 |
|
|
|
(2,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
39,209 |
|
|
|
7,241 |
|
Cash and cash equivalents, beginning of period |
|
|
5,775 |
|
|
|
10,519 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
44,984 |
|
|
$ |
17,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Capital leases |
|
$ |
|
|
|
$ |
866 |
|
See accompanying Notes to Consolidated Financial Statements.
140
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include accounts of Westmoreland
Coal Company, or the Company, or Parent, and its subsidiaries and controlled entities. The
Companys current principal activities, all conducted within the United States, are the production
and sale of coal from its mines in Montana, North Dakota and Texas, and the ownership of the
Roanoke Valley power plants, or ROVA, in North Carolina. The Companys activities are primarily
conducted through wholly owned subsidiaries. All intercompany transactions and accounts have been
eliminated in consolidation.
The Companys Absaloka Mine is owned by its subsidiary Westmoreland Resources, Inc., or WRI.
The right to mine coal at the Absaloka Mine has been subleased to an affiliated entity whose
operations the Company controls. The Beulah, Jewett, Rosebud, and Savage Mines are owned through
the Companys subsidiary Westmoreland Mining LLC, or WML.
The Company is subject to two major debt arrangements: (1) $125.0 million senior secured notes
at WML that are collaterized by all assets of WML, Westmoreland Savage Corporation, or WSC, Western
Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC, and (2) $150.0 million senior
secured notes (issued February 4, 2011) at the Parent level that are largely collaterized by the
assets of the Parent, WRI and ROVA, referred to herein as the Parent Notes.
These quarterly consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2010, or the 2010 Form 10-K. The accounting principles followed by
the Company are set forth in the Notes to the Companys consolidated financial statements in its
2010 Form 10-K. Most of the descriptions of the accounting principles and other footnote
disclosures previously made have been omitted in this report so long as the interim information
presented is not misleading.
The consolidated financial statements of the Company have been prepared in accordance with
United States generally accepted accounting principles and require use of managements estimates.
The financial information contained in this Form 10-Q is unaudited, but reflects all adjustments,
which are, in the opinion of management, necessary for a fair presentation of the financial
information for the periods shown. Such adjustments are of a normal recurring nature. The results
of operations for the three months ended March 31, 2011 are not necessarily indicative of results
to be expected for the year ending December 31, 2011.
2. ACCOUNTING POLICIES
Newly Adopted Accounting Pronouncements
In January 2010, accounting guidance was issued regarding fair value measurements and
disclosures and improvement in the disclosure about fair value measurements. This guidance
requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of
fair value measurements, including a description of the reasons for the transfers. This guidance
also requires additional disclosures for the activity in Level 3 fair value measurements, requiring
presentation of information about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements. This guidance is effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years. See Note 10 for
applicable disclosures.
141
3. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Coal stockpiles |
|
$ |
694 |
|
|
$ |
678 |
|
Coal fuel inventories |
|
|
3,808 |
|
|
|
1,936 |
|
Materials and supplies |
|
|
22,258 |
|
|
|
21,538 |
|
Reserve for obsolete inventory |
|
|
(580 |
) |
|
|
(581 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
26,180 |
|
|
$ |
23,571 |
|
|
|
|
|
|
|
|
4. RESTRICTED INVESTMENTS AND BOND COLLATERAL
The Companys restricted investments and bond collateral consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Coal Segment: |
|
|
|
|
|
|
|
|
Westmoreland Mining debt reserve account |
|
$ |
9,964 |
|
|
$ |
7,514 |
|
Reclamation bond collateral: |
|
|
|
|
|
|
|
|
Rosebud Mine |
|
|
12,264 |
|
|
|
12,263 |
|
Absaloka Mine |
|
|
10,974 |
|
|
|
10,956 |
|
Jewett Mine |
|
|
3,001 |
|
|
|
3,001 |
|
Beulah Mine |
|
|
1,270 |
|
|
|
1,270 |
|
|
|
|
|
|
|
|
|
|
Power Segment: |
|
|
|
|
|
|
|
|
Letter of credit account |
|
|
5,976 |
|
|
|
5,990 |
|
Debt protection account |
|
|
|
|
|
|
905 |
|
Repairs and maintenance account |
|
|
|
|
|
|
1,067 |
|
Ash reserve account |
|
|
|
|
|
|
602 |
|
|
|
|
|
|
|
|
|
|
Corporate Segment: |
|
|
|
|
|
|
|
|
Workers compensation bonds |
|
|
6,390 |
|
|
|
6,350 |
|
Postretirement medical benefit bonds |
|
|
5,862 |
|
|
|
5,466 |
|
|
|
|
|
|
|
|
Total restricted investments and bond
collateral |
|
$ |
55,701 |
|
|
$ |
55,384 |
|
|
|
|
|
|
|
|
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 investment and bond collateral accounts are not
available to meet the Companys cash needs.
These accounts include held-to-maturity and available-for-sale securities. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or accretion of
premiums or discounts calculated on the effective interest method. Interest income is
recognized when earned. Available-for-sale securities are reported at fair value with
unrealized gains and losses excluded from earnings and reported in Accumulated other
comprehensive loss.
142
The Companys carrying value and estimated fair value of its restricted investments and bond
collateral at March 31, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Cash and cash equivalents |
|
$ |
42,606 |
|
|
$ |
42,606 |
|
Time deposits |
|
|
7,679 |
|
|
|
7,679 |
|
Held-to-maturity securities |
|
|
2,544 |
|
|
|
2,853 |
|
Available-for-sale securities |
|
|
2,872 |
|
|
|
2,872 |
|
|
|
|
|
|
|
|
|
|
$ |
55,701 |
|
|
$ |
56,010 |
|
|
|
|
|
|
|
|
Following the Parent Notes offering in February 2011, discussed in Note 5, ROVA is no
longer required to maintain its debt protection accounts, ash reserve account or the repairs
and maintenance account.
Held-to-Maturity and Available-for-Sale Restricted Investments and Bond Collateral
The amortized cost, gross unrealized holding gains and fair value of held-to-maturity
securities at March 31, 2011, is as follows (in thousands):
|
|
|
|
|
Amortized cost |
|
$ |
2,544 |
|
Gross unrealized holding gains |
|
|
309 |
|
|
|
|
|
Fair value |
|
$ |
2,853 |
|
|
|
|
|
Maturities of held-to-maturity securities are as follows at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Due in five years or less |
|
$ |
659 |
|
|
$ |
730 |
|
Due after five years to ten years |
|
|
772 |
|
|
|
857 |
|
Due in more than ten years |
|
|
1,113 |
|
|
|
1,266 |
|
|
|
|
|
|
|
|
|
|
$ |
2,544 |
|
|
$ |
2,853 |
|
|
|
|
|
|
|
|
The cost basis, gross unrealized holding gains and fair value of available-for-sale
securities at March 31, 2011, is as follows (in thousands):
|
|
|
|
|
Cost basis |
|
$ |
2,566 |
|
Gross unrealized holding gains |
|
|
306 |
|
Fair value |
|
$ |
2,872 |
|
|
|
|
|
143
5. LINES OF CREDIT AND LONG-TERM DEBT
The amounts outstanding under the Companys lines of credit and long-term debt consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
Total Debt Outstanding |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Corporate: |
|
|
|
|
|
|
|
|
Senior secured notes |
|
$ |
150,000 |
|
|
$ |
|
|
Convertible notes |
|
|
|
|
|
|
18,495 |
|
Debt discount |
|
|
(7,383 |
) |
|
|
(4,823 |
) |
Westmoreland Mining, LLC: |
|
|
|
|
|
|
|
|
Revolving line of credit |
|
|
|
|
|
|
1,500 |
|
Term debt |
|
|
125,000 |
|
|
|
125,000 |
|
Capital lease obligations |
|
|
17,184 |
|
|
|
18,407 |
|
Other term debt |
|
|
2,368 |
|
|
|
2,556 |
|
Westmoreland Resources, Inc.: |
|
|
|
|
|
|
|
|
Revolving line of credit |
|
|
|
|
|
|
16,900 |
|
Term debt |
|
|
|
|
|
|
9,600 |
|
Capital lease obligations |
|
|
7,193 |
|
|
|
7,821 |
|
ROVA: |
|
|
|
|
|
|
|
|
Term debt |
|
|
|
|
|
|
46,220 |
|
Debt premiums |
|
|
|
|
|
|
428 |
|
|
|
|
|
|
|
|
Total debt outstanding |
|
|
294,362 |
|
|
|
242,104 |
|
Less current portion |
|
|
(17,673 |
) |
|
|
(14,973 |
) |
|
|
|
|
|
|
|
Total debt outstanding, less current portion |
|
$ |
276,689 |
|
|
$ |
227,131 |
|
|
|
|
|
|
|
|
The following table presents aggregate contractual debt maturities of all long-term debt
and the lines of credit at March 31, 2011 (in thousands):
|
|
|
|
|
Remainder of 2011 |
|
$ |
12,934 |
|
2012 |
|
|
21,512 |
|
2013 |
|
|
24,815 |
|
2014 |
|
|
22,565 |
|
2015 |
|
|
21,910 |
|
Thereafter |
|
|
198,009 |
|
|
|
|
|
Total |
|
|
301,745 |
|
Less: debt discount |
|
|
(7,383 |
) |
|
|
|
|
Total debt |
|
$ |
294,362 |
|
|
|
|
|
Corporate
On February 4, 2011 through a private placement offering, the Company issued $150.0 million of
Parent Notes, which are senior secured notes. The Companys subsidiary, Westmoreland Partners, was
a co-issuer of the notes. The Parent Notes were issued at a 5% discount, mature February 18, 2018,
and bear a fixed interest rate of 10.750%, payable semi-annually, in arrears, on February 1 and
August 1 of each year beginning August 1, 2011. Substantially all of the assets of the Parent,
ROVA and WRI constitute collateral for the Parent Notes as to which the holders of these notes have
a first priority lien. Under the indenture governing the Parent Notes, the Company is required to
offer a portion of its Excess Cash Flow (as defined by the indenture) for each fiscal year to
purchase some of these notes at 100% of the principal amount.
As a result of this offering, the Company recorded a $17.0 million loss on extinguishment of
debt in the three months ended March 31, 2011. The loss included a $9.1 million make-whole payment
for ROVAs debt and $7.9 million of non-cash write-offs of unamortized discount on debt and related
capitalized debt costs and convertible debt conversion expense.
144
The indenture governing the Parent Notes contains, among other provisions, events of default
and various affirmative and negative covenants. As of March 31, 2011, the Company was in
compliance with all covenants.
Westmoreland Mining LLC
WML has outstanding $125.0 million in term debt as of March 31, 2011 and is party to a
revolving credit facility with a maximum availability of $25.0 million. In the three months ended
March 31, 2011, WML repaid $1.4 million of its capital lease obligations and other term debt. The
weighted average interest rate for WMLs capital leases and other term debt was 7.99% and 6.19%,
respectively, at March 31, 2011.
The available balance on the $25.0 million revolving line of credit at March 31, 2011 was
$23.1 million. The revolving line of credit supports a $1.9 million letter of credit, which
reduces the available balance. The interest rate on the revolving line of credit was 3.75% at
March 31, 2011.
WMLs lending arrangements contain, among other provisions, events of default and various
affirmative and negative covenants. As of March 31, 2011, WML was in compliance with all covenants.
Westmoreland Resources, Inc.
In February 2011, proceeds from the Parent Note offering were used to pay off the outstanding
balance of WRIs term debt and revolving line of credit. In addition, WRIs revolving line of
credit was terminated in February 2011.
In the three months ended March 31, 2011, WRI repaid $0.6 million of its capital lease
obligations. WRI did not enter into any capital lease or other debt agreements during the three
months ended March 31, 2011. The weighted average interest rate for WRIs capital leases was 6.68%
at March 31, 2011.
ROVA
In February 2011, proceeds from the Parent Note offering were used to repay all of ROVAs
outstanding fixed rate term debt. In addition, ROVAs revolving line of credit was terminated in
February 2011.
Convertible Debt
In February 2011, the outstanding balance of the Companys convertible notes was eliminated,
with $2.5 million paid to retire a portion of the convertible notes and the remainder of the notes
being converted into 1,877,946 shares of Company common stock at a conversion price of $8.50 per
share.
6. PENSION AND POSTRETIREMENT MEDICAL BENEFITS
Pension
The Company provides pension benefits to qualified full-time employees pursuant to collective
bargaining agreements. The Company froze its pension plan for non-union employees in 2009.
145
The Company incurred net periodic benefit costs of providing these pension benefits as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
153 |
|
|
$ |
196 |
|
Interest cost |
|
|
1,120 |
|
|
|
1,606 |
|
Expected return on plan assets |
|
|
(1,106 |
) |
|
|
(1,299 |
) |
Amortization of deferred items |
|
|
385 |
|
|
|
228 |
|
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
552 |
|
|
$ |
731 |
|
|
|
|
|
|
|
|
The Company is required by a WML loan covenant to ensure that by 8.5 months after the end
of the plan year, the value of its pension assets are at least 90% of the plans year end
actuarially determined pension liability.
The Company contributed $0.9 million in cash to its retirement plans in the three months ended
March 31, 2011. The Company expects to make approximately $9.3 million of pension plan
contributions during the remainder of 2011.
Postretirement Medical Benefits
The Company provides postretirement medical benefits to retired employees and their dependents
as mandated by the Coal Industry Retiree Health Benefit Act of 1992 and pursuant to collective
bargaining agreements. The Company also provides these benefits to qualified full-time employees
pursuant to collective bargaining agreements.
The Company incurred net periodic benefit costs of providing postretirement medical benefits
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
123 |
|
|
$ |
141 |
|
Interest cost |
|
|
2,627 |
|
|
|
2,752 |
|
Amortization of deferred items |
|
|
(72 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
2,678 |
|
|
$ |
2,825 |
|
|
|
|
|
|
|
|
The following table shows the net periodic medical benefit costs that relate to current
operations and former mining operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Former mining operations |
|
$ |
2,314 |
|
|
$ |
2,518 |
|
Current operations |
|
|
364 |
|
|
|
307 |
|
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
2,678 |
|
|
$ |
2,825 |
|
|
|
|
|
|
|
|
The costs for the former mining operations are included in Heritage health benefit
expenses and the costs for current operations are included as operating expenses.
146
The Company expects to pay approximately $10.3 million for postretirement medical benefits
during the remainder of 2011, net of Medicare Part D reimbursements. A total of $3.3 million was
paid in the three months ended March 31, 2011, net of Medicare Part D reimbursements.
7. HERITAGE HEALTH BENEFIT EXPENSES
The caption Heritage health benefit expenses used in the Consolidated Statements of Operations
refers to costs of benefits the Company provides to its former mining operation employees. The
components of these expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Health care benefits |
|
$ |
2,454 |
|
|
$ |
2,676 |
|
Combined benefit fund payments |
|
|
686 |
|
|
|
756 |
|
Workers compensation benefits |
|
|
158 |
|
|
|
136 |
|
Black lung benefits |
|
|
480 |
|
|
|
347 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,778 |
|
|
$ |
3,915 |
|
|
|
|
|
|
|
|
8. ASSET RETIREMENT OBLIGATIONS, CONTRACTUAL THIRD-PARTY RECLAMATION RECEIVABLES, AND
RECLAMATION DEPOSITS
The asset retirement obligations, contractual third-party reclamation receivables, and
reclamation deposits for each of the Companys mines and ROVA at March 31, 2011 are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
|
|
|
|
|
|
Asset |
|
|
Third-Party |
|
|
|
|
|
|
Retirement |
|
|
Reclamation |
|
|
Reclamation |
|
|
|
Obligations |
|
|
Receivables |
|
|
Deposits |
|
|
|
(In thousands) |
|
Rosebud |
|
$ |
107,247 |
|
|
$ |
14,797 |
|
|
$ |
73,007 |
|
Jewett |
|
|
80,816 |
|
|
|
80,816 |
|
|
|
|
|
Absaloka |
|
|
32,437 |
|
|
|
539 |
|
|
|
|
|
Beulah |
|
|
18,390 |
|
|
|
|
|
|
|
|
|
Savage |
|
|
2,733 |
|
|
|
|
|
|
|
|
|
ROVA |
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
242,352 |
|
|
$ |
96,152 |
|
|
$ |
73,007 |
|
|
|
|
|
|
|
|
|
|
|
Asset Retirement Obligations
Changes in the Companys asset retirement obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Asset retirement obligations, beginning of period |
|
$ |
241,643 |
|
|
$ |
244,615 |
|
Accretion |
|
|
5,019 |
|
|
|
4,792 |
|
Liabilities settled |
|
|
(4,310 |
) |
|
|
(3,906 |
) |
|
|
|
|
|
|
|
Asset retirement obligations, end of period |
|
|
242,352 |
|
|
|
245,501 |
|
Less current portion |
|
|
(15,235 |
) |
|
|
(16,675 |
) |
|
|
|
|
|
|
|
Asset retirement obligations, less current portion |
|
$ |
227,117 |
|
|
$ |
228,826 |
|
|
|
|
|
|
|
|
147
Contractual Third-Party Reclamation Receivables
The Company has recognized an asset of $96.2 million as contractual third-party reclamation
receivables, representing the present value of customer obligations to reimburse the Company for
reclamation expenditures at the Companys Rosebud, Jewett and Absaloka Mines.
Reclamation Deposits
The Companys reclamation deposits will be used to fund final reclamation activities. The
Companys carrying value and estimated fair value of its reclamation deposits at March 31, 2011 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Cash and cash equivalents |
|
$ |
36,146 |
|
|
$ |
36,146 |
|
Held-to-maturity securities |
|
|
18,767 |
|
|
|
20,036 |
|
Time deposits |
|
|
15,903 |
|
|
|
15,903 |
|
Available-for-sale securities |
|
|
2,191 |
|
|
|
2,191 |
|
|
|
|
|
|
|
|
|
|
$ |
73,007 |
|
|
$ |
74,276 |
|
|
|
|
|
|
|
|
Held-to-maturity and Available-for-sale Reclamation Deposits
The amortized cost, gross unrealized holding gains and losses and fair value of
held-to-maturity securities at March 31, 2011 are as follows (in thousands):
|
|
|
|
|
Amortized cost |
|
$ |
18,767 |
|
Gross unrealized holding gains |
|
|
1,341 |
|
Gross unrealized holding losses |
|
|
(72 |
) |
|
|
|
|
Fair value |
|
$ |
20,036 |
|
|
|
|
|
Maturities of held-to-maturity securities at March 31, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Due in five years or less |
|
$ |
7,529 |
|
|
$ |
7,854 |
|
Due after five years to ten years |
|
|
4,067 |
|
|
|
4,177 |
|
Due in more than ten years |
|
|
7,171 |
|
|
|
8,005 |
|
|
|
|
|
|
|
|
|
|
$ |
18,767 |
|
|
$ |
20,036 |
|
|
|
|
|
|
|
|
The cost basis, gross unrealized holding gains and fair value of available-for-sale
securities at March 31, 2011 are as follows (in thousands):
|
|
|
|
|
Cost basis |
|
$ |
2,000 |
|
Gross unrealized holding gains |
|
|
191 |
|
|
|
|
|
Fair value |
|
$ |
2,191 |
|
|
|
|
|
148
9. DERIVATIVE INSTRUMENTS
Derivative Liabilities
The Company evaluates all of its financial instruments to determine if such instruments are
derivatives, derivatives that qualify for the normal purchase normal sale exception, or contain
features that qualify as embedded derivatives. All derivative financial instruments, except for
derivatives that qualify for the normal purchase normal sale exception, are recognized on the
balance sheet at fair value. Changes in fair value are recognized in earnings if they are not
eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge
accounting.
The Companys convertible notes were retired on February 4, 2011. The fair value of the
conversion feature in the Companys convertible debt instrument was determined using the following
assumptions at February 4, 2011:
|
|
|
Stock Price
|
|
Bond Yield |
|
$13.57
|
|
4.55% |
The fair value of outstanding derivative instruments not designated as hedging
instruments on the accompanying Consolidated Balance Sheet was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
March 31, |
|
|
December 31, |
|
Derivative Instruments |
|
Location |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
(In thousands) |
|
Convertible debt conversion feature |
|
Other liabilities |
|
$ |
|
|
|
$ |
3,588 |
|
The effect of derivative instruments not designated as hedging instruments on the
accompanying Consolidated Statements of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Statement of |
|
|
March 31, |
|
Derivative Instruments |
|
Operations Location |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
(In thousands) |
|
Convertible debt
conversion feature |
|
Other income (loss) |
|
$ |
(3,079 |
) |
|
$ |
(4,521 |
) |
Warrant |
|
Other income (loss) |
|
|
|
|
|
|
6 |
|
10. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. See Notes
4, 8 and 9 for additional disclosures related to fair value measurements.
Fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair
value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
|
|
|
Level 1, defined as observable inputs such as quoted prices in active markets for
identical assets. |
|
|
|
|
Level 2, defined as observable inputs other than Level 1 prices. These include
quoted prices for similar assets or liabilities in an active market, quoted prices for
identical assets and liabilities in markets that are not active, or other inputs that
are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities. |
|
|
|
|
Level 3, defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions. |
149
The table below sets forth, by level, the Companys financial assets that are accounted for at
fair value:
|
|
|
|
|
|
|
Fair Value at |
|
|
|
March 31, 2011 |
|
|
|
Level 1 |
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
Available-for-sale investments
included in Restricted
investments and bond collateral |
|
$ |
2,872 |
|
Available-for-sale investments
included in Reclamation deposits |
|
|
2,191 |
|
|
|
|
|
Total assets |
|
$ |
5,063 |
|
|
|
|
|
The following table summarizes the change in the fair values of the derivative instrument
liabilities categorized as Level 3:
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2011 |
|
|
|
(In thousands) |
|
Beginning balance |
|
$ |
3,588 |
|
Change in fair value |
|
|
3,079 |
|
Settlements |
|
|
(6,667 |
) |
|
|
|
|
Ending balance |
|
$ |
|
|
|
|
|
|
The Company calculates the fair value of its debt by using discount rate estimates based
on interest rates as of March 31, 2011. The estimated fair values of the Companys debt with fixed
interest rates, excluding conversion feature values, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
|
(In thousands) |
|
December 31, 2010 |
|
$ |
185,320 |
|
|
$ |
196,483 |
|
March 31, 2011 |
|
$ |
267,617 |
|
|
$ |
278,465 |
|
11. SHAREHOLDERS EQUITY
Preferred Stock
The Company has outstanding Series A Convertible Exchangeable Preferred Stock on which
cumulative dividends of $2.125 per share are payable quarterly. In February 2011, the Company paid
$19.9 million of dividends that had accumulated as of January 1, 2011.
12. RESTRICTED STOCK UNITS, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (SARs)
The Company recognized compensation expense from share-based arrangements shown in the
following table:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Recognition of fair value of restricted stock
units, stock options, and stock appreciation
rights over vesting period; and issuance of common
stock |
|
$ |
569 |
|
|
$ |
225 |
|
Contributions of stock to the Companys 401(k) plan |
|
|
1,084 |
|
|
|
1,138 |
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
1,653 |
|
|
$ |
1,363 |
|
|
|
|
|
|
|
|
150
A summary of restricted stock unit activity for the three months ended March 31, 2011 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Unamortized |
|
|
|
|
|
|
|
Grant-Date Fair |
|
|
Compensation Expense |
|
|
|
Units |
|
|
Value |
|
|
(In thousands) |
|
Non-vested at December 31, 2010 |
|
|
192,697 |
|
|
$ |
8.13 |
|
|
|
|
|
Non-vested at March 31, 2011 |
|
|
192,697 |
|
|
$ |
8.13 |
|
|
$ |
1,118 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Expected to be recognized over the next two years. |
In April 2011, 172,081 restricted stock units were granted, of which 86,052 units will
vest ratably over a three-year period. The remaining 86,029 units are performance-based, which will
vest and pay out at the end of a three-year period if performance goals are met.
Stock Options
Information with respect to stock option activity for the three months ended March 31, 2011 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Unamortized |
|
|
|
|
|
|
|
|
|
|
|
Average Remaining |
|
|
Aggregate Intrinsic |
|
|
Compensation |
|
|
|
|
|
|
|
Weighted Average |
|
|
Contractual Life |
|
|
Value |
|
|
Expense |
|
|
|
Stock Options |
|
|
Exercise Price |
|
|
(in years) |
|
|
(In thousands) |
|
|
(In thousands) |
|
Outstanding at December 31, 2010 |
|
|
318,590 |
|
|
$ |
18.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(12,500 |
) |
|
$ |
10.48 |
|
|
|
|
|
|
$ |
49 |
|
|
|
|
|
Expired or forfeited |
|
|
(20,000 |
) |
|
$ |
12.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
|
286,090 |
|
|
$ |
19.86 |
|
|
|
4.5 |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2011 |
|
|
241,334 |
|
|
$ |
19.57 |
|
|
|
4.0 |
|
|
$ |
17 |
|
|
$ |
131 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Expected to be recognized over the next three months. |
Stock Appreciation Rights
Information with respect to stock appreciation rights, or SARs, activity for the three months
ended March 31, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Unamortized |
|
|
|
|
|
|
|
|
|
|
|
Remaining Contractual |
|
|
Aggregate Intrinsic |
|
|
Compensation |
|
|
|
|
|
|
|
Weighted Average |
|
|
Life |
|
|
Value |
|
|
Expense |
|
|
|
SARs |
|
|
Base Price |
|
|
(in years) |
|
|
(In thousands) |
|
|
(In thousands) |
|
Outstanding at December 31, 2010 |
|
|
118,934 |
|
|
$ |
22.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at March 31, 2011 |
|
|
118,934 |
|
|
$ |
22.13 |
|
|
|
4.2 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. EARNINGS PER SHARE
Basic earnings (loss) per share has been computed by dividing the net income (loss) applicable
to common shareholders by the weighted average number of shares of common stock outstanding during
each period. Net income (loss) applicable to common shareholders includes the adjustment for net
income or loss attributable to noncontrolling interest. Diluted earnings (loss) per share is
computed by including the dilutive effect of common stock that would be issued assuming conversion
or exercise of outstanding convertible notes and securities, stock options, stock appreciation
rights, restricted stock units and warrants. No such items were included in the computation of
diluted loss per share in the three months ended March 31, 2011 and March 31, 2010 because the
Company incurred a loss from operations in each of these periods and the effect of inclusion
151
would have been anti-dilutive.
The table below shows the number of shares that were excluded from the calculation of diluted
income (loss) per share because their inclusion would be anti-dilutive to the calculation:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Convertible notes and securities |
|
|
1,094 |
|
|
|
2,859 |
|
Restricted stock units, stock
options, SARs, and warrant
shares |
|
|
598 |
|
|
|
776 |
|
|
|
|
|
|
|
|
Total shares excluded from
diluted shares calculation |
|
|
1,692 |
|
|
|
3,635 |
|
|
|
|
|
|
|
|
14. BUSINESS SEGMENT INFORMATION
Segment information is based on a management approach, which requires segmentation based upon
the Companys internal organization and reporting of revenue and operating income.
The Companys operations are classified into four segments: coal, power, heritage and
corporate.
Summarized financial information by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal |
|
|
Power |
|
|
Heritage |
|
|
Corporate |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Three Months Ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
104,136 |
|
|
$ |
23,628 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
127,764 |
|
Depreciation, depletion, and
amortization |
|
|
8,613 |
|
|
|
2,553 |
|
|
|
|
|
|
|
79 |
|
|
|
11,245 |
|
Operating income (loss) |
|
|
8,819 |
|
|
|
4,619 |
|
|
|
(4,170 |
) |
|
|
(1,828 |
) |
|
|
7,440 |
|
Total assets |
|
|
516,725 |
|
|
|
206,894 |
|
|
|
12,541 |
|
|
|
51,827 |
|
|
|
787,987 |
|
Capital expenditures |
|
|
2,688 |
|
|
|
227 |
|
|
|
|
|
|
|
8 |
|
|
|
2,923 |
|
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
103,550 |
|
|
$ |
22,889 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
126,439 |
|
Depreciation, depletion, and
amortization |
|
|
8,757 |
|
|
|
2,536 |
|
|
|
|
|
|
|
99 |
|
|
|
11,392 |
|
Operating income (loss) |
|
|
7,352 |
|
|
|
4,172 |
|
|
|
(4,255 |
) |
|
|
(1,955 |
) |
|
|
5,314 |
|
Total assets |
|
|
538,886 |
|
|
|
220,127 |
|
|
|
11,247 |
|
|
|
8,258 |
|
|
|
778,518 |
|
Capital expenditures |
|
|
3,829 |
|
|
|
68 |
|
|
|
|
|
|
|
440 |
|
|
|
4,337 |
|
A reconciliation of segment operating income to loss before income taxes follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Operating income |
|
$ |
7,440 |
|
|
$ |
5,314 |
|
Interest expense |
|
|
(6,967 |
) |
|
|
(5,723 |
) |
Loss on extinguishment of debt |
|
|
(17,030 |
) |
|
|
|
|
Interest income |
|
|
382 |
|
|
|
410 |
|
Other loss |
|
|
(3,017 |
) |
|
|
(3,836 |
) |
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(19,192 |
) |
|
$ |
(3,835 |
) |
|
|
|
|
|
|
|
152
15. CONTINGENCIES
The Company is a party to claims and lawsuits with respect to various matters. The Company
provides for costs related to contingencies when a loss is probable and the amount is reasonably
estimable. After conferring with counsel, it is the opinion of management that the ultimate
resolution of pending claims will not have a material adverse effect on the consolidated financial
condition, results of operations or liquidity of the Company.
16. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
Pursuant to the indenture governing the Parent Notes, certain wholly owned subsidiaries of the
Company have fully and unconditionally guaranteed the notes on a joint and several basis. The
following tables present unaudited consolidating financial information for (i) the issuer of the
notes (Westmoreland Coal Company), (ii) the co-issuer of the notes (Westmoreland Partners), (iii)
the guarantors under the notes, and (iv) the entities which are not guarantors under the notes:
153
CONSOLIDATING BALANCE SHEETS
March 31, 2011
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
Assets |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
36,770 |
|
|
$ |
3,715 |
|
|
$ |
161 |
|
|
$ |
4,338 |
|
|
$ |
|
|
|
$ |
44,984 |
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
|
|
|
|
13,880 |
|
|
|
9 |
|
|
|
35,887 |
|
|
|
|
|
|
|
49,776 |
|
Contractual third-party reclamation
receivables |
|
|
|
|
|
|
|
|
|
|
127 |
|
|
|
7,511 |
|
|
|
|
|
|
|
7,638 |
|
Intercompany receivable/payable |
|
|
(20,135 |
) |
|
|
|
|
|
|
10,050 |
|
|
|
(23,504 |
) |
|
|
33,589 |
|
|
|
|
|
Other |
|
|
161 |
|
|
|
221 |
|
|
|
8,973 |
|
|
|
109 |
|
|
|
(5,844 |
) |
|
|
3,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,974 |
) |
|
|
14,101 |
|
|
|
19,159 |
|
|
|
20,003 |
|
|
|
27,745 |
|
|
|
61,034 |
|
Inventories |
|
|
|
|
|
|
3,808 |
|
|
|
4,209 |
|
|
|
18,163 |
|
|
|
|
|
|
|
26,180 |
|
Other current assets |
|
|
745 |
|
|
|
423 |
|
|
|
554 |
|
|
|
3,739 |
|
|
|
|
|
|
|
5,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
17,541 |
|
|
|
22,047 |
|
|
|
24,083 |
|
|
|
46,243 |
|
|
|
27,745 |
|
|
|
137,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and mineral rights |
|
|
|
|
|
|
1,156 |
|
|
|
17,806 |
|
|
|
64,931 |
|
|
|
|
|
|
|
83,893 |
|
Capitalized asset retirement cost |
|
|
|
|
|
|
239 |
|
|
|
20,463 |
|
|
|
94,154 |
|
|
|
|
|
|
|
114,856 |
|
Plant and equipment |
|
|
2,619 |
|
|
|
216,391 |
|
|
|
117,447 |
|
|
|
172,556 |
|
|
|
|
|
|
|
509,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,619 |
|
|
|
217,786 |
|
|
|
155,716 |
|
|
|
331,641 |
|
|
|
|
|
|
|
707,762 |
|
Less accumulated depreciation,
depletion and amortization |
|
|
(2,066 |
) |
|
|
(44,709 |
) |
|
|
(84,290 |
) |
|
|
(168,316 |
) |
|
|
|
|
|
|
(299,381 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
553 |
|
|
|
173,077 |
|
|
|
71,426 |
|
|
|
163,325 |
|
|
|
|
|
|
|
408,381 |
|
Advanced coal royalties |
|
|
|
|
|
|
|
|
|
|
848 |
|
|
|
2,684 |
|
|
|
|
|
|
|
3,532 |
|
Reclamation deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,007 |
|
|
|
|
|
|
|
73,007 |
|
Restricted investments and bond collateral |
|
|
12,251 |
|
|
|
5,976 |
|
|
|
10,975 |
|
|
|
26,499 |
|
|
|
|
|
|
|
55,701 |
|
Contractual third-party reclamation
receivables, less current portion |
|
|
|
|
|
|
|
|
|
|
412 |
|
|
|
88,102 |
|
|
|
|
|
|
|
88,514 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,900 |
|
|
|
2,900 |
|
Intangible assets |
|
|
|
|
|
|
5,793 |
|
|
|
|
|
|
|
344 |
|
|
|
|
|
|
|
6,137 |
|
Investment in subsidiaries |
|
|
157,792 |
|
|
|
|
|
|
|
(717 |
) |
|
|
3,770 |
|
|
|
(160,845 |
) |
|
|
|
|
Other assets |
|
|
7,385 |
|
|
|
|
|
|
|
1,387 |
|
|
|
3,384 |
|
|
|
|
|
|
|
12,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
195,522 |
|
|
$ |
206,893 |
|
|
$ |
108,414 |
|
|
$ |
407,358 |
|
|
$ |
(130,200 |
) |
|
$ |
787,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
CONSOLIDATING BALANCE SHEETS
March 31, 2011
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
Liabilities and Stockholders Deficit |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt |
|
$ |
(735 |
) |
|
$ |
|
|
|
$ |
2,296 |
|
|
$ |
16,112 |
|
|
$ |
|
|
|
$ |
17,673 |
|
Accounts payable and accrued expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
2,688 |
|
|
|
9,733 |
|
|
|
3,067 |
|
|
|
35,015 |
|
|
|
(6,149 |
) |
|
|
44,354 |
|
Production taxes |
|
|
|
|
|
|
334 |
|
|
|
1,354 |
|
|
|
26,779 |
|
|
|
|
|
|
|
28,467 |
|
Workers compensation |
|
|
951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
951 |
|
Postretirement medical benefits |
|
|
12,198 |
|
|
|
|
|
|
|
|
|
|
|
1,383 |
|
|
|
|
|
|
|
13,581 |
|
SERP |
|
|
304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304 |
|
Deferred revenue |
|
|
|
|
|
|
8,689 |
|
|
|
37 |
|
|
|
1,868 |
|
|
|
|
|
|
|
10,594 |
|
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
|
3,184 |
|
|
|
12,051 |
|
|
|
|
|
|
|
15,235 |
|
Other current liabilities |
|
|
2,571 |
|
|
|
|
|
|
|
2,000 |
|
|
|
2,925 |
|
|
|
28 |
|
|
|
7,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
17,977 |
|
|
|
18,756 |
|
|
|
11,938 |
|
|
|
96,133 |
|
|
|
(6,121 |
) |
|
|
138,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current installments |
|
|
143,352 |
|
|
|
|
|
|
|
4,897 |
|
|
|
128,440 |
|
|
|
|
|
|
|
276,689 |
|
Workers compensation, less current portion |
|
|
9,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,360 |
|
Excess of pneumoconiosis benefit obligation over
trust assets |
|
|
2,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,726 |
|
Postretirement medical benefits, less current
portion |
|
|
168,953 |
|
|
|
|
|
|
|
|
|
|
|
27,773 |
|
|
|
|
|
|
|
196,726 |
|
Pension and SERP obligations, less current portion |
|
|
15,709 |
|
|
|
150 |
|
|
|
|
|
|
|
3,824 |
|
|
|
|
|
|
|
19,683 |
|
Deferred revenue, less current portion |
|
|
|
|
|
|
65,050 |
|
|
|
|
|
|
|
7,975 |
|
|
|
|
|
|
|
73,025 |
|
Asset retirement obligations, less current portion |
|
|
|
|
|
|
728 |
|
|
|
29,253 |
|
|
|
197,136 |
|
|
|
|
|
|
|
227,117 |
|
Intangible liabilities |
|
|
|
|
|
|
8,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,409 |
|
Other liabilities |
|
|
473 |
|
|
|
|
|
|
|
4,518 |
|
|
|
1,435 |
|
|
|
3,070 |
|
|
|
9,496 |
|
Intercompany receivable/payable |
|
|
10,899 |
|
|
|
|
|
|
|
6,878 |
|
|
|
28,507 |
|
|
|
(46,284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
369,449 |
|
|
|
93,093 |
|
|
|
57,484 |
|
|
|
491,223 |
|
|
|
(49,335 |
) |
|
|
961,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160 |
|
Common stock |
|
|
32,887 |
|
|
|
5 |
|
|
|
110 |
|
|
|
132 |
|
|
|
(247 |
) |
|
|
32,887 |
|
Other paid-in capital |
|
|
120,748 |
|
|
|
52,699 |
|
|
|
16,583 |
|
|
|
52,717 |
|
|
|
(121,999 |
) |
|
|
120,748 |
|
Accumulated other comprehensive loss |
|
|
(57,507 |
) |
|
|
(200 |
) |
|
|
94 |
|
|
|
(14,113 |
) |
|
|
14,219 |
|
|
|
(57,507 |
) |
Accumulated deficit |
|
|
(264,632 |
) |
|
|
61,296 |
|
|
|
34,143 |
|
|
|
(122,601 |
) |
|
|
27,162 |
|
|
|
(264,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Westmoreland Coal Company shareholders
deficit |
|
|
(168,344 |
) |
|
|
113,800 |
|
|
|
50,930 |
|
|
|
(83,865 |
) |
|
|
(80,865 |
) |
|
|
(168,344 |
) |
Noncontrolling interest |
|
|
(5,583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deficit |
|
|
(173,927 |
) |
|
|
113,800 |
|
|
|
50,930 |
|
|
|
(83,865 |
) |
|
|
(80,865 |
) |
|
|
(173,927 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit |
|
$ |
195,522 |
|
|
$ |
206,893 |
|
|
$ |
108,414 |
|
|
$ |
407,358 |
|
|
$ |
(130,200 |
) |
|
$ |
787,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155
CONSOLIDATING BALANCE SHEETS
December 31, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
Assets |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
271 |
|
|
$ |
880 |
|
|
$ |
|
|
|
$ |
4,624 |
|
|
$ |
|
|
|
$ |
5,775 |
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
|
|
|
|
14,148 |
|
|
|
65 |
|
|
|
36,365 |
|
|
|
|
|
|
|
50,578 |
|
Contractual third-party reclamation
receivables |
|
|
|
|
|
|
|
|
|
|
135 |
|
|
|
7,608 |
|
|
|
|
|
|
|
7,743 |
|
Intercompany receivable/payable |
|
|
|
|
|
|
|
|
|
|
10,193 |
|
|
|
(21,544 |
) |
|
|
11,351 |
|
|
|
|
|
Other |
|
|
66 |
|
|
|
198 |
|
|
|
4,917 |
|
|
|
1,530 |
|
|
|
(2,166 |
) |
|
|
4,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
14,346 |
|
|
|
15,310 |
|
|
|
23,959 |
|
|
|
9,185 |
|
|
|
62,866 |
|
Inventories |
|
|
|
|
|
|
1,935 |
|
|
|
4,624 |
|
|
|
17,012 |
|
|
|
|
|
|
|
23,571 |
|
Other current assets |
|
|
796 |
|
|
|
224 |
|
|
|
469 |
|
|
|
3,944 |
|
|
|
(98 |
) |
|
|
5,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,133 |
|
|
|
17,385 |
|
|
|
20,403 |
|
|
|
49,539 |
|
|
|
9,087 |
|
|
|
97,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and mineral rights |
|
|
|
|
|
|
1,156 |
|
|
|
17,806 |
|
|
|
64,862 |
|
|
|
|
|
|
|
83,824 |
|
Capitalized asset retirement cost |
|
|
|
|
|
|
239 |
|
|
|
20,463 |
|
|
|
94,154 |
|
|
|
|
|
|
|
114,856 |
|
Plant and equipment |
|
|
2,611 |
|
|
|
215,851 |
|
|
|
117,360 |
|
|
|
170,839 |
|
|
|
|
|
|
|
506,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,611 |
|
|
|
217,246 |
|
|
|
155,629 |
|
|
|
329,855 |
|
|
|
|
|
|
|
705,341 |
|
Less accumulated depreciation, depletion and
amortization |
|
|
(1,987 |
) |
|
|
(42,156 |
) |
|
|
(82,239 |
) |
|
|
(162,004 |
) |
|
|
|
|
|
|
(288,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
624 |
|
|
|
175,090 |
|
|
|
73,390 |
|
|
|
167,851 |
|
|
|
|
|
|
|
416,955 |
|
Advanced coal royalties |
|
|
|
|
|
|
|
|
|
|
998 |
|
|
|
2,697 |
|
|
|
|
|
|
|
3,695 |
|
Reclamation deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,274 |
|
|
|
|
|
|
|
72,274 |
|
Restricted investments and bond collateral |
|
|
11,816 |
|
|
|
8,563 |
|
|
|
10,956 |
|
|
|
24,049 |
|
|
|
|
|
|
|
55,384 |
|
Contractual third-party reclamation receivables |
|
|
|
|
|
|
|
|
|
|
390 |
|
|
|
87,349 |
|
|
|
|
|
|
|
87,739 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,458 |
|
|
|
2,458 |
|
Intangible assets |
|
|
|
|
|
|
6,203 |
|
|
|
|
|
|
|
352 |
|
|
|
|
|
|
|
6,555 |
|
Investment in subsidiaries |
|
|
115,612 |
|
|
|
|
|
|
|
(717 |
) |
|
|
3,770 |
|
|
|
(118,665 |
) |
|
|
|
|
Other assets |
|
|
2,060 |
|
|
|
401 |
|
|
|
1,683 |
|
|
|
3,555 |
|
|
|
|
|
|
|
7,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
131,245 |
|
|
$ |
207,642 |
|
|
$ |
107,103 |
|
|
$ |
411,436 |
|
|
$ |
(107,120 |
) |
|
$ |
750,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156
CONSOLIDATING BALANCE SHEETS
December 31, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
Liabilities and Stockholders Deficit |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,255 |
|
|
$ |
12,718 |
|
|
$ |
|
|
|
$ |
14,973 |
|
Accounts payable and accrued expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
5,187 |
|
|
|
8,549 |
|
|
|
3,283 |
|
|
|
31,709 |
|
|
|
(2,481 |
) |
|
|
46,247 |
|
Production taxes |
|
|
|
|
|
|
2 |
|
|
|
1,084 |
|
|
|
25,231 |
|
|
|
|
|
|
|
26,317 |
|
Workers compensation |
|
|
954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
954 |
|
Postretirement medical benefits |
|
|
12,198 |
|
|
|
|
|
|
|
|
|
|
|
1,383 |
|
|
|
|
|
|
|
13,581 |
|
SERP |
|
|
304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304 |
|
Deferred revenue |
|
|
|
|
|
|
8,805 |
|
|
|
349 |
|
|
|
1,055 |
|
|
|
|
|
|
|
10,209 |
|
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
|
3,371 |
|
|
|
11,143 |
|
|
|
|
|
|
|
14,514 |
|
Other current liabilities |
|
|
249 |
|
|
|
782 |
|
|
|
3,138 |
|
|
|
2,164 |
|
|
|
(92 |
) |
|
|
6,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
18,892 |
|
|
|
18,138 |
|
|
|
13,480 |
|
|
|
85,403 |
|
|
|
(2,573 |
) |
|
|
133,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current installments |
|
|
13,671 |
|
|
|
46,648 |
|
|
|
15,166 |
|
|
|
133,246 |
|
|
|
|
|
|
|
208,731 |
|
Revolving lines of credit, less current portion |
|
|
|
|
|
|
|
|
|
|
16,900 |
|
|
|
1,500 |
|
|
|
|
|
|
|
18,400 |
|
Workers compensation, less current portion |
|
|
9,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,424 |
|
Excess of pneumoconiosis benefit obligation over
trust assets |
|
|
2,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,246 |
|
Postretirement medical benefits, less current
portion |
|
|
169,677 |
|
|
|
|
|
|
|
|
|
|
|
27,602 |
|
|
|
|
|
|
|
197,279 |
|
Pension and SERP obligations, less current portion |
|
|
16,105 |
|
|
|
154 |
|
|
|
|
|
|
|
4,203 |
|
|
|
|
|
|
|
20,462 |
|
Deferred revenue, less current portion |
|
|
|
|
|
|
67,308 |
|
|
|
|
|
|
|
8,087 |
|
|
|
|
|
|
|
75,395 |
|
Asset retirement obligations, less current portion |
|
|
|
|
|
|
715 |
|
|
|
28,967 |
|
|
|
197,447 |
|
|
|
|
|
|
|
227,129 |
|
Intangible liabilities |
|
|
|
|
|
|
8,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,663 |
|
Other liabilities |
|
|
4,153 |
|
|
|
|
|
|
|
3,149 |
|
|
|
1,409 |
|
|
|
2,881 |
|
|
|
11,592 |
|
Intercompany receivable/payable |
|
|
59,432 |
|
|
|
|
|
|
|
(19,590 |
) |
|
|
26,424 |
|
|
|
(66,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
293,600 |
|
|
|
141,626 |
|
|
|
58,072 |
|
|
|
485,321 |
|
|
|
(65,958 |
) |
|
|
912,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160 |
|
Common stock |
|
|
27,901 |
|
|
|
5 |
|
|
|
110 |
|
|
|
132 |
|
|
|
(247 |
) |
|
|
27,901 |
|
Other paid-in capital |
|
|
98,466 |
|
|
|
30 |
|
|
|
16,036 |
|
|
|
53,264 |
|
|
|
(69,330 |
) |
|
|
98,466 |
|
Accumulated other comprehensive income |
|
|
(57,680 |
) |
|
|
(203 |
) |
|
|
120 |
|
|
|
(14,353 |
) |
|
|
14,436 |
|
|
|
(57,680 |
) |
Accumulated earnings (deficit) |
|
|
(226,740 |
) |
|
|
66,184 |
|
|
|
32,765 |
|
|
|
(112,928 |
) |
|
|
13,979 |
|
|
|
(226,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Westmoreland Coal Company shareholders
deficit |
|
|
(157,893 |
) |
|
|
66,016 |
|
|
|
49,031 |
|
|
|
(73,885 |
) |
|
|
(41,162 |
) |
|
|
(157,893 |
) |
Noncontrolling interest |
|
|
(4,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity (deficit) |
|
|
(162,355 |
) |
|
|
66,016 |
|
|
|
49,031 |
|
|
|
(73,885 |
) |
|
|
(41,162 |
) |
|
|
(162,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit |
|
$ |
131,245 |
|
|
$ |
207,642 |
|
|
$ |
107,103 |
|
|
$ |
411,436 |
|
|
$ |
(107,120 |
) |
|
$ |
750,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2011
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
23,628 |
|
|
$ |
14,824 |
|
|
$ |
103,197 |
|
|
$ |
(13,885 |
) |
|
$ |
127,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs, expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
15,559 |
|
|
|
11,152 |
|
|
|
84,684 |
|
|
|
(13,885 |
) |
|
|
97,510 |
|
Depreciation, depletion and amortization |
|
|
79 |
|
|
|
2,553 |
|
|
|
2,051 |
|
|
|
6,562 |
|
|
|
|
|
|
|
11,245 |
|
Selling and administrative |
|
|
2,379 |
|
|
|
897 |
|
|
|
1,008 |
|
|
|
5,021 |
|
|
|
|
|
|
|
9,305 |
|
Heritage health benefit expenses |
|
|
3,576 |
|
|
|
|
|
|
|
|
|
|
|
202 |
|
|
|
|
|
|
|
3,778 |
|
Loss on sales of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
|
83 |
|
Other operating income |
|
|
|
|
|
|
|
|
|
|
(1,597 |
) |
|
|
|
|
|
|
|
|
|
|
(1,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,034 |
|
|
|
19,009 |
|
|
|
12,614 |
|
|
|
96,552 |
|
|
|
(13,885 |
) |
|
|
120,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(6,034 |
) |
|
|
4,619 |
|
|
|
2,210 |
|
|
|
6,645 |
|
|
|
|
|
|
|
7,440 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(3,073 |
) |
|
|
(428 |
) |
|
|
(301 |
) |
|
|
(3,184 |
) |
|
|
19 |
|
|
|
(6,967 |
) |
Loss on extinguishment of debt |
|
|
(7,873 |
) |
|
|
(9,073 |
) |
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
(17,030 |
) |
Interest income |
|
|
60 |
|
|
|
6 |
|
|
|
68 |
|
|
|
267 |
|
|
|
(19 |
) |
|
|
382 |
|
Other income (loss) |
|
|
(3,079 |
) |
|
|
|
|
|
|
33 |
|
|
|
29 |
|
|
|
|
|
|
|
(3,017 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,965 |
) |
|
|
(9,495 |
) |
|
|
(284 |
) |
|
|
(2,888 |
) |
|
|
|
|
|
|
(26,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income
taxes |
|
|
(19,999 |
) |
|
|
(4,876 |
) |
|
|
1,926 |
|
|
|
3,757 |
|
|
|
|
|
|
|
(19,192 |
) |
Equity in income of subsidiaries |
|
|
(1,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,895 |
) |
|
|
(4,876 |
) |
|
|
1,926 |
|
|
|
3,757 |
|
|
|
(1,104 |
) |
|
|
(19,192 |
) |
Income tax (benefit) expense from operations |
|
|
(163 |
) |
|
|
|
|
|
|
547 |
|
|
|
1,566 |
|
|
|
(2,410 |
) |
|
|
(460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(18,732 |
) |
|
|
(4,876 |
) |
|
|
1,379 |
|
|
|
2,191 |
|
|
|
1,306 |
|
|
|
(18,732 |
) |
Less net income attributable to
noncontrolling interest |
|
|
(1,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the Parent
company |
|
$ |
(17,611 |
) |
|
$ |
(4,876 |
) |
|
$ |
1,379 |
|
|
$ |
2,191 |
|
|
$ |
1,306 |
|
|
$ |
(17,611 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
Revenues |
|
$ |
(33 |
) |
|
$ |
22,889 |
|
|
$ |
12,721 |
|
|
$ |
103,253 |
|
|
$ |
(12,391 |
) |
|
$ |
126,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs, expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
15,045 |
|
|
|
11,637 |
|
|
|
83,419 |
|
|
|
(12,424 |
) |
|
|
97,677 |
|
Depreciation, depletion and amortization |
|
|
99 |
|
|
|
2,537 |
|
|
|
1,921 |
|
|
|
6,835 |
|
|
|
|
|
|
|
11,392 |
|
Selling and administrative |
|
|
2,356 |
|
|
|
1,136 |
|
|
|
1,115 |
|
|
|
5,369 |
|
|
|
|
|
|
|
9,976 |
|
Heritage health benefit expenses |
|
|
3,681 |
|
|
|
|
|
|
|
|
|
|
|
234 |
|
|
|
|
|
|
|
3,915 |
|
Loss on sales of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
71 |
|
Other operating income |
|
|
|
|
|
|
|
|
|
|
(1,906 |
) |
|
|
|
|
|
|
|
|
|
|
(1,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,136 |
|
|
|
18,718 |
|
|
|
12,767 |
|
|
|
95,928 |
|
|
|
(12,424 |
) |
|
|
121,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(6,169 |
) |
|
|
4,171 |
|
|
|
(46 |
) |
|
|
7,325 |
|
|
|
33 |
|
|
|
5,314 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(724 |
) |
|
|
(1,218 |
) |
|
|
(641 |
) |
|
|
(3,140 |
) |
|
|
|
|
|
|
(5,723 |
) |
Interest income |
|
|
53 |
|
|
|
18 |
|
|
|
(133 |
) |
|
|
477 |
|
|
|
(5 |
) |
|
|
410 |
|
Other income (loss) |
|
|
(4,424 |
) |
|
|
5 |
|
|
|
|
|
|
|
583 |
|
|
|
|
|
|
|
(3,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,095 |
) |
|
|
(1,195 |
) |
|
|
(774 |
) |
|
|
(2,080 |
) |
|
|
(5 |
) |
|
|
(9,149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before
income taxes |
|
|
(11,264 |
) |
|
|
2,976 |
|
|
|
(820 |
) |
|
|
5,245 |
|
|
|
28 |
|
|
|
(3,835 |
) |
Equity in income of subsidiaries |
|
|
(8,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,856 |
) |
|
|
2,976 |
|
|
|
(820 |
) |
|
|
5,245 |
|
|
|
(8,380 |
) |
|
|
(3,835 |
) |
Income tax (benefit) expense from
operations |
|
|
|
|
|
|
32 |
|
|
|
(246 |
) |
|
|
2,737 |
|
|
|
(2,613 |
) |
|
|
(90 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(2,856 |
) |
|
|
2,944 |
|
|
|
(574 |
) |
|
|
2,508 |
|
|
|
(5,767 |
) |
|
|
(3,745 |
) |
Less net income attributable to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(890 |
) |
|
|
(890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the
Parent company |
|
$ |
(2,856 |
) |
|
$ |
2,944 |
|
|
$ |
(574 |
) |
|
$ |
2,508 |
|
|
$ |
(4,877 |
) |
|
$ |
(2,855 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159
CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2011
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
Statements of Cash Flows |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(18,732 |
) |
|
$ |
(4,875 |
) |
|
$ |
1,378 |
|
|
$ |
2,192 |
|
|
$ |
1,305 |
|
|
$ |
(18,732 |
) |
Adjustments to reconcile net loss to net cash provided
by operation activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of subsidiaries |
|
|
(1,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,104 |
|
|
|
|
|
Depreciation, depletion, and amortization |
|
|
79 |
|
|
|
2,553 |
|
|
|
2,051 |
|
|
|
6,562 |
|
|
|
|
|
|
|
11,245 |
|
Accretion of asset retirement obligation and
receivable |
|
|
|
|
|
|
14 |
|
|
|
758 |
|
|
|
1,928 |
|
|
|
|
|
|
|
2,700 |
|
Amortization of intangible assets and liabilities, net |
|
|
|
|
|
|
155 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
163 |
|
Non-cash tax benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110 |
) |
|
|
(110 |
) |
Share-based compensation |
|
|
1,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,653 |
|
Loss on sale of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
|
83 |
|
Amortization of deferred financing costs |
|
|
377 |
|
|
|
(21 |
) |
|
|
109 |
|
|
|
170 |
|
|
|
|
|
|
|
635 |
|
Loss on extinguishment of debt |
|
|
7,873 |
|
|
|
9,073 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
17,030 |
|
Gain (loss) on derivative |
|
|
3,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,079 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
(95 |
) |
|
|
245 |
|
|
|
(4,001 |
) |
|
|
3,803 |
|
|
|
3,678 |
|
|
|
3,630 |
|
Inventories |
|
|
|
|
|
|
(1,873 |
) |
|
|
415 |
|
|
|
(1,151 |
) |
|
|
|
|
|
|
(2,609 |
) |
Excess of pneumoconiosis benefit obligation over
trust assets |
|
|
480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480 |
|
Accounts payable and accrued expenses |
|
|
(2,499 |
) |
|
|
533 |
|
|
|
(147 |
) |
|
|
7,791 |
|
|
|
(3,669 |
) |
|
|
2,009 |
|
Deferred revenue |
|
|
|
|
|
|
(2,374 |
) |
|
|
(312 |
) |
|
|
701 |
|
|
|
|
|
|
|
(1,985 |
) |
Accrual for workers compensation |
|
|
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67 |
) |
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
|
(673 |
) |
|
|
(1,988 |
) |
|
|
|
|
|
|
(2,661 |
) |
Accrual for postretirement medical benefits |
|
|
(870 |
) |
|
|
|
|
|
|
|
|
|
|
245 |
|
|
|
|
|
|
|
(625 |
) |
Pension and SERP obligations |
|
|
(193 |
) |
|
|
|
|
|
|
|
|
|
|
(201 |
) |
|
|
|
|
|
|
(394 |
) |
Other assets and liabilities |
|
|
2,425 |
|
|
|
(314 |
) |
|
|
1,202 |
|
|
|
(2,425 |
) |
|
|
(230 |
) |
|
|
658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(7,594 |
) |
|
|
3,116 |
|
|
|
864 |
|
|
|
17,718 |
|
|
|
2,078 |
|
|
|
16,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received by subsidiaries |
|
|
11,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,700 |
) |
|
|
|
|
Additions to property, plant and equipment |
|
|
(8 |
) |
|
|
(227 |
) |
|
|
(112 |
) |
|
|
(2,576 |
) |
|
|
|
|
|
|
(2,923 |
) |
Change in restricted investments and bond collateral
and reclamation deposits |
|
|
(440 |
) |
|
|
2,587 |
|
|
|
(45 |
) |
|
|
(3,182 |
) |
|
|
|
|
|
|
(1,080 |
) |
Net proceeds from sales of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
22 |
|
Receivable from customer for property and equipment
purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,903 |
) |
|
|
|
|
|
|
(1,903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
11,252 |
|
|
|
2,360 |
|
|
|
(157 |
) |
|
|
(7,639 |
) |
|
|
(11,700 |
) |
|
|
(5,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdrafts |
|
|
(146 |
) |
|
|
|
|
|
|
(674 |
) |
|
|
928 |
|
|
|
|
|
|
|
108 |
|
Borrowings of long-term debt, net of debt discount |
|
|
142,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,500 |
|
Repayments of long-term debt |
|
|
(2,532 |
) |
|
|
(46,220 |
) |
|
|
(10,230 |
) |
|
|
(1,409 |
) |
|
|
|
|
|
|
(60,391 |
) |
Borrowings on revolving lines of credit |
|
|
|
|
|
|
1,500 |
|
|
|
12,200 |
|
|
|
37,000 |
|
|
|
|
|
|
|
50,700 |
|
Repayments on revolving lines of credit |
|
|
|
|
|
|
(1,500 |
) |
|
|
(29,100 |
) |
|
|
(38,500 |
) |
|
|
|
|
|
|
(69,100 |
) |
Debt issuance and other refinancing costs |
|
|
(5,779 |
) |
|
|
(9,077 |
) |
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
(14,756 |
) |
Dividends/distributions |
|
|
(20,281 |
) |
|
|
|
|
|
|
|
|
|
|
(11,700 |
) |
|
|
11,700 |
|
|
|
(20,281 |
) |
Exercise of stock options |
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131 |
|
Transactions with Parent/affiliates |
|
|
(81,051 |
) |
|
|
52,656 |
|
|
|
27,158 |
|
|
|
3,315 |
|
|
|
(2,078 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
32,842 |
|
|
|
(2,641 |
) |
|
|
(546 |
) |
|
|
(10,366 |
) |
|
|
9,622 |
|
|
|
28,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
36,500 |
|
|
|
2,835 |
|
|
|
161 |
|
|
|
(287 |
) |
|
|
|
|
|
|
39,209 |
|
Cash and cash equivalents, beginning of year |
|
|
271 |
|
|
|
880 |
|
|
|
|
|
|
|
4,624 |
|
|
|
|
|
|
|
5,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
36,771 |
|
|
$ |
3,715 |
|
|
$ |
161 |
|
|
$ |
4,337 |
|
|
$ |
|
|
|
|
44,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160
CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
Statements of Cash Flows |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(11,264 |
) |
|
$ |
2,943 |
|
|
$ |
(573 |
) |
|
$ |
2,507 |
|
|
$ |
2,642 |
|
|
$ |
(3,745 |
) |
Adjustments to reconcile net income (loss) to net cash
provided by operation activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of subsidiaries |
|
|
(8,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,408 |
|
|
|
|
|
Depreciation, depletion, and amortization |
|
|
99 |
|
|
|
2,537 |
|
|
|
1,921 |
|
|
|
6,835 |
|
|
|
|
|
|
|
11,392 |
|
Accretion of asset retirement obligation and receivable |
|
|
|
|
|
|
13 |
|
|
|
752 |
|
|
|
2,238 |
|
|
|
|
|
|
|
3,003 |
|
Amortization of intangible assets and liabilities, net |
|
|
|
|
|
|
155 |
|
|
|
|
|
|
|
(70 |
) |
|
|
|
|
|
|
85 |
|
Share-based compensation |
|
|
1,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,363 |
|
Loss on sale of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
71 |
|
Non-cash interest expense |
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388 |
|
Amortization of deferred financing costs |
|
|
335 |
|
|
|
(86 |
) |
|
|
125 |
|
|
|
149 |
|
|
|
|
|
|
|
523 |
|
Gain on impairments and sales of investment securities |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
(562 |
) |
|
|
|
|
|
|
(659 |
) |
Gain (loss) on derivative |
|
|
4,521 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,515 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
359 |
|
|
|
(432 |
) |
|
|
(2,540 |
) |
|
|
(2,609 |
) |
|
|
1,356 |
|
|
|
(3,866 |
) |
Inventories |
|
|
|
|
|
|
(1,363 |
) |
|
|
116 |
|
|
|
(255 |
) |
|
|
|
|
|
|
(1,502 |
) |
Excess of pneumoconiosis benefit obligation over trust
assets |
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
347 |
|
Accounts payable and accrued expenses |
|
|
(322 |
) |
|
|
3,069 |
|
|
|
134 |
|
|
|
2,597 |
|
|
|
(1,708 |
) |
|
|
3,770 |
|
Deferred revenue |
|
|
|
|
|
|
(572 |
) |
|
|
|
|
|
|
1,189 |
|
|
|
|
|
|
|
617 |
|
Accrual for workers compensation |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51 |
) |
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
|
(188 |
) |
|
|
(1,687 |
) |
|
|
|
|
|
|
(1,875 |
) |
Accrual for postretirement medical benefits |
|
|
(522 |
) |
|
|
|
|
|
|
|
|
|
|
161 |
|
|
|
|
|
|
|
(361 |
) |
Pension and SERP obligations |
|
|
280 |
|
|
|
1 |
|
|
|
|
|
|
|
(320 |
) |
|
|
|
|
|
|
(39 |
) |
Other assets and liabilities |
|
|
(634 |
) |
|
|
(187 |
) |
|
|
680 |
|
|
|
(417 |
) |
|
|
(122 |
) |
|
|
(680 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(13,606 |
) |
|
|
6,072 |
|
|
|
427 |
|
|
|
9,827 |
|
|
|
10,576 |
|
|
|
13,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received by subsidiaries |
|
|
8,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,100 |
) |
|
|
|
|
Additions to property, plant and equipment |
|
|
(440 |
) |
|
|
(68 |
) |
|
|
(635 |
) |
|
|
(3,194 |
) |
|
|
|
|
|
|
(4,337 |
) |
Change in restricted investments and bond collateral
and reclamation deposits |
|
|
(579 |
) |
|
|
1,691 |
|
|
|
131 |
|
|
|
(1,835 |
) |
|
|
|
|
|
|
(592 |
) |
Net proceeds from sales of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
379 |
|
|
|
|
|
|
|
379 |
|
Proceeds from the sale of investments |
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
963 |
|
|
|
|
|
|
|
1,119 |
|
Receivable from customer for property and equipment
purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(510 |
) |
|
|
|
|
|
|
(510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
7,237 |
|
|
|
1,623 |
|
|
|
(504 |
) |
|
|
(4,197 |
) |
|
|
(8,100 |
) |
|
|
(3,941 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdrafts |
|
|
(76 |
) |
|
|
|
|
|
|
(14 |
) |
|
|
980 |
|
|
|
|
|
|
|
890 |
|
Borrowings of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
|
|
|
|
(5,405 |
) |
|
|
(1,118 |
) |
|
|
(1,589 |
) |
|
|
|
|
|
|
(8,112 |
) |
Borrowings on revolving lines of credit |
|
|
|
|
|
|
3,800 |
|
|
|
20,100 |
|
|
|
4,500 |
|
|
|
|
|
|
|
28,400 |
|
Repayments on revolving lines of credit |
|
|
|
|
|
|
|
|
|
|
(18,800 |
) |
|
|
(4,500 |
) |
|
|
|
|
|
|
(23,300 |
) |
Debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Dividends/distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,100 |
) |
|
|
8,100 |
|
|
|
|
|
Transactions with Parent/affiliates |
|
|
6,186 |
|
|
|
(163 |
) |
|
|
(75 |
) |
|
|
4,628 |
|
|
|
(10,576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
6,118 |
|
|
|
(1,768 |
) |
|
|
93 |
|
|
|
(4,081 |
) |
|
|
(2,476 |
) |
|
|
(2,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(251 |
) |
|
|
5,927 |
|
|
|
16 |
|
|
|
1,549 |
|
|
|
|
|
|
|
7,241 |
|
Cash and cash equivalents, beginning of year |
|
|
755 |
|
|
|
138 |
|
|
|
|
|
|
|
9,626 |
|
|
|
|
|
|
|
10,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
504 |
|
|
$ |
6,065 |
|
|
$ |
16 |
|
|
$ |
11,175 |
|
|
$ |
|
|
|
|
17,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161
Report of Independent Registered Public Accounting Firm:
The Board of Directors and Shareholders of Westmoreland Coal Company
We have audited the accompanying consolidated balance sheets of Westmoreland Coal Company and
subsidiaries (the Company) as of December 31, 2010 and 2009, and the related consolidated
statements of operations, shareholders deficit and comprehensive loss, and cash flows for the
years then ended. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Westmoreland Coal Company and subsidiaries at
December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows
for the years then ended in conformity with U.S. generally accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements, the Company adopted Emerging
Issues Task Force 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entitys Own Stock (codified in FASB ASC Topic 815,) effective as of January 1, 2009.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial reporting as of
December 31, 2010, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 11, 2011 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Denver, Colorado
March 11, 2011, except as to Note 19 as to which the date is June 3, 2011
162
Report of Independent Registered Public Accounting Firm:
The Board
of Directors and Shareholders
Westmoreland Coal Company:
We have audited the consolidated statements of operations, shareholders deficit and
comprehensive loss, and cash flows of Westmoreland Coal Company and subsidiaries (the Company) for
the year ended December 31, 2008. In connection with our audit of the aforementioned consolidated
financial statements, we also audited the related consolidated financial statement Schedule I.
These consolidated financial statements, and the related financial statement schedule, are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the results of Westmoreland Coal Company and subsidiaries operations and their
cash flows for the year ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.
The consolidated financial statements have been prepared assuming the Company will continue as
a going concern. During the year ended December 31, 2008, the Company had suffered recurring losses
from operations, had a working capital deficit, and had a net capital deficiency that raised
substantial doubt about the Companys ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ KPMG LLP
Denver, Colorado
March 13, 2009, except as to Note 19 to the consolidated financial statements as to which the date is June 3, 2011
163
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
5,775 |
|
|
$ |
10,519 |
|
Receivables: |
|
|
|
|
|
|
|
|
Trade |
|
|
50,578 |
|
|
|
46,393 |
|
Contractual third-party reclamation receivables |
|
|
7,743 |
|
|
|
7,257 |
|
Other |
|
|
4,545 |
|
|
|
3,162 |
|
|
|
|
|
|
|
|
|
|
|
62,866 |
|
|
|
56,812 |
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
23,571 |
|
|
|
25,871 |
|
Other current assets |
|
|
5,335 |
|
|
|
6,047 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
97,547 |
|
|
|
99,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
Land and mineral rights |
|
|
83,824 |
|
|
|
83,694 |
|
Capitalized asset retirement cost |
|
|
114,856 |
|
|
|
134,821 |
|
Plant and equipment |
|
|
506,661 |
|
|
|
486,238 |
|
|
|
|
|
|
|
|
|
|
|
705,341 |
|
|
|
704,753 |
|
Less accumulated depreciation, depletion and amortization |
|
|
(288,386 |
) |
|
|
(248,569 |
) |
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
416,955 |
|
|
|
456,184 |
|
|
|
|
|
|
|
|
|
|
Advanced coal royalties |
|
|
3,695 |
|
|
|
3,056 |
|
Reclamation deposits |
|
|
72,274 |
|
|
|
73,067 |
|
Restricted investments and bond collateral |
|
|
55,384 |
|
|
|
48,188 |
|
Contractual third-party reclamation receivables, less current portion |
|
|
87,739 |
|
|
|
74,989 |
|
Deferred income taxes |
|
|
2,458 |
|
|
|
2,341 |
|
Intangible assets, net of accumulated amortization of $9.1 million
and $6.8 million at December 31, 2010 and December 31, 2009,
respectively |
|
|
6,555 |
|
|
|
8,781 |
|
Other assets |
|
|
7,699 |
|
|
|
6,873 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
750,306 |
|
|
$ |
772,728 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
164
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Liabilities and Shareholders Deficit |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current installments of long-term debt |
|
$ |
14,973 |
|
|
$ |
41,089 |
|
Revolving lines of credit |
|
|
|
|
|
|
16,400 |
|
Accounts payable and accrued expenses: |
|
|
|
|
|
|
|
|
Trade |
|
|
46,247 |
|
|
|
39,264 |
|
Production taxes |
|
|
26,317 |
|
|
|
24,510 |
|
Workers compensation |
|
|
954 |
|
|
|
1,031 |
|
Postretirement medical benefits |
|
|
13,581 |
|
|
|
14,501 |
|
SERP |
|
|
304 |
|
|
|
306 |
|
Deferred revenue |
|
|
10,209 |
|
|
|
8,760 |
|
Asset retirement obligations |
|
|
14,514 |
|
|
|
15,513 |
|
Other current liabilities |
|
|
6,241 |
|
|
|
12,851 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
133,340 |
|
|
|
174,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current installments |
|
|
208,731 |
|
|
|
197,206 |
|
Revolving lines of credit, less current portion |
|
|
18,400 |
|
|
|
|
|
Workers compensation, less current portion |
|
|
9,424 |
|
|
|
10,188 |
|
Excess of pneumoconiosis benefit obligation over trust assets |
|
|
2,246 |
|
|
|
786 |
|
Postretirement medical benefits, less current portion |
|
|
197,279 |
|
|
|
175,722 |
|
Pension and SERP obligations, less current portion |
|
|
20,462 |
|
|
|
26,827 |
|
Deferred revenue, less current portion |
|
|
75,395 |
|
|
|
84,243 |
|
Asset retirement obligations, less current portion |
|
|
227,129 |
|
|
|
229,102 |
|
Intangible liabilities, net of accumulated amortization $9.4
million at December 31, 2010 and $7.7 million at December
31, 2009, respectively |
|
|
8,663 |
|
|
|
10,300 |
|
Other liabilities |
|
|
11,592 |
|
|
|
5,928 |
|
|
|
|
|
| |
|
Total liabilities |
|
|
912,661 |
|
|
|
914,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders deficit: |
|
|
|
|
|
|
|
|
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued and
outstanding 160,129 shares at December 31, 2010, and December 31, 2009 |
|
|
160 |
|
|
|
160 |
|
Common stock of $2.50 par value
Authorized 30,000,000 shares;
Issued and
outstanding 11,160,798 shares at December 31, 2010 and
10,345,927 shares at December 31, 2009 |
|
|
27,901 |
|
|
|
25,864 |
|
Other paid-in capital |
|
|
98,466 |
|
|
|
91,432 |
|
Accumulated other comprehensive loss |
|
|
(57,680 |
) |
|
|
(31,223 |
) |
Accumulated deficit |
|
|
(226,740 |
) |
|
|
(226,215 |
) |
|
|
|
|
|
|
|
Total Westmoreland Coal Company shareholders deficit |
|
|
(157,893 |
) |
|
|
(139,982 |
) |
Noncontrolling interest |
|
|
(4,462 |
) |
|
|
(1,817 |
) |
|
|
|
|
|
|
|
Total deficit |
|
|
(162,355 |
) |
|
|
(141,799 |
) |
|
|
|
|
|
|
|
Total Liabilities and Shareholders Deficit |
|
$ |
750,306 |
|
|
$ |
772,728 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
165
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, except per share data) |
|
Revenues |
|
$ |
506,057 |
|
|
$ |
443,368 |
|
|
$ |
509,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
394,827 |
|
|
|
373,070 |
|
|
|
409,795 |
|
Depreciation, depletion and amortization |
|
|
44,690 |
|
|
|
44,254 |
|
|
|
41,387 |
|
Selling and administrative |
|
|
39,481 |
|
|
|
40,612 |
|
|
|
40,513 |
|
Heritage health benefit expenses |
|
|
14,421 |
|
|
|
28,074 |
|
|
|
33,452 |
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
2,009 |
|
Loss (gain) on sales of assets |
|
|
226 |
|
|
|
191 |
|
|
|
(1,425 |
) |
Other operating income |
|
|
(8,109 |
) |
|
|
(11,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
485,536 |
|
|
|
475,142 |
|
|
|
525,731 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
20,521 |
|
|
|
(31,774 |
) |
|
|
(16,035 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(22,992 |
) |
|
|
(23,733 |
) |
|
|
(23,130 |
) |
Interest expense attributable to beneficial conversion feature |
|
|
|
|
|
|
|
|
|
|
(8,146 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(5,178 |
) |
Interest income |
|
|
1,747 |
|
|
|
3,218 |
|
|
|
5,125 |
|
Other income (loss) |
|
|
(2,587 |
) |
|
|
5,991 |
|
|
|
(284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,832 |
) |
|
|
(14,524 |
) |
|
|
(31,613 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(3,311 |
) |
|
|
(46,298 |
) |
|
|
(47,648 |
) |
Income tax (benefit) expense |
|
|
(141 |
) |
|
|
(17,136 |
) |
|
|
919 |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(3,170 |
) |
|
|
(29,162 |
) |
|
|
(48,567 |
) |
Less net loss attributable to noncontrolling interest |
|
|
(2,645 |
) |
|
|
(1,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the Parent company |
|
|
(525 |
) |
|
|
(27,345 |
) |
|
|
(48,567 |
) |
Less preferred stock dividend requirements |
|
|
1,360 |
|
|
|
1,360 |
|
|
|
1,360 |
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common shareholders |
|
$ |
(1,885 |
) |
|
$ |
(28,705 |
) |
|
$ |
(49,927 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.17 |
) |
|
$ |
(2.88 |
) |
|
$ |
(5.25 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
10,791 |
|
|
|
9,967 |
|
|
|
9,512 |
|
See accompanying Notes to Consolidated Financial Statements.
166
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Shareholders Deficit and Comprehensive Loss
Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Exchangeable |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Non- |
|
|
Shareholders' |
|
|
|
Preferred |
|
|
Common |
|
|
Other Paid-In |
|
|
Comprehensive |
|
|
Accumulated |
|
|
controlling |
|
|
Equity |
|
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Loss |
|
|
|
Deficit |
|
|
Interest |
|
|
(Deficit) |
|
|
|
(In thousands) |
|
Balance at December 31, 2007 (160,129 preferred shares and
9,427,203 common shares outstanding) |
|
$ |
160 |
|
|
$ |
23,567 |
|
|
$ |
85,352 |
|
|
$ |
(125,187 |
) |
|
$ |
(161,149 |
) |
|
$ |
|
|
|
$ |
(177,257 |
) |
Common stock issued as compensation (221,933 shares) |
|
|
|
|
|
|
554 |
|
|
|
2,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,796 |
|
Common stock options exercised (40,882 shares) |
|
|
|
|
|
|
102 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203 |
|
Warrant repriced in lieu of registration requirement |
|
|
|
|
|
|
|
|
|
|
355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
355 |
|
Beneficial conversion feature on convertible debt |
|
|
|
|
|
|
|
|
|
|
8,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,146 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,567 |
) |
|
|
|
|
|
|
(48,567 |
) |
Adjustments to accumulated actuarial losses of pension plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,589 |
) |
|
|
|
|
|
|
|
|
|
|
(17,589 |
) |
Amortization of accumulated actuarial losses of pension plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351 |
|
|
|
|
|
|
|
|
|
|
|
351 |
|
Adjustments to accumulated actuarial losses, prior service
costs and transition obligations of postretirement medical
benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,533 |
|
|
|
|
|
|
|
|
|
|
|
5,533 |
|
Amortization of accumulated actuarial losses, prior service
costs and transition obligations of postretirement medical
benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,319 |
|
|
|
|
|
|
|
|
|
|
|
8,319 |
|
Unrealized loss on available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(788 |
) |
|
|
|
|
|
|
|
|
|
|
(788 |
) |
Other than temporary impairment of available-for-sale
securities recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900 |
|
|
|
|
|
|
|
|
|
|
|
900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,841 |
) |
|
|
|
Balance at December 31, 2008 (160,129 preferred shares and
9,690,018 common shares outstanding) |
|
|
160 |
|
|
|
24,223 |
|
|
|
96,196 |
|
|
|
(128,461 |
) |
|
|
(209,716 |
) |
|
|
|
|
|
|
(217,598 |
) |
Cumulative effect of adoption of ASC 815-40 |
|
|
|
|
|
|
|
|
|
|
(9,847 |
) |
|
|
|
|
|
|
10,846 |
|
|
|
|
|
|
|
999 |
|
Common stock issued as compensation (255,909 shares, less
100,000 shares forfeited) |
|
|
|
|
|
|
391 |
|
|
|
2,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,571 |
|
Contributions of Company stock to pension plans assets
(500,000 shares) |
|
|
|
|
|
|
1,250 |
|
|
|
2,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,153 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,345 |
) |
|
|
(1,817 |
) |
|
|
(29,162 |
) |
Tax effect of other comprehensive income gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,062 |
) |
|
|
|
|
|
|
|
|
|
|
(17,062 |
) |
Adjustments to accumulated actuarial losses and transition
obligations, pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,459 |
) |
|
|
|
|
|
|
|
|
|
|
(1,459 |
) |
Amortization of accumulated actuarial losses and transition
obligations, pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,845 |
|
|
|
|
|
|
|
|
|
|
|
1,845 |
|
Amortization of accumulated actuarial losses and transition
obligations, postretirement medical benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,079 |
|
|
|
|
|
|
|
|
|
|
|
7,079 |
|
Effect of pension plan freeze |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,670 |
|
|
|
|
|
|
|
|
|
|
|
10,670 |
|
Effect of postretirement medical benefit plan amendments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,313 |
|
|
|
|
|
|
|
|
|
|
|
95,313 |
|
Unrealized gain on available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
852 |
|
|
|
|
|
|
|
|
|
|
|
852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,076 |
|
|
|
|
Balance at December 31, 2009 (160,129 preferred shares and
10,345,927 common shares outstanding) |
|
|
160 |
|
|
|
25,864 |
|
|
|
91,432 |
|
|
|
(31,223 |
) |
|
|
(226,215 |
) |
|
|
(1,817 |
) |
|
|
(141,799 |
) |
Common stock issued as compensation (337,371 shares) |
|
|
|
|
|
|
843 |
|
|
|
3,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,049 |
|
Common stock options exercised (2,500 shares) |
|
|
|
|
|
|
6 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Contributions of Company stock to pension plan assets
(475,000 shares) |
|
|
|
|
|
|
1,188 |
|
|
|
3,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,014 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(525 |
) |
|
|
(2,645 |
) |
|
|
(3,170 |
) |
Amortization of accumulated actuarial losses and transition
obligations, pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,312 |
|
|
|
|
|
|
|
|
|
|
|
1,312 |
|
Adjustments to accumulated actuarial losses and transition
obligations, pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,860 |
) |
|
|
|
|
|
|
|
|
|
|
(3,860 |
) |
Amortization of accumulated actuarial gains and transition
obligations, postretirement medical benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(275 |
) |
|
|
|
|
|
|
|
|
|
|
(275 |
) |
Adjustments to accumulated actuarial gains and transition
obligations, postretirement medical benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,195 |
) |
|
|
|
|
|
|
|
|
|
|
(23,195 |
) |
Unrealized and realized gains on available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(439 |
) |
|
|
|
|
|
|
|
|
|
|
(439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,627 |
) |
|
|
|
Balance at December 31, 2010 (160,129 preferred shares and
11,160,798 common shares outstanding) |
|
$ |
160 |
|
|
$ |
27,901 |
|
|
$ |
98,466 |
|
|
$ |
(57,680 |
) |
|
$ |
(226,740 |
) |
|
$ |
(4,462 |
) |
|
$ |
(162,355 |
) |
|
|
|
See accompanying Notes to Consolidated Financial Statements.
167
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,170 |
) |
|
$ |
(29,162 |
) |
|
$ |
(48,567 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
44,690 |
|
|
|
44,254 |
|
|
|
41,387 |
|
Accretion of asset retirement obligation and receivable |
|
|
11,540 |
|
|
|
9,974 |
|
|
|
9,528 |
|
Non-cash tax benefits |
|
|
|
|
|
|
(17,062 |
) |
|
|
|
|
Amortization of intangible assets and liabilities, net |
|
|
590 |
|
|
|
279 |
|
|
|
598 |
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
2,009 |
|
Share-based compensation |
|
|
4,049 |
|
|
|
2,552 |
|
|
|
2,733 |
|
Loss (gain) on sales of assets |
|
|
226 |
|
|
|
191 |
|
|
|
(1,425 |
) |
Non-cash interest expense |
|
|
1,236 |
|
|
|
1,470 |
|
|
|
8,934 |
|
Amortization of deferred financing costs |
|
|
2,304 |
|
|
|
1,975 |
|
|
|
839 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
2,292 |
|
Loss (gain) on impairment and sales of investment securities |
|
|
(604 |
) |
|
|
412 |
|
|
|
900 |
|
Loss (gain) on derivative instruments |
|
|
3,456 |
|
|
|
(6,122 |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
(4,728 |
) |
|
|
15,503 |
|
|
|
(6,240 |
) |
Inventories |
|
|
2,300 |
|
|
|
(1,217 |
) |
|
|
4,144 |
|
Excess of pneumoconiosis benefit obligation over trust assets |
|
|
1,460 |
|
|
|
3,025 |
|
|
|
(23 |
) |
Accounts payable and accrued expenses |
|
|
9,041 |
|
|
|
(13,802 |
) |
|
|
2,001 |
|
Deferred revenue |
|
|
(7,399 |
) |
|
|
10,486 |
|
|
|
29,177 |
|
Accrual for workers compensation |
|
|
(841 |
) |
|
|
(1,619 |
) |
|
|
3,316 |
|
Asset retirement obligations |
|
|
(7,783 |
) |
|
|
(2,219 |
) |
|
|
(889 |
) |
Accrual for postretirement medical benefits |
|
|
(2,832 |
) |
|
|
7,762 |
|
|
|
10,021 |
|
Pension and SERP obligations |
|
|
(3,902 |
) |
|
|
3,173 |
|
|
|
(2,116 |
) |
Other assets and liabilities |
|
|
(4,280 |
) |
|
|
(405 |
) |
|
|
(3,374 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
45,353 |
|
|
|
29,448 |
|
|
|
55,245 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(22,814 |
) |
|
|
(34,546 |
) |
|
|
(31,320 |
) |
Change in restricted investments and bond collateral and reclamation
deposits |
|
|
(8,545 |
) |
|
|
(4,601 |
) |
|
|
24,319 |
|
Net proceeds from sales of assets |
|
|
712 |
|
|
|
937 |
|
|
|
2,641 |
|
Proceeds from the sale of investments |
|
|
2,307 |
|
|
|
796 |
|
|
|
|
|
Receivable from customer for property and equipment purchases |
|
|
(840 |
) |
|
|
(1,183 |
) |
|
|
(2,228 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(29,180 |
) |
|
|
(38,597 |
) |
|
|
(6,588 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Change in book overdrafts |
|
|
(595 |
) |
|
|
596 |
|
|
|
(5,043 |
) |
Borrowings from long-term debt |
|
|
|
|
|
|
8,562 |
|
|
|
205,377 |
|
Repayments of long-term debt |
|
|
(20,405 |
) |
|
|
(35,275 |
) |
|
|
(219,785 |
) |
Borrowings on revolving lines of credit |
|
|
170,900 |
|
|
|
94,116 |
|
|
|
169,600 |
|
Repayments on revolving lines of credit |
|
|
(168,900 |
) |
|
|
(88,016 |
) |
|
|
(173,500 |
) |
Debt issuance costs |
|
|
(1,925 |
) |
|
|
(256 |
) |
|
|
(5,304 |
) |
Exercise of stock options |
|
|
8 |
|
|
|
|
|
|
|
203 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(20,917 |
) |
|
|
(20,273 |
) |
|
|
(28,452 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(4,744 |
) |
|
|
(29,422 |
) |
|
|
20,205 |
|
Cash and cash equivalents, beginning of year |
|
|
10,519 |
|
|
|
39,941 |
|
|
|
19,736 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
5,775 |
|
|
$ |
10,519 |
|
|
$ |
39,941 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
19,744 |
|
|
$ |
20,418 |
|
|
$ |
22,226 |
|
Income taxes (refunds) |
|
|
(236 |
) |
|
|
2,263 |
|
|
|
2,227 |
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued purchases of property and equipment |
|
|
628 |
|
|
|
949 |
|
|
|
2,715 |
|
Capital leases and other financing sources |
|
|
3,748 |
|
|
|
11,286 |
|
|
|
14,859 |
|
See accompanying Notes to Consolidated Financial Statements.
168
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Westmoreland Coal Company, or the Company, Westmoreland, WCC, or the Parent, is an energy
company. The Companys current principal activities, all conducted within the United States, are
the production and sale of coal from its mines in Montana, North Dakota and Texas; and the
ownership of power plants in North Carolina. The Companys activities are primarily conducted
through wholly owned subsidiaries.
The Companys Absaloka Mine is owned by its wholly owned subsidiary Westmoreland Resources,
Inc., or WRI. The right to mine coal at the Absaloka Mine has been subleased to an affiliated
entity whose operations the Company controls. The Rosebud, Jewett, Beulah and Savage Mines are
owned through the Companys wholly owned subsidiary Westmoreland Mining LLC, or WML.
Liquidity
Following the February 4, 2011 Parent Notes offering described below, the Company has cash on
hand in excess of $45 million. The Company also expects increases in coal operating profits and
the Companys heritage health benefit expenditures to continue at their reduced 2010 rates. As a
result, the Company anticipates that its cash flows from operations, cash on hand and available
borrowing capacity will be sufficient to meet its investing, financing, and working capital
requirements for the next several years.
On February 4, 2011 through a private placement offering, the Company issued $150.0 million of
Senior Secured Notes due in 2018 together with Westmoreland Partners as co-issuer. The Parent
Notes mature February 18, 2018 and they bear a fixed interest rate of 10.750%, payable
semi-annually, in arrears, on February 1 and August 1 of each year beginning August 1, 2011.
Substantially all of the assets of ROVA and WRI constitute collateral for the Parent Notes as to
which the holders of these notes have a first priority lien. Under the indenture governing the
Parent Notes, the Company is required to offer a portion of its Excess Cash Flow (as defined by the
Indenture) for each fiscal year to purchase some of these notes at 100% of the principal amount.
The Company received approximately $135.2 million in proceeds from the Parent Notes offering
after deducting the Initial Purchasers discount of $7.5 million and offering costs of $7.3
million. The proceeds were used to pay the outstanding balance on WRI and ROVAs term and
revolving lines of credit. The credit facilities at both WRI and ROVA were terminated in February
2011, as result of the Parent Notes offering. The Company is still able to enter into a revolving
credit facility without the consent of the holders of the notes, subject to certain conditions.
The outstanding balance for the convertible notes was also eliminated with $2.5 million being paid
to retire a portion of the corporate convertible notes with the remainder of the notes being
converted into 1,877,946 shares of Westmoreland common stock at a conversion price of $8.50 per
share. In February 2011, the Company used $19.9 million of the proceeds to pay all dividend
arrearages on its preferred stock.
As a result of the Parent Notes offering, the Company recorded the current portion of its
convertible notes, current portions of WRIs term and revolving line of credit and ROVAs term debt
as non-current liabilities in its consolidated balance sheet at December 31, 2010. The Company
will also record a loss on extinguishment of debt in the first quarter of 201l because of the
offering.
The Companys liquidity continues to be affected by its heritage health, pension, capital
expenditures and bond collateral obligations. The cash at WML is available to the Company through
quarterly distributions. The WML credit agreement requires a debt service account and imposes
timing and other restrictions on the ability of WML to distribute funds to WCC. Cash available from
WML is affected beginning in 2011 by payments due in respect of principal on the WML term debt.
Following the February 4, 2011 note offering described above, the Company expects that
distributions from ROVA and WRI will comprise a significant source of liquidity. The cash at WRM
is also available to the Company through dividends.
169
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Consolidation Policy
The Consolidated Financial Statements of Westmoreland Coal Company include the accounts of the
Company and its controlled subsidiaries. The Company consolidates any variable interest entity, or
VIE, for which the Company is considered the primary beneficiary. The Company provides for
non-controlling interests in consolidated subsidiaries, in which the Companys ownership is less
than 100 percent. All intercompany accounts and transactions have been eliminated.
A VIE is an entity that is unable to make significant decisions about its activities or does
not have the obligation to absorb losses or the right to receive returns generated by its
operations. If the entity meets one of these characteristics, then the Company must determine if it
is the primary beneficiary of the VIE. The party exposed to the majority of the risks and rewards
with the VIE is the primary beneficiary and must consolidate the entity.
The Company has determined that at December 31, 2010, it was the primary beneficiary in
Absaloka Coal LLC, a VIE, in which it holds less than a 50% ownership. As a result, the Company
has consolidated this entity within the coal segment.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximate fair value. Cash equivalents
consist of highly liquid investments with original maturities of three months or less.
Trade Receivables
Trade receivables are recorded at the invoiced amount and do not bear interest. The Company
evaluates the need for an allowance for doubtful accounts based on a review of collectability. The
Company has determined that no allowance is necessary for trade receivables as of December 31, 2010
and 2009.
Inventories
Inventories, which include materials and supplies as well as raw coal, are stated at the lower
of cost or market. Cost is determined using the average cost method. Coal inventory costs include
labor, supplies, equipment, operating overhead and other related costs.
Restricted Investments and Bond Collateral
The Company has requirements to maintain restricted cash and investments for bonding and debt
requirements. Amounts held are recorded as Restricted Investments and Bond Collateral. Funds in
the restricted investment and bond collateral accounts are not available to meet the Companys
operating cash needs.
Mine Development
At existing surface operations, additional pits may be added to increase production capacity
in order to meet customer requirements. These expansions may require significant capital to
purchase additional equipment, relocate equipment, expand the workforce, build or improve existing
haul roads and create the initial pre-production box cut to remove overburden for new pits at
existing operations. If these pits operate in a separate and distinct area of the mine, the costs
associated with initially uncovering coal for production are capitalized and amortized over the
life of the developed pit consistent with coal industry practices. Once production has begun,
mining costs are then expensed as incurred.
170
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Where new pits are routinely developed as part of a contiguous mining sequence, the Company
expenses such costs as incurred. The development of a contiguous pit typically reflects the planned
progression of an existing pit, thus maintaining production levels from the same mining area
utilizing the same employee group and equipment.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and includes long-term spare parts
inventory. Expenditures that extend the useful lives of existing plant and equipment or increase
productivity of the assets are capitalized. Maintenance and repair costs that do not extend the
useful life or increase productivity of the asset are expensed as incurred. Coal reserves are
recorded at cost, or at fair value in the case of acquired businesses.
Coal reserves, mineral rights and mine development costs are depleted based upon estimated
recoverable proven and probable reserves. Plant and equipment are depreciated on a straight-line
basis over the assets estimated useful lives as follows:
|
|
|
|
|
|
|
Years |
|
Buildings and improvements |
|
|
15 to 30 |
|
Machinery and equipment |
|
|
3 to 36 |
|
Long-term spare parts inventory begins depreciation when placed in service.
The Company assesses the carrying value of its property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability is measured by comparing estimated undiscounted cash flows expected
to be generated from such assets to their net book value. If net book value exceeds estimated cash
flows, the asset is written down to fair value. When an asset is retired or sold, its cost and
related accumulated depreciation and depletion are removed from the accounts. The difference
between the net book value of the asset and proceeds on disposition is recorded as a gain or loss.
Fully depreciated plant and equipment still in use is not eliminated from the accounts.
Reclamation Deposits and Contractual Third-Party Reclamation Receivables
Certain of the Companys customers have either agreed to reimburse the Company for reclamation
expenditures as they are incurred or have pre-funded a portion of the expected reclamation costs.
Amounts received from customers and held on deposit are recorded as reclamation deposits. Amounts
that are reimbursable by customers are recorded as third-party reclamation receivables when the
related reclamation obligation is recorded.
Financial Instruments
The Company evaluates all of its financial instruments to determine if such instruments are
derivatives, derivatives that qualify for the normal purchase normal sale exception or instruments
which contain features that qualify them as embedded derivatives. Except for derivatives that
qualify for the normal purchase normal sale exception, all financial instruments are recognized in
the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not
eligible for hedge accounting or Accumulated other comprehensive income (loss) if they qualify for
cash flow hedge accounting.
Held-to-maturity financial instruments consist of non-derivative financial assets with fixed
or determinable payments and a fixed term, which the Company has the ability and intent to hold
until maturity, and, therefore, accounts for them as held-to-maturity securities. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums
or discounts calculated on the effective interest method. Interest income is recognized when
earned.
The Company has securities classified as available-for-sale, which are recorded at fair value.
The changes in fair values are recorded as unrealized gains (losses) as a component of Accumulated
other comprehensive loss in shareholders deficit.
171
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The Company reviews its securities routinely for other-than-temporary impairment. The primary
factors used to determine if an impairment charge must be recorded because a decline in value of
the security is other than temporary include (i) whether the fair value of the investment is
significantly below its cost basis, (ii) the financial condition of the issuer of the security,
(iii) the length of time that the cost of the security has exceeded its fair value and (iv) the
Companys intent and ability to retain the investment for a period of time sufficient to allow for
any anticipated recovery in market value. Other-than-temporary impairments are recorded as a
component of Other income (expense).
Intangible Assets and Liabilities
Identifiable intangible assets or liabilities acquired in a business combination must be
recognized and reported separately from goodwill. The Company has determined that its most
significant acquired identifiable intangible assets and liabilities are related to sales and
purchase agreements. Intangible assets result from more favorable market prices than contracted
prices in sales and purchase agreements as measured during a business combination. Intangible
liabilities result from less favorable market prices than contracted prices in sales and purchase
agreements as measured during a business combination. The majority of these intangible assets and
liabilities are amortized on a straight-line basis over the respective period of the sales and
purchase agreements, while the remainder are amortized on a unit-of-production basis.
Amortization of intangible assets recognized in Cost of sales was $1.7 million in 2010, $1.7
million in 2009, and $1.7 million in 2008. Amortization of intangible liabilities recognized in
Revenues was $1.1 million in 2010, $1.4 million in 2009, and $1.1 million in 2008.
The estimated aggregate amortization amounts from intangibles assets and liabilities for each
of the next five years as of December 31, 2010 are as follows:
|
|
|
|
|
|
|
Amortization |
|
|
|
Expense (Revenue) |
|
|
|
(In thousands) |
|
2011 |
|
$ |
657 |
|
2012 |
|
|
657 |
|
2013 |
|
|
657 |
|
2014 |
|
|
10 |
|
2015 |
|
|
(798 |
) |
Workers Compensation Benefits
The Company is self-insured for workers compensation claims incurred prior to 1996. The
liabilities for workers compensation claims are actuarially determined estimates of the ultimate
losses incurred based on the Companys experience. Adjustments to the probable ultimate
liabilities are made annually based on subsequent developments and experience and are included in
operations at the time of the revised estimate.
The Company insures its current employees through third-party insurance providers and state
arrangements.
Black Lung Benefits
The Company is self-insured for federal and state pneumoconiosis (black lung) benefits for
former employees and has established an independent trust to pay these benefits. The Company
accounts for these benefits on the accrual basis. An independent actuary annually calculates the
present value of the accumulated black lung obligation. The underfunded status in 2010 of the
Companys obligation is included as Excess of pneumoconiosis benefit obligation over trust assets
in the accompanying Consolidated Balance Sheets. Actuarial gains and losses are recognized in the
period in which they arise.
The Company insures its current represented employees through arrangements with its unions and
its current non-represented employees are insured through third-party insurance providers.
172
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Postretirement Health Care Benefits
The Company accrues the cost to provide the benefits over the employees period of active
service for postretirement benefits other than pensions. These costs are determined on an
actuarial basis. The Companys consolidated balance sheet reflects the unfunded status of
postretirement benefit obligations.
Pension and SERP Plans
The Company accrues the cost to provide the benefits over the employees period of active
service for the non-contributory defined benefit pension and SERP plans it sponsors. These costs
are determined on an actuarial basis. The Companys consolidated balance sheet reflects the
unfunded status of the defined benefit pension and SERP plans.
Deferred Revenue
Deferred revenues represent funding received upon the negotiation of long-term contracts. The
deferred revenues for coal will be recognized as deliveries of the reserved coal are made in
accordance with the long-term coal contracts. Deferred power revenues are recognized on a pro rata
basis, based on the payments estimated to be received over the remaining term of the power sales
agreements.
Asset Retirement Obligations
The Companys asset retirement obligation, or ARO, liabilities primarily consist of estimated
costs to reclaim surface land and support facilities at its mines in accordance with federal and
state reclamation laws as established by each mining permit.
The Company estimates its ARO liabilities for final reclamation and mine closure based upon
detailed engineering calculations of the amount and timing of the future costs for a third party to
perform the required work. These estimates are based on projected pit configurations at the end of
mining and are escalated for inflation, and then discounted at a credit-adjusted risk-free rate.
The Company records an ARO asset associated with the initial recorded liability. The ARO asset is
amortized based on the units of production method over the estimated recoverable, proven and
probable reserves at the related mine, and the ARO liability is accreted to the projected
settlement date. Changes in estimates could occur due to revisions of mine plans, changes in
estimated costs, and changes in timing of the performance of reclamation activities.
Income Taxes
Deferred income taxes are provided for temporary differences arising from differences between
the financial statement amount and tax basis of assets and liabilities existing at each balance
sheet date using enacted tax rates anticipated to be in effect when the related taxes are expected
to be paid or recovered. A valuation allowance is established if it is more likely than not that a
deferred tax asset will not be realized. In determining the need for a valuation allowance, the
Company considers projected realization of tax benefits based on expected levels of future taxable
income, available tax planning strategies and its overall deferred tax position.
Accounting guidance prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. Under this guidance, a company can recognize the benefit of an income tax position
only if it is more likely than not (greater than 50%) that the tax position will be sustained upon
tax examination, based solely on the technical merits of the tax position. Guidance is also
provided on the derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.
The Company includes interest and penalties related to income tax matters in Income tax
expense.
The tax effect of pretax income or loss from continuing operations is generally determined by
a computation that does not consider the tax effects of items that are not included in continuing
operations. The exception to that incremental approach is that all items (for example, items
recorded in other comprehensive income, extraordinary items, and discontinued operations) be
considered in determining the amount of tax benefit that results from a loss from continuing
operations and that shall be allocated to continuing operations.
173
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Deferred Financing Costs
The Company capitalizes costs incurred in connection with borrowings or establishment of
credit facilities and issuance of debt securities. These costs are amortized as an adjustment to
interest expense over the life of the borrowing or term of the credit facility using the effective
interest method. These amounts are recorded in Other assets in the accompanying Consolidated
Balance Sheets.
Coal Revenues
The Company recognizes coal sales revenue at the time title passes to the customer in
accordance with the terms of the underlying sales agreements and after any contingent performance
obligations have been satisfied. Coal sales revenue is recognized based on the pricing contained
in the contracts in place at the time that title passes. Retroactive pricing adjustments to those
contracts are recognized as revised agreements are reached with the customers and any performance
obligations included in the revised agreements are satisfied.
Power Revenues
ROVA supplies power under long-term power sales agreements. Under these agreements, ROVA
invoices and collects capacity payments based on kilowatt-hours produced if the units are
dispatched or for the kilowatt-hours of available capacity if the units are not fully dispatched.
A portion of the capacity payments under the agreements is considered to be an operating
lease. The Company is recognizing amounts invoiced under the power sales agreements as revenue on
a pro rata basis, based on the weighted average per kilowatt hour capacity payments estimated to be
received over the remaining term of the power sales agreements. Under this method of recognizing
revenue, $6.0 million of prior deferred revenue was recognized during 2010 while $11.2 million of
amounts invoiced during 2009, were deferred from recognition. The Company began to recognize prior
deferred revenue during 2010 at its smaller ROVA plant, and during 2009 at its larger ROVA plant.
Other Operating Income (Loss)
Other operating income in the accompanying Consolidated Results of Operations reflects income
from sources other than coal or power revenues. Income from the Companys Indian Coal Tax Credit
monetization transaction is recorded as Other operating income.
Exploration and Drilling Costs
Exploration expenditures are charged to Cost of sales as incurred, including costs related to
drilling and study costs incurred to convert or upgrade mineral resources to reserves.
Share-Based Compensation
Share-based compensation expense is generally measured at the grant date and recognized as
expense over the vesting period of the entire award.
Earnings (Loss) per Share
Basic earnings (loss) per share have been computed by dividing the net income (loss)
applicable to common shareholders by the weighted average number of shares of common stock
outstanding during each period. Net income (loss) applicable to common shareholders includes the
adjustment for net income or loss attributable to noncontrolling interest. Diluted earnings (loss)
per share is computed by including the dilutive effect of common stock that would be issued
assuming conversion or exercise of outstanding convertible notes, stock options, stock appreciation
rights, restricted stock and warrants. No such items were included in the computation of diluted
loss per share for the years ended 2010, 2009 or 2008 because the Company incurred a loss from
operations in each of these periods and the effect of inclusion would have been anti-dilutive.
174
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The table below shows the number of shares that were excluded from the calculation of diluted
loss per share because their inclusion would be anti-dilutive to the calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Convertible notes and securities |
|
|
2,943 |
|
|
|
2,820 |
|
|
|
2,673 |
|
Restricted stock units, stock options, SARs, and warrant shares |
|
|
630 |
|
|
|
779 |
|
|
|
870 |
|
|
|
|
Total shares excluded from diluted shares calculation |
|
|
3,573 |
|
|
|
3,599 |
|
|
|
3,543 |
|
|
|
|
Accounting Pronouncements Adopted
In January 2010, the FASB issued authoritative guidance, which requires additional disclosures
and clarifies certain existing disclosure requirements regarding fair value measurements. This
guidance is effective for interim and annual reporting periods beginning after December 15, 2009.
The Company adopted this guidance effective January 1, 2010. However, none of the specific
additional disclosures were applicable at December 31, 2010.
On January 1, 2009, the Company adopted accounting guidance that clarifies how to determine
whether certain instruments or features are indexed to an entitys own stock. This guidance was
effective for financial statements issued for fiscal years beginning after December 15, 2008 and
interim periods within those fiscal years. The Company recorded a cumulative effect of change in
accounting principles upon adoption of this guidance. See Note 9 for additional information.
On January 1, 2009, the Company adopted accounting guidance that establishes accounting and
reporting standards for (1) noncontrolling interests in partially owned consolidated subsidiaries
and (2) the loss of control of subsidiaries. This guidance requires noncontrolling interests
(minority interests) to be reported as a separate component of equity. The amount of net income or
loss attributable to the noncontrolling interests will be included in consolidated net income or
loss on the face of the income statement. In addition, this guidance requires that a parent
recognize a gain or loss in net income or loss when a subsidiary is deconsolidated. Such gain or
loss will be measured using the fair value of the noncontrolling equity investment on the
deconsolidation date. This guidance also includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest. The Company recorded $2.6 million and
$1.8 million, respectively, of net loss attributable to noncontrolling interest for the years ended
December 31, 2010 and December 31, 2009, which is reflected in the Companys consolidated financial
statements.
2. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Coal |
|
$ |
678 |
|
|
$ |
1,158 |
|
Materials and supplies |
|
|
23,474 |
|
|
|
25,713 |
|
Reserve for obsolete inventory |
|
|
(581 |
) |
|
|
(1,000 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
23,571 |
|
|
$ |
25,871 |
|
|
|
|
|
|
|
|
175
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
3. RESTRICTED INVESTMENTS AND BOND COLLATERAL
The Companys restricted investments and bond collateral consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Coal Segment: |
|
|
|
|
|
|
|
|
Westmoreland Mining debt reserve account |
|
$ |
7,514 |
|
|
$ |
5,064 |
|
Reclamation bond collateral: |
|
|
|
|
|
|
|
|
Rosebud Mine |
|
|
12,263 |
|
|
|
12,462 |
|
Absaloka Mine |
|
|
10,956 |
|
|
|
9,228 |
|
Jewett Mine |
|
|
3,001 |
|
|
|
1,502 |
|
Beulah Mine |
|
|
1,270 |
|
|
|
1,270 |
|
|
|
|
|
|
|
|
|
|
Power Segment: |
|
|
|
|
|
|
|
|
Letter of credit account |
|
|
5,990 |
|
|
|
6,037 |
|
Debt protection account |
|
|
905 |
|
|
|
2,067 |
|
Repairs and maintenance account |
|
|
1,067 |
|
|
|
|
|
Ash reserve account |
|
|
602 |
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
Corporate Segment: |
|
|
|
|
|
|
|
|
Workers compensation bonds |
|
|
6,350 |
|
|
|
6,118 |
|
Postretirement medical benefit bonds |
|
|
5,466 |
|
|
|
3,840 |
|
|
|
|
|
|
|
|
Total restricted investments and bond collateral |
|
$ |
55,384 |
|
|
$ |
48,188 |
|
|
|
|
|
|
|
|
For all of its restricted investments and bond collateral accounts, the Company can select
investment options for the funds and receives the investment returns on these investments. Funds
in the restricted investment and bond collateral accounts are not available to meet the Companys
cash needs. These restricted investments include holds held-to-maturity and available-for-sale
securities.
The Companys carrying value and estimated fair value of its restricted investments and bond
collateral at December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Cash and cash equivalents |
|
$ |
39,557 |
|
|
$ |
39,557 |
|
Time deposits |
|
|
10,266 |
|
|
|
10,266 |
|
Held-to-maturity securities |
|
|
2,672 |
|
|
|
3,012 |
|
Available-for-sale securities |
|
|
2,889 |
|
|
|
2,889 |
|
|
|
|
|
|
|
|
|
|
$ |
55,384 |
|
|
$ |
55,724 |
|
|
|
|
|
|
|
|
In 2010, the Company recorded a gain of $0.1 million on the sale of available-for-sale
securities held as restricted investments and bond collateral. In 2009, an impairment of $0.2
million was recorded as a result of other-than-temporary declines in the value of marketable
securities included in restricted investments and bond collateral.
Coal Segment
Pursuant to the terms of the Note Purchase Agreement dated June 26, 2008, WML must maintain a
debt service reserve account. The debt service reserve account is required to contain funds
sufficient to pay the principal, interest, and collateral agents fees scheduled to be paid in the
following six months. The debt service reserve account was fully funded at December 31, 2010.
As of December 31, 2010, the Company had reclamation bond collateral in place for its
Absaloka, Rosebud, Jewett and Beulah Mines. These government-required bonds assure that
coal-mining operations comply with applicable federal and state regulations relating to the
performance and completion of final reclamation activities. The amounts deposited in the bond
collateral account secure the bonds issued by the bonding company.
176
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Power Segment
Pursuant to the terms of its loan agreement with Prudential, ROVA was required to maintain
either three or six months debt service reserves in its debt protection accounts, which was based
on the calculation of its current debt service coverage ratio. Following the Parent Notes offering
in February 2011, this is no longer required.
The loan agreement required ROVA to fund an ash reserve account to $0.6 million. The ash
reserve account was fully funded at December 31, 2010.
The loan agreement also required ROVA to fund a repairs and maintenance account up to a
maximum amount of $2.6 million. The funds for the repairs and maintenance account were required to
be deposited every three months based on a formula contained in the agreement.
Following the Parent Notes offering in February 2011, the debt protection, ash reserve, and
repairs and maintenance accounts are no longer required and will be available for current operating
needs.
Corporate Segment
The Company is required to obtain surety bonds in connection with its self-insured workers
compensation plan and certain health care plans. The Companys surety bond underwriters require
collateral to issue these bonds.
Held-to-Maturity and Available-for-Sale Restricted Investments and Bond Collateral
The amortized cost, gross unrealized holding gains and losses and fair value of
held-to-maturity securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Amortized cost |
|
$ |
2,672 |
|
|
$ |
3,479 |
|
Gross unrealized holding gains |
|
|
340 |
|
|
|
113 |
|
Gross unrealized holding losses |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
Fair value |
|
$ |
3,012 |
|
|
$ |
3,590 |
|
|
|
|
|
|
|
|
Maturities of held-to-maturity securities are as follows at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Due in five years or less |
|
$ |
652 |
|
|
$ |
730 |
|
Due after five years to ten years |
|
|
762 |
|
|
|
859 |
|
Due in more than ten years |
|
|
1,258 |
|
|
|
1,423 |
|
|
|
|
|
|
|
|
|
|
$ |
2,672 |
|
|
$ |
3,012 |
|
|
|
|
|
|
|
|
The cost basis, gross unrealized holding gains and losses and fair value of available-for-sale
securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Cost basis |
|
$ |
2,566 |
|
|
$ |
2,625 |
|
Gross unrealized holding gains |
|
|
323 |
|
|
|
281 |
|
Gross unrealized holding losses |
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
|
Fair value |
|
$ |
2,889 |
|
|
$ |
2,879 |
|
|
|
|
|
|
|
|
177
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
4. LINES OF CREDIT AND LONG-TERM DEBT
The amounts outstanding under the Companys lines of credit and long-term debt consisted of
the following as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
Total Debt Outstanding |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Westmoreland Mining, LLC: |
|
|
|
|
|
|
|
|
Revolving line of credit |
|
$ |
1,500 |
|
|
$ |
|
|
Term debt |
|
|
125,000 |
|
|
|
125,000 |
|
Capital lease obligations |
|
|
18,407 |
|
|
|
22,360 |
|
Other term debt |
|
|
2,556 |
|
|
|
1,463 |
|
Westmoreland Resources, Inc.: |
|
|
|
|
|
|
|
|
Revolving line of credit |
|
|
16,900 |
|
|
|
16,400 |
|
Term debt |
|
|
9,600 |
|
|
|
12,000 |
|
Capital lease obligations |
|
|
7,821 |
|
|
|
9,864 |
|
ROVA: |
|
|
|
|
|
|
|
|
Term debt |
|
|
46,220 |
|
|
|
55,575 |
|
Debt premiums |
|
|
428 |
|
|
|
880 |
|
Corporate: |
|
|
|
|
|
|
|
|
Convertible notes |
|
|
18,495 |
|
|
|
17,258 |
|
Debt discount |
|
|
(4,823 |
) |
|
|
(6,105 |
) |
|
|
|
|
|
|
|
Total debt outstanding |
|
|
242,104 |
|
|
|
254,695 |
|
Less current portion |
|
|
(14,973 |
) |
|
|
(57,489 |
) |
|
|
|
|
|
|
|
Total debt outstanding, less current portion |
|
$ |
227,131 |
|
|
$ |
197,206 |
|
|
|
|
|
|
|
|
The following table presents aggregate contractual debt maturities of all long-term debt and
the lines of credit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent |
|
|
|
As of |
|
|
to Parent |
|
|
|
December 31, |
|
|
Notes |
|
|
|
2010 |
|
|
Offering |
|
|
|
(In thousands) |
|
2011 |
|
$ |
42,298 |
|
|
$ |
14,973 |
|
2012 |
|
|
32,732 |
|
|
|
21,512 |
|
2013 |
|
|
56,855 |
|
|
|
26,315 |
|
2014 |
|
|
34,435 |
|
|
|
22,565 |
|
2015 |
|
|
32,170 |
|
|
|
21,910 |
|
Thereafter |
|
|
48,009 |
|
|
|
198,009 |
|
|
|
|
|
|
|
|
Total |
|
|
246,499 |
|
|
|
305,284 |
|
Less: debt discount |
|
|
(4,395 |
) |
|
|
(7,500 |
) |
|
|
|
|
|
|
|
Total debt |
|
$ |
242,104 |
|
|
$ |
297,784 |
|
|
|
|
|
|
|
|
Westmoreland Mining LLC
WML has $125.0 million of fixed rate term debt outstanding at December 31, 2010. The term
debt bears interest at 8.02% per annum, payable quarterly. The principal payments required for the
term debt are $7.5 million in 2011, $14.0 million in 2012, $18.0 million in 2013, $18.0 million in
2014, $20.0 million in 2015, and $47.5 million thereafter. The term debt is payable in full on
March 31, 2018.
At December 31, 2010, WML has the 2001 Revolving Credit Agreement, or the Revolver, with a
borrowing limit of $25.0 million and a maturity date of June 26, 2013. WML has two interest rate
options to choose from on the Revolver. The Base Rate option bears interest at a base rate plus
0.50% and is payable monthly (3.75% per annum at December 31, 2010). The LIBOR Rate option bears
interest at the London Interbank Offering Rate, or LIBOR, rate plus 3.0% (3.30% per annum at
December 31, 2010). In addition, a commitment fee of 0.50% of the average unused portion of the
available Revolver is
178
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
payable quarterly. At December 31, 2010, the Revolver had an outstanding
balance of $1.5 million and also supported a $1.9 million letter of credit. The Company had $21.6
million of unused borrowings under the Revolver.
The term debt and Revolver are secured by substantially all assets of WML, Westmoreland Savage
Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC;
the Companys membership interest in WML; and the stock of WSC, WECO and DWC. WECO, DWC, and WSC
have guaranteed WMLs obligations with respect to the term debt and the Revolver. The credit
agreement requires a debt service account and imposes timing and other restrictions on the ability
of WML to distribute funds to the Parent.
WMLs lending arrangements contain, among other conditions, events of default and various
affirmative and negative covenants. As of December 31, 2010, WML was in compliance with all
covenants. The Company expects to meet all WML covenant requirements in 2011.
WML engages in leasing transactions for equipment utilized in its mining operations. At
December 31, 2010 and 2009, the capital leases outstanding had a weighted average interest rate of
7.96% and 7.74%, respectively. WML also had other term debt outstanding at December 31, 2010 and
2009, with weighted average interest rate of 6.14% for both years.
Westmoreland Resources, Inc.
In December 2010, WRIs Business Loan Agreement was amended and the $20.0 million revolving
line of credit was extended through December 18, 2011. The interest rate for the term debt and the
revolver were payable at the prime rate. The term debt and the revolver were both subject to a per
annum 8.0% and 7.0% floor, respectively. As described in Note 1, the outstanding balance of the
term debt and the revolving line of credit were repaid and the revolving line of credit was
terminated in February 2011.
At December 31, 2010, the Company had $3.1 million of unused borrowings under the revolver.
The revolver did not have commitment fees for the unused portion of the available revolving loan.
The two debt instruments were collateralized by a first lien in WRIs inventory, chattel
paper, accounts and notes receivable, and equipment. WCC was the guarantor of the debt under the
Agreement and its guaranty was secured by a pledge of WCCs interest in WRI.
WRIs Business Loan Agreement required it to comply with numerous covenants and minimum
financial ratio requirements primarily related to debt coverage, tangible net worth, capital
expenditures, and its operations. Primarily as a result of unfavorable market conditions driving
decreases in tonnages sold, WRI was not in compliance with a net worth requirement contained in its
Business Loan Agreement at April 30, 2010. As a result of this non-compliance, the interest rates
on WRIs term debt and revolving line of credit were increased 1% (to 8% and 7%, respectively at
December 31, 2010). As of December 31, 2010, WRI was in compliance with all covenants, with the
exception of the net worth requirement.
WRI leases equipment utilized in its operations at the Absaloka Mine. The weighted average
interest rate for these capital leases outstanding at December 31, 2010 and 2009 was 6.65% and
7.60%, respectively.
ROVA
At December 31, 2010, ROVAs outstanding fixed rate term debt had interest rates varying from
6.0% to 11.42%. The weighted average interest rate on the fixed rate term debt at December 31, 2010
and 2009 was 9.93% and 10.0%, respectively. As described in Note 1, the outstanding balance of the
fixed rate term debt was repaid in February 2011.
ROVA had a $6.0 million revolving loan with interest payable quarterly at the three-month
LIBOR rate plus 1.375% (1.68% per annum at December 31, 2010). In addition, a commitment fee of
1.375% of the unused portion of the available revolving loan was payable quarterly. At December
31, 2010, the Company had $6.0 million of unused borrowings under the revolver. ROVAs revolving
line of credit was terminated as part of the Parent Notes offering
described in Note 1.
The term debt as well as the revolving loan were secured by a pledge of the quarterly cash
distributions from ROVA. ROVA was required to comply with certain loan covenants related to
interest and fixed charge coverage. As of December 31, 2010, ROVA was in compliance with such
covenants.
179
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Convertible Debt
On March 4, 2008, the Company completed the sale of $15.0 million in senior secured
convertible notes to an existing shareholder pursuant to a Note Purchase Agreement. The notes had
an interest rate of 10.0% per annum. Interest on the notes was payable monthly in cash or in kind
by increasing the principal amount of each note at the Companys option. The number of shares of
common stock into which the notes could be converted increased in the circumstances specified in
the Note Purchase Agreement, including the Companys payment of interest on the notes in kind and
the issuance of additional securities at a price less than the conversion price of the notes then
in effect. The Company paid interest in kind through the issuance of $1.2 million of additional
notes during 2010. This resulted in an additional 123,644 shares of common stock being issuable on
conversion of the convertible notes at a conversion price of $10.00 per share, bringing the total
to 1,849,453 shares at December 31, 2010. As described in Note 1, the convertible notes were
retired in February 2011.
The convertible notes were secured by a second lien on the assets of WRI.
The note purchase agreement contained affirmative and negative covenants. WRIs
non-compliance with the net worth requirement in its Business Loan Agreement triggered a cross
default in the Companys convertible notes. On August 2, 2010, the Company obtained a waiver from
its lenders regarding this cross default. In consideration of this waiver, the interest rate on
the convertible notes increased 1% on July 1, 2010 to 10%. As of December 31, 2010, the Company
was in compliance with all covenants, with the exception of the cross default that had been waived.
5. POSTRETIREMENT MEDICAL BENEFITS
The Company provides postretirement medical benefits to retired employees and their
dependents, mandated by the Coal Industry Retiree Health Act of 1992 and pursuant to collective
bargaining agreements. The Company also provides these benefits to qualified full-time employees
pursuant to collective bargaining agreements. These benefits are provided through self-insured
programs.
In 2009, plan amendments, which modernized how the Company provides prescription drug benefits
to retirees, favorable claims experience, favorable interest rates, and reductions in
administrative fees resulted in a $95.3 million reduction in the Companys postretirement medical
obligation with a corresponding decrease in Accumulated other comprehensive loss.
In March 2010, the Patient Protection and Affordable Care Act, or PPACA was enacted,
potentially impacting the Companys costs to provide healthcare benefits to its retired employees.
The PPACA has both short-term and long-term implications on healthcare benefit plan standards.
Implementation of this legislation is planned to occur in phases, with plan standard changes taking
effect beginning in 2010, but to a greater extent with the 2011 benefit plan year and extending
through 2018. Beginning in 2018, the PPACA will impose a 40% excise tax on employers to the extent
that the value of their healthcare plan coverage exceeds certain dollar thresholds. As a result,
the Company has increased its postretirement medical benefit obligation at December 31, 2010 by
$6.9 million with a corresponding increase in Accumulated other comprehensive loss. The Company
will continue to evaluate the impact of the PPACA in future periods as additional information,
interpretations and guidance becomes available.
In addition to the $6.9 million increase in the Companys postretirement medical obligation at
December 31, 2010 due to the PPACA, an additional increase of $16.3 million occurred as a result of
changes in discount rates and claims experience. As a result, the Company had a corresponding
increase in Accumulated other comprehensive loss.
180
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The following table sets forth the actuarial present value of postretirement medical benefit
obligations and amounts recognized in the Companys financial statements:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Change in benefit obligations: |
|
|
|
|
|
|
|
|
Net benefit obligation at beginning of year |
|
$ |
190,223 |
|
|
$ |
284,851 |
|
Service cost |
|
|
539 |
|
|
|
735 |
|
Interest cost |
|
|
10,498 |
|
|
|
16,233 |
|
Plan participant contributions |
|
|
153 |
|
|
|
140 |
|
Actuarial (gain) loss |
|
|
23,195 |
|
|
|
(60,155 |
) |
Gross benefits paid |
|
|
(14,797 |
) |
|
|
(17,816 |
) |
Federal subsidy on benefits paid |
|
|
1,049 |
|
|
|
1,315 |
|
Plan amendments |
|
|
|
|
|
|
(35,080 |
) |
|
|
|
|
|
|
|
Net benefit obligation at end of year |
|
|
210,860 |
|
|
|
190,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Employer contributions |
|
|
14,644 |
|
|
|
17,676 |
|
Plan participant contributions |
|
|
153 |
|
|
|
140 |
|
Gross benefits paid |
|
|
(14,797 |
) |
|
|
(17,816 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded status at end of year |
|
$ |
(210,860 |
) |
|
$ |
(190,223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the balance sheet consist of: |
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
(13,581 |
) |
|
$ |
(14,501 |
) |
Noncurrent liabilities |
|
|
(197,279 |
) |
|
|
(175,722 |
) |
Accumulated other comprehensive loss (gain) |
|
|
8,336 |
|
|
|
(15,134 |
) |
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(202,524 |
) |
|
$ |
(205,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other
comprehensive loss consists of: |
|
|
|
|
|
|
|
|
Net actuarial loss (gain) |
|
$ |
15,777 |
|
|
$ |
(7,151 |
) |
Prior service credit |
|
|
(7,627 |
) |
|
|
(8,262 |
) |
Transition obligation |
|
|
186 |
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
$ |
8,336 |
|
|
$ |
(15,134 |
) |
|
|
|
|
|
|
|
The Company has elected to amortize its unrecognized, unfunded accumulated postretirement
medical benefit obligation over a 20-year period. Transition obligations, prior service costs and
credits, and actuarial gains and losses are amortized over the average life expectancy of the
plans participants. The transition obligation, actuarial loss and prior service credit that will
be amortized from accumulated other comprehensive loss into net periodic pension cost in 2011 are
less than $0.1 million, $0.3 million, and $0.6 million, respectively.
181
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The components of net periodic postretirement medical benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Components of net periodic benefit
cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
539 |
|
|
$ |
735 |
|
|
$ |
677 |
|
Interest cost |
|
|
10,498 |
|
|
|
16,233 |
|
|
|
17,107 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation |
|
|
93 |
|
|
|
3,381 |
|
|
|
3,613 |
|
Prior service cost (credit) |
|
|
(636 |
) |
|
|
924 |
|
|
|
1,325 |
|
Actuarial loss |
|
|
268 |
|
|
|
2,774 |
|
|
|
3,381 |
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
10,762 |
|
|
$ |
24,047 |
|
|
$ |
26,103 |
|
|
|
|
|
|
|
|
|
|
|
The following table shows the net periodic postretirement medical benefit costs that relate to
current and former mining operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Former mining operations |
|
$ |
9,225 |
|
|
$ |
22,186 |
|
|
$ |
24,553 |
|
Current operations |
|
|
1,537 |
|
|
|
1,861 |
|
|
|
1,550 |
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
10,762 |
|
|
$ |
24,047 |
|
|
$ |
26,103 |
|
|
|
|
|
|
|
|
|
|
|
The costs for the former mining operations are included in Heritage health benefit expenses
and the costs for current operations are included as operating expenses.
Assumptions
The weighted-average assumptions used to determine the benefit obligations as of the end of
each year were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2010 |
|
2009 |
Discount rate |
|
|
5.15 |
% |
|
|
5.71 |
% |
Measurement date |
|
December 31, 2010 |
|
December 31, 2009 |
The discount rate is adjusted annually based on an Aa corporate bond index adjusted for the
difference in the duration of the bond index and the duration of the benefit obligations. This
rate is calculated using a yield curve, which is developed using the average yield for bonds in the
tenth to ninetieth percentiles, which excludes bonds with outlier yields.
The weighted-average assumptions used to determine net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
2010 |
|
2009 |
|
2008 |
Discount rate |
|
|
5.71 |
% |
|
|
5.45% - 6.05 |
% |
|
|
6.10 |
% |
Measurement date |
|
December 31, 2009 |
|
December 31, 2008 |
|
December 31, 2007 |
182
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The following presents information about the assumed health care trend rate:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Health care cost trend rate assumed for next year |
|
|
7.50 |
% |
|
|
8.00 |
% |
Rate to which the cost trend is assumed to decline
(ultimate trend rate) |
|
|
5.00 |
% |
|
|
5.00 |
% |
Year that the trend rate reaches the ultimate trend rate |
|
|
2016 |
|
|
|
2016 |
|
The effect of a one percent change on the health care cost trend rate used to calculate
periodic postretirement medical benefit costs and the related benefit obligation are summarized in
the table below:
|
|
|
|
|
|
|
|
|
|
|
Postretirement Medical Benefits |
|
|
|
1 % Increase |
|
|
1 % Decrease |
|
|
|
(In thousands) |
|
Effect on service and interest cost components |
|
$ |
1,282 |
|
|
$ |
(1,079 |
) |
Effect on postretirement medical benefit
obligation |
|
$ |
22,565 |
|
|
$ |
(19,116 |
) |
Cash Flows
The following benefit payments and Medicare D subsidy (which the Company receives as a benefit
partially offsetting its prescription drug costs for retirees and their dependents) are expected by
the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
Medicare D |
|
Net Postretirement |
|
|
Medical Benefits |
|
Subsidy |
|
Medical Benefits |
|
|
(In thousands) |
|
2011
|
|
$ |
14,734 |
|
|
$ |
(1,153 |
) |
|
$ |
13,581 |
|
2012
|
|
|
15,088 |
|
|
|
(1,215 |
) |
|
|
13,873 |
|
2013
|
|
|
15,428 |
|
|
|
(1,270 |
) |
|
|
14,158 |
|
2014
|
|
|
15,617 |
|
|
|
(1,318 |
) |
|
|
14,299 |
|
2015
|
|
|
15,903 |
|
|
|
(1,350 |
) |
|
|
14,553 |
|
Years 2016 2020
|
|
|
78,962 |
|
|
|
(7,201 |
) |
|
|
71,761 |
|
Combined Benefit Fund
Additionally, the Company makes payments to the UMWA Combined Benefit Fund, or CBF, which is a
multiemployer health plan neither controlled by nor administered by the Company. The CBF is
designed to pay health care benefits to UMWA workers (and dependents) who retired prior to 1976.
The Company is required by the Coal Act to make monthly premium payments into the CBF. These
payments are based on the number of the Companys UMWA employees who retired prior to 1976, and the
Companys pro-rata assigned share of UMWA retirees whose companies are no longer in business. The
Company expenses payments to the CBF when they are due. Payments in 2010, 2009 and 2008 were $3.0
million, $3.1 million and $3.5 million, respectively.
Workers Compensation Benefits
The Company was self-insured for workers compensation benefits prior to January 1, 1996.
Since 1996, the Company has purchased third-party insurance for workers compensation claims.
183
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The following table shows the changes in the Companys workers compensation obligation:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Workers compensation , beginning of year
(including current portion) |
|
$ |
11,219 |
|
|
$ |
12,838 |
|
Accretion |
|
|
429 |
|
|
|
300 |
|
Claims paid |
|
|
(633 |
) |
|
|
(806 |
) |
Actuarial changes |
|
|
(637 |
) |
|
|
(1,113 |
) |
|
|
|
|
|
|
|
Workers compensation, end of year |
|
|
10,378 |
|
|
|
11,219 |
|
Less current portion |
|
|
(954 |
) |
|
|
(1,031 |
) |
|
|
|
|
|
|
|
Workers compensation, less current portion |
|
$ |
9,424 |
|
|
$ |
10,188 |
|
|
|
|
|
|
|
|
The discount rates used in determining the workers compensation benefit accruals are
adjusted annually based on ten-year Treasury bond rates. At December 31, 2010 and 2009, the rates
were 3.60% and 4.10%, respectively.
Pneumoconiosis (Black Lung) Benefits
The Company is self-insured for federal and state pneumoconiosis benefits for former employees
and has established an independent trust to pay these benefits.
The PPACA amended previous legislation related to black lung disease, providing automatic
extension of awarded lifetime benefits to surviving spouses and providing changes to the legal
criteria used to assess and award claims. Since the legislation passed in March 2010, the Company
has experienced a significant increase in claims filed compared to the corresponding period in
prior years. However, the Company has not been able to determine what, if any, additional impact
may result from these claims due to lack of claims experience under the new legislation and court
rulings interpreting the new provisions. The Company will continue to evaluate the impact of the
PPACA in future periods as additional information, interpretations, guidance and claims experience
becomes available.
The following table sets forth the funded status of the Companys black lung obligation:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Actuarial present value of benefit obligation: |
|
|
|
|
|
|
|
|
Expected claims from terminated employees |
|
$ |
949 |
|
|
$ |
937 |
|
Amounts owed to existing claimants |
|
|
13,108 |
|
|
|
13,723 |
|
|
|
|
|
|
|
|
Total present value of benefit obligation |
|
|
14,057 |
|
|
|
14,660 |
|
Plan assets at fair value, primarily government-backed securities |
|
|
11,811 |
|
|
|
13,874 |
|
|
|
|
|
|
|
|
Excess of the pneumoconiosis benefit obligation over trust assets |
|
$ |
(2,246 |
) |
|
$ |
(786 |
) |
|
|
|
|
|
|
|
The underfunded status of the Companys 2010 and 2009 obligation is included as Excess of
pneumoconiosis benefit obligation over trust assets in the accompanying Consolidated Balance
Sheets.
The discount rates used in determining the actuarial present value of the pneumoconiosis
benefit obligation are based on corporate bond yields and are adjusted annually. At December 31,
2010 and 2009, the rates used were 4.60% and 5.20%, respectively.
184
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Plan Assets
The fair value of the Companys Black Lung trust assets by asset category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010 |
|
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
|
|
|
|
|
in Active |
|
|
Other |
|
|
|
|
|
|
|
Markets for |
|
|
Observable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
U.S. treasury securities |
|
$ |
10,416 |
|
|
$ |
|
|
|
$ |
10,416 |
|
Mortgage-backed securities |
|
|
682 |
|
|
|
|
|
|
|
682 |
|
Cash and cash equivalents |
|
|
713 |
|
|
|
713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,811 |
|
|
$ |
713 |
|
|
$ |
11,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
|
|
|
|
|
in Active |
|
|
Other |
|
|
|
|
|
|
|
Markets for |
|
|
Observable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
|
(In thousands) |
|
U.S. treasury securities |
|
$ |
12,860 |
|
|
$ |
|
|
|
$ |
12,860 |
|
Mortgage-backed securities |
|
|
839 |
|
|
|
|
|
|
|
839 |
|
Cash and cash equivalents |
|
|
175 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,874 |
|
|
$ |
175 |
|
|
$ |
13,699 |
|
|
|
|
|
|
|
|
|
|
|
The Black Lung Level 1 trust assets include cash and cash equivalents.
The Black Lung Level 2 trust assets include U.S. treasury bonds and notes where evaluators
gather information from market sources and integrate relative credit information, observed market
movements, and sector news into the evaluated pricing applications and models to value these
assets. Level 2 trust assets also include mortgage-backed securities which are valued via model
using various inputs such as daily cash flow, snapshots of US Treasury market, floating rate
indices as a benchmark yield, spread over index, periodic and life caps, next coupon adjustment
date, and convertibility of the bond.
6. PENSION AND OTHER SAVING PLANS |
Defined Benefit Pension Plans
The Company provides defined benefit pension plans to qualified full-time employees pursuant
to collective bargaining agreements. Benefits are generally based on years of service and the
employees average annual compensation for the highest five continuous years of employment as
specified in the plan agreement. The Companys funding policy is to contribute annually the
minimum amount prescribed, as specified by applicable regulations or loan covenants.
Effective July 1, 2009, the Company froze its pension plan for non-represented employees and,
as a result, future benefits will no longer accrue under this plan. The Company recorded a $10.7
million decrease in its pension liability with a corresponding decrease in Accumulated other
comprehensive loss.
185
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Supplemental Executive Retirement Plan
The Company maintains a Supplemental Executive Retirement Plan or SERP for former executives
as a result of employment or severance agreements. The SERP is an unfunded non-qualified deferred
compensation plan, which provides benefits to certain employees beyond the maximum limits imposed
by the Employee Retirement Income Security Act and the Internal Revenue Code. The Company does not
expect to add new participants to its SERP plan.
The following table provides a reconciliation of the changes in the benefit obligations of the
plans and the fair value of assets of the qualified plans and the amounts recognized in the
Companys financial statements for both the defined benefit pension and SERP plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension |
|
|
SERP |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit obligation at beginning of year |
|
$ |
76,084 |
|
|
$ |
76,672 |
|
|
$ |
3,200 |
|
|
$ |
3,279 |
|
Service cost |
|
|
610 |
|
|
|
1,577 |
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
4,490 |
|
|
|
4,650 |
|
|
|
183 |
|
|
|
191 |
|
Actuarial loss |
|
|
7,025 |
|
|
|
3,171 |
|
|
|
175 |
|
|
|
36 |
|
Benefits paid |
|
|
(2,762 |
) |
|
|
(1,610 |
) |
|
|
(306 |
) |
|
|
(306 |
) |
Plan amendments |
|
|
|
|
|
|
204 |
|
|
|
|
|
|
|
|
|
Curtailments |
|
|
|
|
|
|
(8,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit obligation at end of year |
|
|
85,447 |
|
|
|
76,084 |
|
|
|
3,252 |
|
|
|
3,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning
of year |
|
|
52,152 |
|
|
|
40,783 |
|
|
|
|
|
|
|
|
|
Actual return on plan assets |
|
|
7,732 |
|
|
|
7,196 |
|
|
|
|
|
|
|
|
|
Employer contributions |
|
|
10,811 |
|
|
|
5,782 |
|
|
|
306 |
|
|
|
306 |
|
Benefits paid |
|
|
(2,762 |
) |
|
|
(1,610 |
) |
|
|
(306 |
) |
|
|
(306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
67,933 |
|
|
|
52,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year |
|
$ |
(17,514 |
) |
|
$ |
(23,933 |
) |
|
$ |
(3,252 |
) |
|
$ |
(3,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the accompanying
balance sheet consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liability |
|
$ |
|
|
|
$ |
|
|
|
$ |
(304 |
) |
|
$ |
(306 |
) |
Noncurrent liability |
|
|
(17,514 |
) |
|
|
(23,933 |
) |
|
|
(2,948 |
) |
|
|
(2,894 |
) |
Accumulated other comprehensive loss |
|
|
22,946 |
|
|
|
20,542 |
|
|
|
770 |
|
|
|
625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized at end of year |
|
$ |
5,432 |
|
|
$ |
(3,391 |
) |
|
$ |
(2,482 |
) |
|
$ |
(2,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other
comprehensive loss consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
|
$ |
22,946 |
|
|
$ |
20,542 |
|
|
$ |
765 |
|
|
$ |
610 |
|
Prior service costs |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,946 |
|
|
$ |
20,542 |
|
|
$ |
770 |
|
|
$ |
625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for all plans was $88.7 million and $79.3 million at
December 31, 2010 and 2009, respectively. There is no difference between the accumulated benefit
obligation and the benefit obligation in 2010 or 2009 due to the pension plan freeze mentioned
above.
186
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Prior service costs and actuarial gains and losses are amortized over the expected future
period of service of the plans participants using the corridor method. The net actuarial loss and
prior service costs that will be amortized from accumulated other comprehensive loss into net
periodic benefit cost in 2011 is $1.5 million and less than $0.1 million, respectively.
The components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension |
|
|
|
|
|
|
SERP |
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
610 |
|
|
$ |
1,577 |
|
|
$ |
2,597 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
4,490 |
|
|
|
4,650 |
|
|
|
4,390 |
|
|
|
183 |
|
|
|
191 |
|
|
|
198 |
|
Expected return on plan assets |
|
|
(4,393 |
) |
|
|
(3,359 |
) |
|
|
(4,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment loss |
|
|
|
|
|
|
204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
Actuarial loss |
|
|
1,282 |
|
|
|
1,817 |
|
|
|
340 |
|
|
|
20 |
|
|
|
18 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic pension cost |
|
$ |
1,989 |
|
|
$ |
4,889 |
|
|
$ |
2,911 |
|
|
$ |
213 |
|
|
$ |
219 |
|
|
$ |
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These costs are included in the accompanying statement of operations in Cost of sales and
Selling and administrative expenses.
Assumptions
The weighted-average assumptions used to determine the benefit obligations as of the end of
each year were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension |
|
SERP |
|
|
December 31, |
|
December 31, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
Discount rate |
|
|
5.15% - 5.40 |
% |
|
|
5.96 |
% |
|
|
5.40 |
% |
|
|
6.00 |
% |
Rate of
compensation
increase |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Measurement date |
|
December 31, 2010 |
|
December 31, 2009 |
|
December 31, 2010 |
|
December 31, 2009 |
The discount rate is adjusted annually based on an Aa corporate bond index adjusted for
the difference in the duration of the bond index and the duration of the benefit obligations. This
rate is calculated using a yield curve, which is developed using the average yield for bonds in the
tenth to ninetieth percentiles, which excludes bonds with outlier yields.
The following table provides the assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension |
|
SERP |
|
|
|
Years Ended December 31, |
|
Years Ended December 31, |
|
|
2010 |
|
2009 |
|
2008 |
|
2010 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.75%-6.00 |
% |
|
|
6.10 |
% |
|
|
6.20%-6.30 |
% |
|
|
6.00 |
% |
|
|
6.10 |
% |
|
|
6.30 |
% |
Expected return on
plan assets |
|
|
7.80 |
% |
|
|
7.96 |
% |
|
|
8.50 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Rate of
compensation
increase |
|
|
N/A |
|
|
|
4.00%-7.50 |
% |
|
|
4.00%-7.50 |
% |
|
|
N/A |
|
|
|
4.00%-7.50 |
% |
|
|
4.00%-7.50 |
% |
Measurement date |
|
December 31, 2009 |
|
December 31, 2008 |
|
December 31, 2007 |
|
December 31, 2009 |
|
December 31, 2008 |
|
December 31, 2007 |
187
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Plan Assets
The Companys investment goals are to maximize returns subject to specific risk management
policies. The Company sets the expected return on plan assets based on historical trends and
forecasts provided by its third-party fund managers. Its risk management policies permit
investments in mutual funds, and prohibit direct investments in debt and equity securities and
derivative financial instruments. The Company invested in its common stock in 2010 in order to
meet plan funding requirements. The Company addresses diversification by the use of mutual fund
investments whose underlying investments are in fixed income and equity securities, both domestic
and international. These mutual funds are readily marketable and can be sold to fund benefit
payment obligations as they become payable.
The weighted-average target asset allocation of the Companys pension trusts were as follows
at December 31, 2010:
|
|
|
|
|
|
|
Target |
|
|
|
Allocation |
|
Asset category |
|
|
|
|
Cash and equivalents |
|
|
0% - 10 |
% |
Equity securities funds |
|
|
40% - 70 |
% |
Debt securities funds |
|
|
30% - 60 |
% |
Other |
|
|
0% - 10 |
% |
Total |
|
|
|
|
The fair value of the Companys pension plan assets by asset category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010 |
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Equity securities funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
29,233 |
|
|
$ |
29,233 |
|
|
$ |
|
|
|
$ |
|
|
International |
|
|
6,659 |
|
|
|
6,659 |
|
|
|
|
|
|
|
|
|
Debt securities funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. bonds |
|
|
22,736 |
|
|
|
|
|
|
|
22,736 |
|
|
|
|
|
Short-term securities |
|
|
1,313 |
|
|
|
1,313 |
|
|
|
|
|
|
|
|
|
Limited partnerships and
limited liability companies |
|
|
1,359 |
|
|
|
|
|
|
|
|
|
|
|
1,359 |
|
Westmoreland Coal common stock |
|
|
6,045 |
|
|
|
6,045 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
588 |
|
|
|
588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67,933 |
|
|
$ |
43,838 |
|
|
$ |
22,736 |
|
|
$ |
1,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Equity securities funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
24,850 |
|
|
$ |
24,850 |
|
|
$ |
|
|
|
$ |
|
|
International |
|
|
2,467 |
|
|
|
2,467 |
|
|
|
|
|
|
|
|
|
Debt securities funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. bonds |
|
|
15,065 |
|
|
|
|
|
|
|
15,065 |
|
|
|
|
|
Short-term securities |
|
|
967 |
|
|
|
967 |
|
|
|
|
|
|
|
|
|
Limited partnerships and
limited liability companies |
|
|
1,697 |
|
|
|
|
|
|
|
|
|
|
|
1,697 |
|
Westmoreland Coal common stock |
|
|
3,240 |
|
|
|
3,240 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
3,865 |
|
|
|
3,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
52,151 |
|
|
$ |
35,389 |
|
|
$ |
15,065 |
|
|
$ |
1,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys Level 1 assets include domestic and foreign equity securities funds and its
common stock, which is typically valued using quoted market prices of a national exchange. Cash and
cash equivalents and short-term investments are predominantly held in money market accounts.
The Companys Level 2 assets include U.S. bond funds, which contain primarily domestic
fixed-income securities that are valued using inputs such as benchmark yields, reported trades,
broker/dealer quotes and issuer spreads.
The Companys Level 3 assets include interest in limited partnerships and limited liability
companies that invest in privately held companies or privately held real estate assets. Due to the
private nature of the partnership investments, pricing inputs are not readily observable. Assets
valuations are developed by the general partners that manage the partnerships. These valuations
are based on property appraisals, application of public market multiples to private company cash
flows, utilization of market transactions that provide valuation information for comparable
companies and other methods.
A summary of changes in the fair value of the Plans Level 3 assets is shown below:
|
|
|
|
|
|
|
|
|
|
|
Limited partnerships and limited |
|
|
|
liability companies |
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Beginning balance |
|
$ |
1,697 |
|
|
$ |
5,866 |
|
Realized loss |
|
|
|
|
|
|
(283 |
) |
Unrealized (loss) gain |
|
|
197 |
|
|
|
(234 |
) |
Settlements |
|
|
(535 |
) |
|
|
(3,652 |
) |
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,359 |
|
|
$ |
1,697 |
|
|
|
|
|
|
|
|
189
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Contributions
The Company is required by loan covenants to ensure that by 8.5 months after the end of the
plan year, the value of its pension assets are at least 90% of each of the plans year end
actuarially determined pension liability.
The Company contributed $5.8 million in cash and $5.0 million in company stock to its
retirement plans during 2010, in order to achieve the required 90% funding status. In 2011, the
Company expects to make approximately $10.2 million of pension plan contributions in cash. The
increase in expected contributions primarily resulted from the recent decline in the value of the
Companys pension investments.
Cash Flows
The following benefit payments are expected to be paid from its pension plan assets:
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
(In thousands) |
|
2011 |
|
$ |
2,674 |
|
2012 |
|
|
3,049 |
|
2013 |
|
|
3,476 |
|
2014 |
|
|
3,899 |
|
2015 |
|
|
4,277 |
|
Years 2016 - 2020 |
|
|
27,412 |
|
The benefits expected to be paid are based on the same assumptions used to measure the
Companys pension benefit obligation at December 31, 2010 and include estimated future employee
service.
Multi-Employer Pension
The Company contributes to a multiemployer defined benefit pension plan pursuant to collective
bargaining agreements. The contributions are based on hours worked and totaled $4.5 million, $4.3
million and $4.6 million for the years ended December 31, 2010, 2009 and 2008, respectively.
Other Plans
The Company sponsors 401(k) saving plans, which were established to assist eligible employees
provide for their future retirement needs. The Companys expense, representing its contributions
of Company stock to the plans, was $2.7 million, $2.4 million and $1.5 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
|
|
|
7. HERITAGE HEALTH BENEFIT EXPENSES |
The caption Heritage health benefit expenses used in the Consolidated Statements of Operations
refers to costs of benefits the Company provides to its former mining operation employees. The
components of these expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Health care benefits |
|
$ |
9,927 |
|
|
$ |
22,490 |
|
|
$ |
25,588 |
|
Combined benefit fund payments |
|
|
2,953 |
|
|
|
3,132 |
|
|
|
3,470 |
|
Workers compensation benefits
(credit) |
|
|
81 |
|
|
|
(485 |
) |
|
|
4,417 |
|
Black lung benefits (credit) |
|
|
1,460 |
|
|
|
2,937 |
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14,421 |
|
|
$ |
28,074 |
|
|
$ |
33,452 |
|
|
|
|
|
|
|
|
|
|
|
The decrease in heritage health benefit expenses was primarily due to an agreement the
Company entered into to modernize how it provides prescription drug benefits to retirees.
190
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
|
|
|
8. |
|
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 Companys mines and ROVA at December 31, 2010 are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
|
|
|
|
|
|
Asset |
|
|
Third-Party |
|
|
|
|
|
|
Retirement |
|
|
Reclamation |
|
|
Reclamation |
|
|
|
Obligation |
|
|
Receivable |
|
|
Deposits |
|
|
|
(In thousands) |
|
Rosebud |
|
$ |
106,990 |
|
|
$ |
14,622 |
|
|
$ |
72,274 |
|
Jewett |
|
|
80,335 |
|
|
|
80,335 |
|
|
|
|
|
Absaloka |
|
|
32,338 |
|
|
|
525 |
|
|
|
|
|
Beulah |
|
|
18,588 |
|
|
|
|
|
|
|
|
|
Savage |
|
|
2,676 |
|
|
|
|
|
|
|
|
|
ROVA |
|
|
716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
241,643 |
|
|
$ |
95,482 |
|
|
$ |
72,274 |
|
|
|
|
|
|
|
|
|
|
|
Asset Retirement Obligations
Changes in the Companys asset retirement obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Asset retirement obligations, beginning of year
(including current portion) |
|
$ |
244,615 |
|
|
$ |
222,708 |
|
Accretion |
|
|
19,773 |
|
|
|
17,436 |
|
Liabilities settled |
|
|
(15,351 |
) |
|
|
(9,434 |
) |
Changes due to amount and timing of reclamation |
|
|
(7,394 |
) |
|
|
13,905 |
|
|
|
|
|
|
|
|
Asset retirement obligations, end of year |
|
|
241,643 |
|
|
|
244,615 |
|
Less current portion |
|
|
(14,514 |
) |
|
|
(15,513 |
) |
|
|
|
|
|
|
|
Asset retirement obligations, less current portion |
|
$ |
227,129 |
|
|
$ |
229,102 |
|
|
|
|
|
|
|
|
As permittee, the Company or its subsidiaries are responsible for the total amount of
final reclamation costs for its mines and ROVA. The financial responsibility for a portion of
final reclamation of the mines when they are closed has been transferred by contract to certain
customers, while other customers have provided guarantees or funded escrow accounts to cover final
reclamation costs. Costs of reclamation of mining pits prior to mine closure are recovered in the
price of coal shipped.
As of December 31, 2010, the Company had $230.4 million in surety bonds outstanding to secure
reclamation obligations.
Contractual Third-Party Reclamation Receivables
The Company has recognized as an asset $95.5 million as contractual third-party reclamation
receivables, representing the present value of customer obligations to reimburse the Company for
reclamation expenditures at the Companys Rosebud, Jewett and Absaloka Mines.
During 2010, the Company increased its Contractual third-party reclamation receivables by $9.0
million due to a customer reclamation settlement. A corresponding decrease was recorded to
Capitalized asset retirement cost.
191
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Reclamation Deposits
The Companys reclamation deposits will be used to fund final reclamation activities. The
Companys carrying value and estimated fair value of its reclamation deposits at December 31, 2010,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Cash and cash equivalents |
|
$ |
38,534 |
|
|
$ |
38,534 |
|
Held-to-maturity securities |
|
|
15,633 |
|
|
|
17,044 |
|
Time deposits |
|
|
15,903 |
|
|
|
15,903 |
|
Available-for-sale securities |
|
|
2,204 |
|
|
|
2,204 |
|
|
|
|
|
|
|
|
|
|
$ |
72,274 |
|
|
$ |
73,685 |
|
|
|
|
|
|
|
|
In 2010, the Company recorded a $0.6 million gain on the sale of available-for-sale
securities held as reclamation deposits. In 2009, an impairment of $0.3 million was recorded as a
result of other-than-temporary declines in the value of marketable securities included in
reclamation deposits.
Held-to-Maturity and Available-for-Sale Reclamation Deposits
The amortized cost, gross unrealized holding gains and losses and fair value of
held-to-maturity securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Amortized cost |
|
$ |
15,633 |
|
|
$ |
21,099 |
|
Gross unrealized holding gains |
|
|
1,453 |
|
|
|
1,418 |
|
Gross unrealized holding losses |
|
|
(42 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
Fair value |
|
$ |
17,044 |
|
|
$ |
22,508 |
|
|
|
|
|
|
|
|
Maturities of held-to-maturity securities are as follows at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Due in five years or less |
|
$ |
3,350 |
|
|
$ |
3,732 |
|
Due after five years to ten years |
|
|
4,207 |
|
|
|
4,335 |
|
Due in more than ten years |
|
|
8,076 |
|
|
|
8,977 |
|
|
|
|
|
|
|
|
|
|
$ |
15,633 |
|
|
$ |
17,044 |
|
|
|
|
|
|
|
|
The cost basis, gross unrealized holding gains and fair value of available-for-sale
securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Cost basis |
|
$ |
2,000 |
|
|
$ |
2,402 |
|
Gross unrealized holding gains |
|
|
204 |
|
|
|
712 |
|
|
|
|
|
|
|
|
Fair value |
|
$ |
2,204 |
|
|
$ |
3,114 |
|
|
|
|
|
|
|
|
192
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
|
|
|
9. |
|
DERIVATIVE INSTRUMENTS |
Adoption of ASC 815-40
On January 1, 2009, the Company adopted ASC 815-40, Determining Whether an Instrument (or
Embedded Feature) is Indexed to an Entitys Own Stock. As part of the adoption of ASC 815-40, the
Company determined that its convertible debt instrument is not indexed to its stock, and therefore
the value of the conversion feature was separated from the debt and reclassified as a liability. A
corresponding debt discount was established which will be amortized over the life of the
convertible notes. Prior to adopting ASC 815-40, the Company followed ASC 470-20, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios. ASC 470-20 required the Company to record interest expense and corresponding
paid-in-capital related to the beneficial conversion feature in its convertible debt and was
superseded by ASC 815-40. In addition to the Companys convertible debt, ASC 815-40 also applies
to a warrant the Company issued and, therefore, the value of the warrant has been recorded as a
liability. As a part of the Parent Notes offering in February 2011, the convertible notes were
retired.
The Company recorded the following cumulative effect of change in accounting principle
pursuant to its adoption of ASC 815-40:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Debt Discount |
|
|
Derivative Liability |
|
|
Paid-In-Capital |
|
|
Accumulated Deficit |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Record January 1,
2009, debt discount
and derivative
instrument
liability related
to convertible debt |
|
$ |
7,734 |
|
|
$ |
5,605 |
|
|
$ |
|
|
|
$ |
(2,129 |
) |
Record January 1,
2009, derivative
instrument
liability related
to warrant |
|
|
|
|
|
|
477 |
|
|
|
|
|
|
|
477 |
|
Record amortization
of debt discount
from March 4, 2008,
through December
31, 2008 |
|
|
(653 |
) |
|
|
|
|
|
|
|
|
|
|
653 |
|
Record the reversal
of the beneficial
conversion feature
expensed in 2008
under ASC 470-20 |
|
|
|
|
|
|
|
|
|
|
(8,147 |
) |
|
|
(8,147 |
) |
Record the reversal
of prior accounting
related to the
warrant |
|
|
|
|
|
|
|
|
|
|
(1,700 |
) |
|
|
(1,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,081 |
|
|
$ |
6,082 |
|
|
$ |
(9,847 |
) |
|
$ |
(10,846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debt
A Binomial Lattice model was used to obtain the fair value of the conversion feature in the
Companys convertible debt instrument. The conversion feature of the convertible debt instruments
had no value at December 31, 2009 and the following assumptions were used at December 31, 2010:
|
|
|
|
|
Stock Price |
|
Bond Yield |
|
|
$11.94 |
|
|
5.16 |
% |
Warrant
The Companys warrant expired August 20, 2010 and therefore had no value at December 31, 2010.
The following assumptions were used for the warrant at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Included in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Life |
Warrant |
|
Dividend Yield |
|
Volatility |
|
Risk Free Rate |
|
(in years) |
|
173,228 |
|
None |
|
|
65 |
% |
|
|
0.20 |
% |
|
|
1.0 |
|
193
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The fair value of outstanding derivative instruments not designated as hedging instruments on
the accompanying Consolidated Balance Sheet were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
Derivative Instruments |
|
Balance Sheet Location |
|
|
2010 |
|
|
2009 |
|
|
Convertible debt
-conversion feature |
|
Other liabilities |
|
$ |
3,588 |
|
|
$ |
|
|
Warrant |
|
Other liabilities |
|
|
|
|
|
|
30 |
|
The effect of derivative instruments not designated as hedging instruments on the
accompanying Consolidated Statements of Operations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Expense) |
|
|
|
|
|
|
|
Recognized in Earnings on |
|
|
|
|
|
|
|
Derivatives |
|
|
|
Statement of |
|
|
Year Ended December 31, |
|
Derivative Instruments |
|
Operations Location |
|
|
2010 |
|
|
2009 |
|
|
Convertible debt
-conversion feature |
|
Other income (loss) |
|
$ |
(3,486 |
) |
|
$ |
5,674 |
|
Warrant |
|
Other income (loss) |
|
|
30 |
|
|
|
448 |
|
10. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The
Company is required to disclose the fair value of financial instruments where practicable. The
carrying amounts of cash equivalents, accounts receivable and accounts payable reflected on the
Consolidated Balance Sheet approximate the fair value of these instruments due to the short
duration to their maturities. The Company calculates the fair value of its long-term debt by using
discount rate estimates based on interest rates as of December 31, 2010. See Notes 3, 8 and 9 for
additional disclosures related to fair value measurements on restricted cash and bond collateral,
reclamation deposits and embedded derivatives, respectively.
The estimated fair value of the Companys debt with fixed interest rates, excluding conversion
feature values are as follows:
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
|
(In thousands) |
|
December 31, 2009 |
|
$ |
192,608 |
|
|
$ |
201,352 |
|
December 31, 2010 |
|
$ |
185,320 |
|
|
$ |
196,483 |
|
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 1 assets include available-for-sale equity securities
generally valued based on independent third-party market prices. |
|
|
|
|
Level 2, defined as observable inputs other than Level 1 prices. These include
quoted prices for similar assets or liabilities in an active market, quoted prices for
identical assets and liabilities in markets that are not active, or other inputs that
are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities. The Company had no Level 2 inputs at December
31, 2010. |
|
|
|
|
Level 3, defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions. The Companys
convertible notes conversion feature and warrant were classified as Level 3. These
items were valued using the Binomial Lattice model and the Black-Scholes model,
respectively. |
194
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The table below sets forth, by level, the Companys financial assets and liabilities that are
accounted for at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010 |
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments
included in Restricted investments
and bond collateral |
|
$ |
2,889 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,889 |
|
Available-for-sale investments
included in Reclamation deposits |
|
|
2,204 |
|
|
|
|
|
|
|
|
|
|
|
2,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,093 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt conversion feature |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,588 |
|
|
$ |
3,588 |
|
Total liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,588 |
|
|
$ |
3,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
investments included in
Restricted investments
and bond collateral |
|
$ |
2,879 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,879 |
|
Available-for-sale
investments included in
Reclamation deposits |
|
|
3,114 |
|
|
|
|
|
|
|
|
|
|
|
3,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,993 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant |
|
$ |
|
|
|
$ |
|
|
|
$ |
30 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
30 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the change in the fair values of the derivative instrument
liabilities categorized as Level 3:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Beginning balance |
|
$ |
30 |
|
|
$ |
|
|
January 1, 2010, beginning balance
adjustment pursuant to adoption of ASC
815-40 |
|
|
|
|
|
|
6,082 |
|
Additional debt discount |
|
|
102 |
|
|
|
70 |
|
Change in fair value |
|
|
3,456 |
|
|
|
(6,122 |
) |
|
|
|
|
|
|
|
Ending balance |
|
$ |
3,588 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
11. STOCKHOLDERS EQUITY
Preferred and Common Stock
The Company has two classes of capital stock outstanding, common stock, par value $2.50 per
share, and Series A Convertible Exchangeable Preferred Stock on which cumulative dividends of
$2.125 per share are payable quarterly. Each share of Series A Preferred Stock is represented by
four Depositary Shares. Under the terms of the Series A Preferred Stock, the Company can redeem
preferred shares at any time for the redemption value of $100.00 plus accumulated dividends paid
in cash.
195
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The amount of dividends accumulated through and including January 1, 2011 and the redemption
value of preferred shares are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended Total |
|
|
|
Shares |
|
|
Per Share |
|
|
(in thousands) |
|
|
|
|
Dividends accumulated(1) |
|
|
160,129 |
|
|
$ |
124.53 |
|
|
$ |
19,940 |
|
Redemption value |
|
|
160,129 |
|
|
$ |
100.00 |
|
|
|
16,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
35,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In February 2011, the Company paid the $19.9 million of accumulated
dividends as of January 1, 2011. |
The Company is permitted to pay preferred stock dividends to the extent that there is a
surplus, as defined by Delaware law.
Restricted Net Assets
WCC has obligations to pay pension and postretirement medical benefits, to fund corporate
expenditures, and to pay interest on the Parent Notes. However, WCC conducts no operations, has no
source of revenue and is fully dependent on distributions from its subsidiaries to pay its costs.
At December 31, 2010, the loan agreements of WML and ROVA required debt service accounts and
imposed timing and other restrictions on the ability of WML and ROVA to distribute funds to WCC.
At December 31, 2010, the subsidiaries of the Parent had approximately $108.1 million of net
assets that were not available to be transferred to the Parent in the form of dividends, loans, or
advances due to restrictions contained in the credit facilities of these subsidiaries. Subsequent
to the Parent Notes offering, the Company will no longer have restricted net assets.
12. |
|
RESTRICTED STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS |
As of December 31, 2010, the Company had restricted stock, stock options, and stock-settled
stock appreciation rights, or SARs, outstanding from five stock incentive plans. Four of these
plans were terminated in October 2009. Employees are now granted restricted stock units from the
2007 Incentive Stock Plan. The 2007 Incentive Stock Plan also provides that non-employee directors
will receive equity awards with a value of $50,000 after each annual meeting.
The maximum number of remaining shares that can be issued under the 2007 Incentive Stock Plan
is 288,261.
Compensation cost arising from share-based arrangements is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Recognition of fair value of restricted stock, stock options
and SARs over vesting period |
|
$ |
1,058 |
|
|
$ |
702 |
|
|
$ |
1,227 |
|
Contributions of stock to the Companys 401(k) plan |
|
|
2,991 |
|
|
|
1,869 |
|
|
|
1,569 |
|
Compensation credit for performance units plan (1) |
|
|
|
|
|
|
(19 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense (2) |
|
$ |
4,049 |
|
|
$ |
2,552 |
|
|
$ |
2,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys only active performance unit plan expired June 30, 2009. |
|
(2) |
|
These costs are recorded in Cost of sales and Selling and administrative expenses
in the accompanying statement of operations. |
196
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The Company used the Black-Scholes option pricing model to determine the fair value of options
and SARs on the date of grant. The Company utilized U.S. Treasury yields as of the grant date for
its risk-free interest rate assumption and expected volatilities were based on historical stock
price movement and other factors. The Company utilized historical data to develop its dividend
yield and expected option life assumptions. The following assumptions were used for the year ended
December 31, 2008; no options or SARs were granted in 2010 or 2009:
|
|
|
|
|
|
|
December 31, 2008 |
|
Assumptions (weighted average): |
|
|
|
|
Risk-free interest rate |
|
|
3.62 |
% |
Expected dividend yield |
|
None |
|
Expected volatility |
|
|
50 |
% |
Expected life (in years) |
|
|
7.0 |
|
Restricted Stock
The Company may issue restricted stock, which requires no payment from the employee.
Restricted stock typically vests ratably over three years. Upon vesting, restricted stock will be
redeemed and paid to employees with either cash or the Companys common stock. Compensation
expense is based on the fair value on the grant date and is recorded ratably over the vesting
period.
A summary of restricted stock award activity for the year ended December 31, 2010, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized |
|
|
|
|
|
|
|
Weighted Average |
|
|
Compensation |
|
|
|
Common |
|
|
Grant-Date Fair |
|
|
Expense |
|
|
|
Shares |
|
|
Value |
|
|
(In thousands) |
|
|
|
|
Non-vested at December 31, 2009 |
|
|
96,558 |
|
|
$ |
8.36 |
|
|
|
|
|
Granted |
|
|
157,833 |
|
|
$ |
8.31 |
|
|
|
|
|
Vested |
|
|
(47,656 |
) |
|
$ |
9.21 |
|
|
|
|
|
Forfeited |
|
|
(14,038 |
) |
|
$ |
8.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2010 |
|
|
192,697 |
|
|
$ |
8.13 |
|
|
$ |
1,265 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Expected to be recognized over the next three years. |
Weighted average grant-date fair value was $8.31, $8.24 and $15.99 for 2010, 2009 and
2008, respectively.
The total grant-date fair value of restricted stock that vested was $0.4 million in 2010 and
$0.2 million in both 2009 and 2008.
197
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Stock Options
Stock options generally vest over three years, expire ten years from the date of grant, and
have an option price equal to the market value of the stock on the date of grant.
Information with respect to stock option activity for the year ended December 31, 2010, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
Unamortized |
|
|
|
|
|
|
|
Weighted |
|
|
Contractual |
|
|
Aggregate |
|
|
Compensation |
|
|
|
|
|
|
|
Average |
|
|
Life |
|
|
Intrinsic |
|
|
Expense |
|
|
|
Stock Options |
|
|
Exercise Price |
|
|
(in years) |
|
|
Value |
|
|
(In thousands) |
|
|
|
|
Outstanding at December 31, 2009 |
|
|
354,224 |
|
|
$ |
18.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(2,500 |
) |
|
$ |
3.38 |
|
|
|
|
|
|
$ |
16,588 |
|
|
|
|
|
Expired |
|
|
(28,466 |
) |
|
$ |
17.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(4,668 |
) |
|
$ |
21.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
318,590 |
|
|
$ |
18.99 |
|
|
|
4.4 |
|
|
$ |
16,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010 |
|
|
273,834 |
|
|
$ |
18.60 |
|
|
|
3.9 |
|
|
$ |
16,938 |
|
|
$ |
259 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Expected to be recognized over the next year. |
The weighted average grant-date fair value per stock option granted in 2008 was $11.84.
No stock options were granted in 2010 or 2009.
The intrinsic value of stock options exercised was less than $0.1 million in 2010 and $0.5
million in 2008. No stock options were exercised in 2009.
The total grant-date fair value of stock options that vested was $0.1 million in both 2010 and
2009 and less than $0.1 million in 2008.
SARs
SARs generally vest over three years, expire ten years from the date of grant, and have a base
price equal to the market value of the stock on the date of grant. Upon vesting, the holders may
exercise the SARs and receive a number of shares of common stock having a value equal to the
appreciation in the value of the common stock between the grant date and the exercise date.
Information with respect to SARs granted and outstanding for the year ended December 31, 2010
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Unamortized |
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
|
|
|
|
Compensation |
|
|
|
|
|
|
|
Average |
|
|
Contractual Life |
|
|
Aggregate Intrinsic |
|
|
Expense |
|
|
|
SARs |
|
|
Base Price |
|
|
(in years) |
|
|
Value |
|
|
(In thousands) |
|
|
|
|
Outstanding at December 31, 2009 |
|
|
155,334 |
|
|
$ |
21.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
(36,400 |
) |
|
$ |
21.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
118,934 |
|
|
$ |
22.13 |
|
|
|
4.6 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010 |
|
|
118,934 |
|
|
$ |
22.13 |
|
|
|
4.6 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No SARs were granted during 2010, 2009, or 2008.
The intrinsic value of SARs exercised was less than $0.1 million in 2008. No SARs were
exercised in 2010 or 2009.
198
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The total grant-date fair value of SARs that vested was less than $0.1 million in both 2010
and 2009 and $0.3 million in 2008.
13. |
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
The following is a summary of accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and |
|
|
|
|
|
|
Tax Effect of Other |
|
|
|
|
|
|
Postretirement |
|
|
Available for Sale |
|
|
Comprehensive |
|
|
Accumulated Other |
|
|
|
Medical Benefits |
|
|
Securities |
|
|
Income Gains |
|
|
Comprehensive Loss |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Balance at January 1, 2008 |
|
$ |
(116,093 |
) |
|
$ |
|
|
|
$ |
(9,094 |
) |
|
$ |
(125,187 |
) |
2008 activity |
|
|
(3,386 |
) |
|
|
112 |
|
|
|
|
|
|
|
(3,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
(119,479 |
) |
|
|
112 |
|
|
|
(9,094 |
) |
|
|
(128,461 |
) |
Postretirement medical
benefit plan amendments and
pension plan freeze
adjustments |
|
|
105,983 |
|
|
|
|
|
|
|
|
|
|
|
105,983 |
|
2009 activity |
|
|
7,465 |
|
|
|
852 |
|
|
|
(17,062 |
) |
|
|
(8,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
(6,031 |
) |
|
|
964 |
|
|
|
(26,156 |
) |
|
|
(31,223 |
) |
2010 activity |
|
|
(26,018 |
) |
|
|
(439 |
) |
|
|
|
|
|
|
(26,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
(32,049 |
) |
|
$ |
525 |
|
|
$ |
(26,156 |
) |
|
$ |
(57,680 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement medical benefit adjustments relate to changes in the funded
status of various benefit plans, as discussed in Notes 5 and 6. The unrealized gains and losses
associated with recognizing the Companys available-for-sale securities at fair value are
recorded through Accumulated other comprehensive loss. See Note 14 regarding the tax effect of
other comprehensive income gains.
Income tax expense (benefit) attributable to net loss before income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(10 |
) |
|
$ |
(323 |
) |
|
$ |
|
|
State |
|
|
(14 |
) |
|
|
1,168 |
|
|
|
919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
845 |
|
|
|
919 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
|
|
(15,977 |
) |
|
|
|
|
State |
|
|
(117 |
) |
|
|
(2,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117 |
) |
|
|
(17,981 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
(141 |
) |
|
$ |
(17,136 |
) |
|
$ |
919 |
|
|
|
|
|
|
|
|
|
|
|
199
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Income tax expense (benefit) attributable to net loss before income taxes differed from
the amounts computed by applying the statutory Federal income tax rate of 34% to pre-tax income as
a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Computed tax benefit at statutory rate |
|
$ |
(1,126 |
) |
|
$ |
(15,619 |
) |
|
$ |
(16,200 |
) |
Increase (decrease) in tax expense resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Tax depletion in excess of basis |
|
|
(4,019 |
) |
|
|
(713 |
) |
|
|
(2,643 |
) |
Non-deductible interest expense and convertible debt valuation |
|
|
2,076 |
|
|
|
(1,074 |
) |
|
|
3,156 |
|
Noncontrolling interest |
|
|
899 |
|
|
|
618 |
|
|
|
|
|
State income taxes, net |
|
|
(1,090 |
) |
|
|
(2,467 |
) |
|
|
(3,214 |
) |
Change in valuation allowance for net deferred
tax assets |
|
|
(3,312 |
) |
|
|
2,902 |
|
|
|
24,628 |
|
Medicare Part D subsidy law change |
|
|
7,159 |
|
|
|
|
|
|
|
|
|
Indian Coal Tax Credits |
|
|
(120 |
) |
|
|
(96 |
) |
|
|
(5,893 |
) |
Other, net |
|
|
(608 |
) |
|
|
(687 |
) |
|
|
1,085 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
(141 |
) |
|
$ |
(17,136 |
) |
|
$ |
919 |
|
|
|
|
|
|
|
|
|
|
|
The PPACA reduces the tax benefits available to an employer that receives the Medicare
Part D subsidy beginning in years ending after December 31, 2010. As a result of the PPACA,
employers that receive the Medicare Part D subsidy will recognize the deferred tax effects of the
reduced deductibility of the postretirement prescription drug coverage in the period the PPACA was
enacted. On March 30, 2010, a companion bill, the Reconciliation Act, was signed into law. The
Reconciliation Act reduces the effect of the PPACA on affected employers by deferring for two years
(until years ending after December 31, 2012) the reduced deductibility of the postretirement
prescription drug coverage. Accounting for income taxes requires that the effect of adjusting the
deferred tax asset for the elimination of this deduction be included in income from continuing
operations. However, entities that have a full valuation allowance for this deferred tax asset
would recognize a related decrease in the valuation allowance. As the Company has a full valuation
allowance against its related deferred tax asset, this change in tax law regarding the Medicare
Part D subsidy will not have an effect on the Companys income from continuing operations. The
effect of this change in tax law is a reduction of $7.2 million of the Companys deferred tax
assets with a corresponding decrease in its valuation allowance. In addition, this change in the
tax deduction does not affect the pre-tax expense or corresponding liability for postretirement
prescription drug benefits.
For the year ended December 31, 2009, the Company recorded a tax benefit of $17.1 million due
to a non-cash income tax benefit related to gains recorded within other comprehensive income during
2009. Generally accepted accounting principles, or GAAP, require all items be considered,
including items recorded in other comprehensive income, in determining the amount of tax benefit
that results from a loss from continuing operations that should be allocated to continuing
operations. In accordance with GAAP, the Company recorded a tax benefit on its loss from continuing
operations, which was exactly offset by income tax expense on other comprehensive income as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From |
|
|
|
|
|
|
|
|
|
Continuing |
|
|
Other |
|
|
Total |
|
|
|
Operations |
|
|
Comprehensive Income |
|
|
Comprehensive Income |
|
|
|
(In thousands) |
|
Pre-allocation |
|
$ |
(46,224 |
) |
|
$ |
114,300 |
|
|
$ |
68,076 |
|
Tax allocation |
|
|
17,062 |
|
|
$ |
(17,062 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As presented |
|
$ |
(29,162 |
) |
|
$ |
97,238 |
|
|
$ |
68,076 |
|
|
|
|
|
|
|
|
|
|
|
As the income tax expense on other comprehensive income is equal to the income tax
benefit recognized in continuing operations, the Companys total comprehensive income is unchanged.
In addition, the Companys net deferred tax position at December 31, 2009 was not impacted by this
tax allocation.
200
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Federal net operating loss carryforwards |
|
$ |
74,061 |
|
|
$ |
67,133 |
|
State net operating loss carryforwards |
|
|
24,627 |
|
|
|
14,983 |
|
Alternative minimum tax credit carryforwards |
|
|
7,009 |
|
|
|
5,683 |
|
Charitable contribution carryforwards |
|
|
169 |
|
|
|
179 |
|
Indian Coal Tax Credit carryforwards |
|
|
25,552 |
|
|
|
26,654 |
|
Accruals for the following: |
|
|
|
|
|
|
|
|
Workers compensation |
|
|
4,013 |
|
|
|
4,338 |
|
Postretirement medical benefit and pension
obligations |
|
|
80,116 |
|
|
|
81,764 |
|
Incentive plans |
|
|
1,843 |
|
|
|
900 |
|
Asset retirement obligations |
|
|
68,561 |
|
|
|
66,839 |
|
Deferred revenues |
|
|
29,430 |
|
|
|
31,757 |
|
Gain on sale of partnership interest |
|
|
6,402 |
|
|
|
8,061 |
|
Other accruals |
|
|
5,618 |
|
|
|
7,147 |
|
|
|
|
|
|
|
|
Total gross deferred assets |
|
|
327,401 |
|
|
|
315,438 |
|
Less valuation allowance |
|
|
(247,086 |
) |
|
|
(232,575 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
80,315 |
|
|
|
82,863 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant and equipment, differences due
to depreciation and amortization |
|
|
(76,656 |
) |
|
|
(77,562 |
) |
Change in accounting method |
|
|
(354 |
) |
|
|
(2,137 |
) |
Other |
|
|
(847 |
) |
|
|
(823 |
) |
|
|
|
|
|
|
|
Total gross deferred tax liabilities |
|
|
(77,857 |
) |
|
|
(80,522 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
2,458 |
|
|
$ |
2,341 |
|
|
|
|
|
|
|
|
As of December 31, 2010, the Company had significant deferred tax assets. The deferred
tax assets include federal and state regular net operating losses, or NOLs, alternative minimum
tax, or AMT, credit carryforwards, Indian Coal Tax Credit, or ICTC, carryforwards, charitable
contribution carryforwards, and net deductible reversing temporary differences related to on-going
differences between book and taxable income.
The Company believes it will be taxed under the AMT system for the foreseeable future due to
the significant amount of statutory tax depletion in excess of book depletion expected to be
generated by its mining operations. As a result, Westmoreland has determined that a valuation
allowance is required for all of its regular federal net operating loss carryforwards and AMT
credit carryforwards since they are only available to offset future regular taxes.
The Company has recorded a full valuation allowance for all but $2.5 million of its state net
operating losses, since it believes they will not be realized. No valuation allowance is being
provided on $2.5 million of deferred tax assets because it is believed that these net operating
losses will be used to offset the Companys liabilities relating to its uncertain tax positions.
The Company has determined that a full valuation allowance is required for all its ICTC
carryforward. The ICTC can generally be used to offset AMT liability. The Company does not
believe it has sufficient positive evidence of significant magnitude to substantiate that its
deferred tax asset for the ICTC carryforward is realizable at a more-likely-than-not level of
assurance. As a result, the Company will continue to record a full valuation allowance on its ICTC
carryforward; reversing valuation allowance only if utilized in a future year.
The Company has determined that since its net deductible temporary differences will not
reverse for the foreseeable future, and it is unable to forecast when it will have regular taxable
income when they do reverse, a full valuation allowance is required for these deferred tax assets,
other than the deferred tax asset relating to the Companys uncertain tax positions.
201
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
As of December 31, 2010, the Company has available Federal net operating loss carryforwards to
reduce future regular taxable income, which expires as follows:
|
|
|
|
|
Expiration Date |
|
Regular Tax |
|
(In thousands) |
2011 |
|
$ |
32,698 |
|
2012 |
|
|
449 |
|
2018 |
|
|
28 |
|
2019 |
|
|
88,429 |
|
2020 |
|
|
32 |
|
after 2020 |
|
|
96,165 |
|
|
|
|
|
Total |
|
$ |
217,801 |
|
|
|
|
|
As of December 31, 2010, the Company has an estimated $25.6 million in ICTC carryforwards
available to offset the Companys regular tax and AMT liabilities. As of December 31, 2010, the
Company also has an estimated $479.5 million in State net operating loss carryforwards to reduce
future taxable income.
For the year ended December 31, 2010, Westmoreland recorded a long-term liability related to
uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Balance of unrecognized tax benefits at beginning of year |
|
$ |
2,861 |
|
|
$ |
1,748 |
|
Additions for tax positions related to current year |
|
|
18 |
|
|
|
1,113 |
|
|
|
|
|
|
|
|
Balance of unrecognized tax benefits at end of year |
|
$ |
2,879 |
|
|
$ |
2,861 |
|
|
|
|
|
|
|
|
As of December 31, 2010, the Company had $0.1 million of accrued interest and penalties
included in the long-term tax liability, of which less than $0.1 million was recognized in 2010.
The Company files tax returns in the U.S. federal jurisdiction and in various U.S. state
jurisdictions, and is subject to examination by taxing authorities in all of these jurisdictions.
From time to time, the Companys tax returns are reviewed or audited by various U.S. state taxing
authorities. The Company believes that adjustments, if any, resulting from these reviews or audits
would not be material, individually or in the aggregate, to the Companys financial position,
results of operations or liquidity. It is reasonably possible that the amount of unrecognized tax
benefits related to certain of the Companys tax positions will increase or decrease in the next
twelve months as audits or reviews are initiated and settled. At this time, an estimate of the
range of a reasonably possible change cannot be made. With few exceptions, the Company is not
subject to income tax examinations by U.S. federal or state jurisdictions for fiscal years prior to
2005.
15. COMMITMENTS
Supply Agreements
Westmoreland Partners, which owns ROVA, has two coal supply agreements with TECO Coal
Corporation, or TECO. If Westmoreland Partners continues to purchase coal under these contracts at
the current volume and pricing, then Westmoreland Partners would be obligated to pay TECO $28.6
million in each of the years of 2011, 2012, 2013, $17.1 million for 2014 and $2.8 million for 2015.
202
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Leases
The gross value of property, plant, equipment and mine development assets under capital leases
was $37.5 million and $46.9 million as of December 31, 2010 and 2009, respectively, related
primarily to the leasing of mining equipment. The accumulated amortization for these items was
$11.0 million and $9.5 million at December 31, 2010 and 2009, respectively.
Future minimum capital and operating lease payments as of December 31, 2010, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010 |
|
|
|
Capital Leases |
|
|
Operating Leases |
|
|
|
(In thousands) |
|
2011 |
|
$ |
8,714 |
|
|
$ |
6,665 |
|
2012 |
|
|
8,319 |
|
|
|
4,243 |
|
2013 |
|
|
7,077 |
|
|
|
2,827 |
|
2014 |
|
|
4,461 |
|
|
|
2,233 |
|
2015 |
|
|
1,617 |
|
|
|
1,625 |
|
Thereafter |
|
|
105 |
|
|
|
718 |
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
30,293 |
|
|
$ |
18,311 |
|
|
|
|
|
|
|
|
|
Less imputed interest |
|
|
(4,064 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum capital
lease payments |
|
$ |
26,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense under operating leases during the years ended December 31, 2010, 2009 and
2008 totaled $6.0 million, $6.7 million and $4.9 million, respectively.
The Company leases certain of its coal reserves from third parties and pays royalties based on
either a per ton rate or as a percentage of revenues received. Royalties charged to expense under
all such lease agreements amounted to $41.3 million, $29.7 million and $35.7 million in the years
ended December 31, 2010, 2009 and 2008, respectively.
16. CONTINGENCIES
The Company is a party to numerous claims and lawsuits with respect to various matters. The
Company provides for costs related to contingencies when a loss is probable and the amount is
reasonably estimable. After conferring with counsel, it is the opinion of management that the
ultimate resolution of pending claims will not have a material adverse effect on the consolidated
financial condition, results of operations, or liquidity of the Company.
17. BUSINESS SEGMENT INFORMATION
Segment information is based on a management approach, which requires segmentation based upon
the Companys internal organization and reporting of revenue and operating income.
The Companys operations are classified into four segments: coal, power, heritage and
corporate. The coal segment includes the production and sale of coal from Montana, North Dakota
and Texas. The power segment includes its ROVA operations located in North Carolina. The heritage
segment costs primarily include benefits the Company provides to former mining operation employees
as well as other administrative costs associated with providing those benefits and cost containment
efforts. The corporate segment primarily consists of corporate administrative expenses.
203
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
Summarized financial information by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal |
|
|
Power |
|
|
Heritage |
|
|
Corporate |
|
|
Consolidated |
|
|
|
(In thousands) |
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
418,058 |
|
|
$ |
87,999 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
506,057 |
|
Operating income (loss) |
|
|
32,922 |
|
|
|
11,721 |
|
|
|
(15,968 |
) |
|
|
(8,154 |
) |
|
|
20,521 |
|
Total assets |
|
|
520,722 |
|
|
|
207,643 |
|
|
|
12,283 |
|
|
|
9,658 |
|
|
|
750,306 |
|
Capital expenditures |
|
|
20,056 |
|
|
|
2,207 |
|
|
|
|
|
|
|
551 |
|
|
|
22,814 |
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
361,206 |
|
|
$ |
82,162 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
443,368 |
|
Operating income (loss) |
|
|
476 |
|
|
|
7,672 |
|
|
|
(31,770 |
) |
|
|
(8,152 |
) |
|
|
(31,774 |
) |
Total assets |
|
|
537,924 |
|
|
|
216,685 |
|
|
|
4,634 |
|
|
|
13,485 |
|
|
|
772,728 |
|
Capital expenditures |
|
|
30,078 |
|
|
|
4,251 |
|
|
|
|
|
|
|
217 |
|
|
|
34,546 |
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
419,806 |
|
|
$ |
89,890 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
509,696 |
|
Restructuring charges |
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
1,854 |
|
|
|
2,009 |
|
Operating income (loss) |
|
|
15,211 |
|
|
|
16,920 |
|
|
|
(35,472 |
) |
|
|
(12,694 |
) |
|
|
(16,035 |
) |
Total assets |
|
|
557,245 |
|
|
|
239,083 |
|
|
|
5,301 |
|
|
|
11,338 |
|
|
|
812,967 |
|
Capital expenditures |
|
|
29,534 |
|
|
|
1,711 |
|
|
|
|
|
|
|
75 |
|
|
|
31,320 |
|
A reconciliation of segment income (loss) from operations to loss before income taxes
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Income (loss) from operations |
|
$ |
20,521 |
|
|
$ |
(31,774 |
) |
|
$ |
(16,035 |
) |
Interest expense attributable to beneficial conversion feature |
|
|
|
|
|
|
|
|
|
|
(8,146 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(5,178 |
) |
Interest expense |
|
|
(22,992 |
) |
|
|
(23,733 |
) |
|
|
(23,130 |
) |
Interest income |
|
|
1,747 |
|
|
|
3,218 |
|
|
|
5,125 |
|
Other income (loss) |
|
|
(2,587 |
) |
|
|
5,991 |
|
|
|
(284 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(3,311 |
) |
|
$ |
(46,298 |
) |
|
$ |
(47,648 |
) |
|
|
|
|
|
|
|
|
|
|
The Company derives its revenues from a few key customers. The customers from which more
than 10% of total revenue has been derived and the percentage of total revenue from those customers
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Customer A coal |
|
$ |
119,633 |
|
|
$ |
79,502 |
|
|
$ |
131,859 |
|
Customer B coal |
|
|
80,493 |
|
|
|
85,334 |
|
|
|
80,581 |
|
Customer C power |
|
|
86,926 |
|
|
|
81,037 |
|
|
|
88,651 |
|
Customer D coal (1) |
|
|
64,968 |
|
|
|
51,187 |
|
|
|
|
|
Customer E coal (2) |
|
|
|
|
|
|
49,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total revenue |
|
|
70 |
% |
|
|
78 |
% |
|
|
60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The revenue from Customer D did not exceed 10% in 2008. |
|
(2) |
|
The revenue from Customer E did not exceed 10% in 2010 and
2008. |
204
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
(In thousands; except per share data) |
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
126,439 |
|
|
$ |
127,632 |
|
|
$ |
124,080 |
|
|
$ |
127,906 |
|
Operating income (loss) |
|
|
5,314 |
|
|
|
1,333 |
|
|
|
7,839 |
|
|
|
6,035 |
|
Net income (loss) applicable to common
shareholders |
|
|
(3,195 |
) |
|
|
919 |
|
|
|
2,513 |
|
|
|
(2,122 |
) |
Basic income (loss) per common share |
|
$ |
(0.30 |
) |
|
$ |
0.09 |
|
|
$ |
0.23 |
|
|
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
121,798 |
|
|
$ |
104,780 |
|
|
$ |
112,404 |
|
|
$ |
104,386 |
|
Operating loss |
|
|
(4,402 |
) |
|
|
(6,249 |
) |
|
|
(9,751 |
) |
|
|
(11,372 |
) |
Net loss applicable to common shareholders |
|
|
(5,629 |
) |
|
|
(7,232 |
) |
|
|
(7,837 |
) |
|
|
(8,007 |
) |
Basic and diluted loss per common share |
|
$ |
(0.59 |
) |
|
$ |
(0.75 |
) |
|
$ |
(0.77 |
) |
|
$ |
(0.78 |
) |
205
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
19. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
Pursuant to the indenture governing the Parent Notes, certain wholly owned subsidiaries of the
Company have fully and unconditionally guaranteed the notes on a joint and several basis. The
following tables present unaudited consolidating financial information for (i) the issuer of the
notes (Westmoreland Coal Company), (ii) the co-issuer of the notes (Westmoreland Partners), (iii)
the guarantors under the notes, and (iv) the entities which are not guarantors under the notes:
CONSOLIDATING BALANCE SHEETS
December 31, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
Assets |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
755 |
|
|
$ |
138 |
|
|
$ |
|
|
|
$ |
9,626 |
|
|
$ |
|
|
|
$ |
10,519 |
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
|
|
|
|
13,737 |
|
|
|
29 |
|
|
|
32,824 |
|
|
|
(197 |
) |
|
|
46,393 |
|
Contractual third-party reclamation
receivables |
|
|
|
|
|
|
|
|
|
|
180 |
|
|
|
7,077 |
|
|
|
|
|
|
|
7,257 |
|
Intercompany receivable/payable |
|
|
|
|
|
|
|
|
|
|
11,429 |
|
|
|
(16,592 |
) |
|
|
5,163 |
|
|
|
|
|
Other |
|
|
424 |
|
|
|
|
|
|
|
2,686 |
|
|
|
672 |
|
|
|
(620 |
) |
|
|
3,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424 |
|
|
|
13,737 |
|
|
|
14,324 |
|
|
|
23,981 |
|
|
|
4,346 |
|
|
|
56,812 |
|
Inventories |
|
|
|
|
|
|
2,571 |
|
|
|
4,415 |
|
|
|
18,885 |
|
|
|
|
|
|
|
25,871 |
|
Other current assets |
|
|
454 |
|
|
|
176 |
|
|
|
540 |
|
|
|
4,877 |
|
|
|
|
|
|
|
6,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,633 |
|
|
|
16,622 |
|
|
|
19,279 |
|
|
|
57,369 |
|
|
|
4,346 |
|
|
|
99,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and mineral rights |
|
|
|
|
|
|
1,156 |
|
|
|
17,764 |
|
|
|
64,774 |
|
|
|
|
|
|
|
83,694 |
|
Capitalized asset retirement cost |
|
|
|
|
|
|
239 |
|
|
|
22,016 |
|
|
|
112,566 |
|
|
|
|
|
|
|
134,821 |
|
Plant and equipment |
|
|
2,295 |
|
|
|
214,531 |
|
|
|
113,388 |
|
|
|
156,024 |
|
|
|
|
|
|
|
486,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,295 |
|
|
|
215,926 |
|
|
|
153,168 |
|
|
|
333,364 |
|
|
|
|
|
|
|
704,753 |
|
Less accumulated depreciation,
depletion and amortization |
|
|
(1,830 |
) |
|
|
(32,953 |
) |
|
|
(74,566 |
) |
|
|
(139,220 |
) |
|
|
|
|
|
|
(248,569 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
465 |
|
|
|
182,973 |
|
|
|
78,602 |
|
|
|
194,144 |
|
|
|
|
|
|
|
456,184 |
|
Advanced coal royalties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,056 |
|
|
|
|
|
|
|
3,056 |
|
Reclamation deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,067 |
|
|
|
|
|
|
|
73,067 |
|
Restricted investments and bond collateral |
|
|
9,958 |
|
|
|
8,705 |
|
|
|
9,226 |
|
|
|
20,299 |
|
|
|
|
|
|
|
48,188 |
|
Contractual third-party reclamation
receivables, less current portion |
|
|
|
|
|
|
|
|
|
|
120 |
|
|
|
74,869 |
|
|
|
|
|
|
|
74,989 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,341 |
|
|
|
2,341 |
|
Intangible assets |
|
|
|
|
|
|
7,842 |
|
|
|
|
|
|
|
939 |
|
|
|
|
|
|
|
8,781 |
|
Investment in subsidiaries |
|
|
110,341 |
|
|
|
|
|
|
|
(664 |
) |
|
|
3,770 |
|
|
|
(113,447 |
) |
|
|
|
|
Other assets |
|
|
451 |
|
|
|
543 |
|
|
|
1,926 |
|
|
|
3,953 |
|
|
|
|
|
|
|
6,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
122,848 |
|
|
$ |
216,685 |
|
|
$ |
108,489 |
|
|
$ |
431,466 |
|
|
$ |
(106,760 |
) |
|
$ |
772,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
CONSOLIDATING BALANCE SHEETS
December 31, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
Liabilities and Stockholders Deficit |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt |
|
$ |
11,154 |
|
|
$ |
9,806 |
|
|
$ |
14,469 |
|
|
$ |
5,660 |
|
|
$ |
|
|
|
$ |
41,089 |
|
Revolving lines of credit |
|
|
|
|
|
|
|
|
|
|
16,400 |
|
|
|
|
|
|
|
|
|
|
|
16,400 |
|
Accounts payable and accrued expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
2,854 |
|
|
|
7,469 |
|
|
|
2,887 |
|
|
|
27,033 |
|
|
|
(979 |
) |
|
|
39,264 |
|
Production taxes |
|
|
|
|
|
|
2 |
|
|
|
2,406 |
|
|
|
22,102 |
|
|
|
|
|
|
|
24,510 |
|
Workers compensation |
|
|
1,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,031 |
|
Postretirement medical benefits |
|
|
13,198 |
|
|
|
|
|
|
|
|
|
|
|
1,303 |
|
|
|
|
|
|
|
14,501 |
|
SERP |
|
|
306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
306 |
|
Deferred revenue |
|
|
|
|
|
|
6,840 |
|
|
|
724 |
|
|
|
1,196 |
|
|
|
|
|
|
|
8,760 |
|
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
|
4,512 |
|
|
|
11,001 |
|
|
|
|
|
|
|
15,513 |
|
Other current liabilities |
|
|
853 |
|
|
|
942 |
|
|
|
3,777 |
|
|
|
7,279 |
|
|
|
|
|
|
|
12,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
29,396 |
|
|
|
25,059 |
|
|
|
45,175 |
|
|
|
75,574 |
|
|
|
(979 |
) |
|
|
174,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current installments |
|
|
|
|
|
|
46,648 |
|
|
|
7,745 |
|
|
|
142,813 |
|
|
|
|
|
|
|
197,206 |
|
Workers compensation, less current portion |
|
|
10,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,188 |
|
Excess of pneumoconiosis benefit obligation over
trust assets |
|
|
786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
786 |
|
Postretirement medical benefits, less current
portion |
|
|
151,057 |
|
|
|
|
|
|
|
|
|
|
|
24,665 |
|
|
|
|
|
|
|
175,722 |
|
Pension and SERP obligations, less current portion |
|
|
20,626 |
|
|
|
178 |
|
|
|
|
|
|
|
6,023 |
|
|
|
|
|
|
|
26,827 |
|
Deferred revenue, less current portion |
|
|
|
|
|
|
75,283 |
|
|
|
|
|
|
|
8,960 |
|
|
|
|
|
|
|
84,243 |
|
Asset retirement obligations, less current portion |
|
|
|
|
|
|
664 |
|
|
|
27,916 |
|
|
|
200,522 |
|
|
|
|
|
|
|
229,102 |
|
Intangible liabilities |
|
|
|
|
|
|
9,682 |
|
|
|
|
|
|
|
618 |
|
|
|
|
|
|
|
10,300 |
|
Other liabilities |
|
|
656 |
|
|
|
30 |
|
|
|
538 |
|
|
|
1,684 |
|
|
|
3,020 |
|
|
|
5,928 |
|
Intercompany receivable/payable |
|
|
51,938 |
|
|
|
|
|
|
|
(20,896 |
) |
|
|
28,891 |
|
|
|
(59,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
264,647 |
|
|
|
157,544 |
|
|
|
60,478 |
|
|
|
489,750 |
|
|
|
(57,892 |
) |
|
|
914,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160 |
|
Common stock |
|
|
25,864 |
|
|
|
5 |
|
|
|
110 |
|
|
|
132 |
|
|
|
(247 |
) |
|
|
25,864 |
|
Other paid-in capital |
|
|
91,432 |
|
|
|
1 |
|
|
|
15,921 |
|
|
|
48,646 |
|
|
|
(64,568 |
) |
|
|
91,432 |
|
Accumulated other comprehensive income (loss) |
|
|
(31,223 |
) |
|
|
(164 |
) |
|
|
106 |
|
|
|
(11,199 |
) |
|
|
11,257 |
|
|
|
(31,223 |
) |
Accumulated earnings (deficit) |
|
|
(226,215 |
) |
|
|
59,299 |
|
|
|
31,874 |
|
|
|
(95,863 |
) |
|
|
4,690 |
|
|
|
(226,215 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Westmoreland Coal Company shareholders
deficit |
|
|
(139,982 |
) |
|
|
59,141 |
|
|
|
48,011 |
|
|
|
(58,284 |
) |
|
|
(48,868 |
) |
|
|
(139,982 |
) |
Noncontrolling interest |
|
|
(1,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity (deficit) |
|
|
(141,799 |
) |
|
|
59,141 |
|
|
|
48,011 |
|
|
|
(58,284 |
) |
|
|
(48,868 |
) |
|
|
(141,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders deficit |
|
$ |
122,848 |
|
|
$ |
216,685 |
|
|
$ |
108,489 |
|
|
$ |
431,466 |
|
|
$ |
(106,760 |
) |
|
$ |
772,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
CONSOLIDATING BALANCE SHEETS
December 31, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
Assets |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
271 |
|
|
$ |
880 |
|
|
$ |
|
|
|
$ |
4,624 |
|
|
$ |
|
|
|
$ |
5,775 |
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
|
|
|
|
14,148 |
|
|
|
65 |
|
|
|
36,365 |
|
|
|
|
|
|
|
50,578 |
|
Contractual third-party reclamation
receivables |
|
|
|
|
|
|
|
|
|
|
135 |
|
|
|
7,608 |
|
|
|
|
|
|
|
7,743 |
|
Intercompany receivable/payable |
|
|
|
|
|
|
|
|
|
|
10,193 |
|
|
|
(21,544 |
) |
|
|
11,351 |
|
|
|
|
|
Other |
|
|
66 |
|
|
|
198 |
|
|
|
4,917 |
|
|
|
1,530 |
|
|
|
(2,166 |
) |
|
|
4,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
14,346 |
|
|
|
15,310 |
|
|
|
23,959 |
|
|
|
9,185 |
|
|
|
62,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
1,935 |
|
|
|
4,624 |
|
|
|
17,012 |
|
|
|
|
|
|
|
23,571 |
|
Other current assets |
|
|
796 |
|
|
|
224 |
|
|
|
469 |
|
|
|
3,944 |
|
|
|
(98 |
) |
|
|
5,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,133 |
|
|
|
17,385 |
|
|
|
20,403 |
|
|
|
49,539 |
|
|
|
9,087 |
|
|
|
97,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and mineral rights |
|
|
|
|
|
|
1,156 |
|
|
|
17,806 |
|
|
|
64,862 |
|
|
|
|
|
|
|
83,824 |
|
Capitalized asset retirement cost |
|
|
|
|
|
|
239 |
|
|
|
20,463 |
|
|
|
94,154 |
|
|
|
|
|
|
|
114,856 |
|
Plant and equipment |
|
|
2,611 |
|
|
|
215,851 |
|
|
|
117,360 |
|
|
|
170,839 |
|
|
|
|
|
|
|
506,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,611 |
|
|
|
217,246 |
|
|
|
155,629 |
|
|
|
329,855 |
|
|
|
|
|
|
|
705,341 |
|
Less accumulated depreciation,
depletion and amortization |
|
|
(1,987 |
) |
|
|
(42,156 |
) |
|
|
(82,239 |
) |
|
|
(162,004 |
) |
|
|
|
|
|
|
(288,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
624 |
|
|
|
175,090 |
|
|
|
73,390 |
|
|
|
167,851 |
|
|
|
|
|
|
|
416,955 |
|
Advanced coal royalties |
|
|
|
|
|
|
|
|
|
|
998 |
|
|
|
2,697 |
|
|
|
|
|
|
|
3,695 |
|
Reclamation deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,274 |
|
|
|
|
|
|
|
72,274 |
|
Restricted investments and bond collateral |
|
|
11,816 |
|
|
|
8,563 |
|
|
|
10,956 |
|
|
|
24,049 |
|
|
|
|
|
|
|
55,384 |
|
Contractual third-party reclamation
receivables, less current portion |
|
|
|
|
|
|
|
|
|
|
390 |
|
|
|
87,349 |
|
|
|
|
|
|
|
87,739 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,458 |
|
|
|
2,458 |
|
Intangible assets |
|
|
|
|
|
|
6,203 |
|
|
|
|
|
|
|
352 |
|
|
|
|
|
|
|
6,555 |
|
Investment in subsidiaries |
|
|
115,612 |
|
|
|
|
|
|
|
(717 |
) |
|
|
3,770 |
|
|
|
(118,665 |
) |
|
|
|
|
Other assets |
|
|
2,060 |
|
|
|
401 |
|
|
|
1,683 |
|
|
|
3,555 |
|
|
|
|
|
|
|
7,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
131,245 |
|
|
$ |
207,642 |
|
|
$ |
107,103 |
|
|
$ |
411,436 |
|
|
$ |
(107,120 |
) |
|
$ |
750,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
CONSOLIDATING BALANCE SHEETS
December 31, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
Liabilities and Stockholders Deficit |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current installments of long-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,255 |
|
|
$ |
12,718 |
|
|
$ |
|
|
|
$ |
14,973 |
|
Accounts payable and accrued expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
5,187 |
|
|
|
8,549 |
|
|
|
3,283 |
|
|
|
31,709 |
|
|
|
(2,481 |
) |
|
|
46,247 |
|
Production taxes |
|
|
|
|
|
|
2 |
|
|
|
1,084 |
|
|
|
25,231 |
|
|
|
|
|
|
|
26,317 |
|
Workers compensation |
|
|
954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
954 |
|
Postretirement medical benefits |
|
|
12,198 |
|
|
|
|
|
|
|
|
|
|
|
1,383 |
|
|
|
|
|
|
|
13,581 |
|
SERP |
|
|
304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304 |
|
Deferred revenue |
|
|
|
|
|
|
8,805 |
|
|
|
349 |
|
|
|
1,055 |
|
|
|
|
|
|
|
10,209 |
|
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
|
3,371 |
|
|
|
11,143 |
|
|
|
|
|
|
|
14,514 |
|
Other current liabilities |
|
|
249 |
|
|
|
782 |
|
|
|
3,138 |
|
|
|
2,164 |
|
|
|
(92 |
) |
|
|
6,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
18,892 |
|
|
|
18,138 |
|
|
|
13,480 |
|
|
|
85,403 |
|
|
|
(2,573 |
) |
|
|
133,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current installments |
|
|
13,671 |
|
|
|
46,648 |
|
|
|
15,166 |
|
|
|
133,246 |
|
|
|
|
|
|
|
208,731 |
|
Revolving lines of credit, less current portion |
|
|
|
|
|
|
|
|
|
|
16,900 |
|
|
|
1,500 |
|
|
|
|
|
|
|
18,400 |
|
Workers compensation, less current portion |
|
|
9,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,424 |
|
Excess of pneumoconiosis benefit obligation over
trust assets |
|
|
2,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,246 |
|
Postretirement medical benefits, less current
portion |
|
|
169,677 |
|
|
|
|
|
|
|
|
|
|
|
27,602 |
|
|
|
|
|
|
|
197,279 |
|
Pension and SERP obligations, less current portion |
|
|
16,105 |
|
|
|
154 |
|
|
|
|
|
|
|
4,203 |
|
|
|
|
|
|
|
20,462 |
|
Deferred revenue, less current portion |
|
|
|
|
|
|
67,308 |
|
|
|
|
|
|
|
8,087 |
|
|
|
|
|
|
|
75,395 |
|
Asset retirement obligations, less current portion |
|
|
|
|
|
|
715 |
|
|
|
28,967 |
|
|
|
197,447 |
|
|
|
|
|
|
|
227,129 |
|
Intangible liabilities |
|
|
|
|
|
|
8,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,663 |
|
Other liabilities |
|
|
4,153 |
|
|
|
|
|
|
|
3,149 |
|
|
|
1,409 |
|
|
|
2,881 |
|
|
|
11,592 |
|
Intercompany receivable/payable |
|
|
59,432 |
|
|
|
|
|
|
|
(19,590 |
) |
|
|
26,424 |
|
|
|
(66,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
293,600 |
|
|
|
141,626 |
|
|
|
58,072 |
|
|
|
485,321 |
|
|
|
(65,958 |
) |
|
|
912,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160 |
|
Common stock |
|
|
27,901 |
|
|
|
5 |
|
|
|
110 |
|
|
|
132 |
|
|
|
(247 |
) |
|
|
27,901 |
|
Other paid-in capital |
|
|
98,466 |
|
|
|
30 |
|
|
|
16,036 |
|
|
|
53,264 |
|
|
|
(69,330 |
) |
|
|
98,466 |
|
Accumulated other comprehensive income (loss) |
|
|
(57,680 |
) |
|
|
(203 |
) |
|
|
120 |
|
|
|
(14,353 |
) |
|
|
14,436 |
|
|
|
(57,680 |
) |
Accumulated earnings (deficit) |
|
|
(226,740 |
) |
|
|
66,184 |
|
|
|
32,765 |
|
|
|
(112,928 |
) |
|
|
13,979 |
|
|
|
(226,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Westmoreland Coal Company shareholders
deficit |
|
|
(157,893 |
) |
|
|
66,016 |
|
|
|
49,031 |
|
|
|
(73,885 |
) |
|
|
(41,162 |
) |
|
|
(157,893 |
) |
Noncontrolling interest |
|
|
(4,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity (deficit) |
|
|
(162,355 |
) |
|
|
66,016 |
|
|
|
49,031 |
|
|
|
(73,885 |
) |
|
|
(41,162 |
) |
|
|
(162,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit |
|
$ |
131,245 |
|
|
$ |
207,642 |
|
|
$ |
107,103 |
|
|
$ |
411,436 |
|
|
$ |
(107,120 |
) |
|
$ |
750,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
90,006 |
|
|
$ |
76,367 |
|
|
$ |
354,939 |
|
|
$ |
(11,616 |
) |
|
$ |
509,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
59,761 |
|
|
|
62,922 |
|
|
|
298,728 |
|
|
|
(11,616 |
) |
|
|
409,795 |
|
Depreciation, depletion and amortization |
|
|
381 |
|
|
|
9,780 |
|
|
|
6,898 |
|
|
|
24,328 |
|
|
|
|
|
|
|
41,387 |
|
Selling and administrative |
|
|
12,585 |
|
|
|
3,867 |
|
|
|
4,872 |
|
|
|
19,189 |
|
|
|
|
|
|
|
40,513 |
|
Heritage health benefit expenses |
|
|
32,104 |
|
|
|
|
|
|
|
|
|
|
|
1,348 |
|
|
|
|
|
|
|
33,452 |
|
Restructuring charges |
|
|
1,854 |
|
|
|
|
|
|
|
120 |
|
|
|
35 |
|
|
|
|
|
|
|
2,009 |
|
Gain (loss) on sales of assets |
|
|
1 |
|
|
|
(876 |
) |
|
|
(6 |
) |
|
|
(544 |
) |
|
|
|
|
|
|
(1,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,925 |
|
|
|
72,532 |
|
|
|
74,806 |
|
|
|
343,084 |
|
|
|
(11,616 |
) |
|
|
525,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(46,925 |
) |
|
|
17,474 |
|
|
|
1,561 |
|
|
|
11,855 |
|
|
|
|
|
|
|
(16,035 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(9,385 |
) |
|
|
(1,351 |
) |
|
|
(1,542 |
) |
|
|
(10,852 |
) |
|
|
|
|
|
|
(23,130 |
) |
Interest expense attributable to
beneficial conversion feature |
|
|
|
|
|
|
(8,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,146 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
(1,345 |
) |
|
|
|
|
|
|
(3,833 |
) |
|
|
|
|
|
|
(5,178 |
) |
Interest income |
|
|
532 |
|
|
|
511 |
|
|
|
265 |
|
|
|
4,017 |
|
|
|
(200 |
) |
|
|
5,125 |
|
Other income (loss) |
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
(350 |
) |
|
|
|
|
|
|
(284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,787 |
) |
|
|
(10,331 |
) |
|
|
(1,277 |
) |
|
|
(11,018 |
) |
|
|
(200 |
) |
|
|
(31,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and income of
consolidated subsidiaries |
|
|
(55,712 |
) |
|
|
7,143 |
|
|
|
284 |
|
|
|
837 |
|
|
|
(200 |
) |
|
|
(47,648 |
) |
Equity in income of subsidiaries |
|
|
(7,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(48,540 |
) |
|
|
7,143 |
|
|
|
284 |
|
|
|
837 |
|
|
|
(7,372 |
) |
|
|
(47,648 |
) |
Income tax expense (benefit) |
|
|
27 |
|
|
|
11,883 |
|
|
|
138 |
|
|
|
4,510 |
|
|
|
(15,639 |
) |
|
|
919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(48,567 |
) |
|
$ |
(4,740 |
) |
|
$ |
146 |
|
|
$ |
(3,673 |
) |
|
$ |
8,267 |
|
|
$ |
(48,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
82,162 |
|
|
$ |
52,643 |
|
|
$ |
360,117 |
|
|
$ |
(51,554 |
) |
|
$ |
443,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
60,504 |
|
|
|
46,966 |
|
|
|
317,154 |
|
|
|
(51,554 |
) |
|
|
373,070 |
|
Depreciation, depletion and amortization |
|
|
418 |
|
|
|
9,764 |
|
|
|
8,265 |
|
|
|
25,807 |
|
|
|
|
|
|
|
44,254 |
|
Selling and administrative |
|
|
11,585 |
|
|
|
4,231 |
|
|
|
4,682 |
|
|
|
20,114 |
|
|
|
|
|
|
|
40,612 |
|
Heritage health benefit expenses |
|
|
26,813 |
|
|
|
|
|
|
|
|
|
|
|
1,261 |
|
|
|
|
|
|
|
28,074 |
|
Gain (loss) on sales of assets |
|
|
|
|
|
|
12 |
|
|
|
78 |
|
|
|
101 |
|
|
|
|
|
|
|
191 |
|
Other operating income |
|
|
|
|
|
|
|
|
|
|
(11,059 |
) |
|
|
|
|
|
|
|
|
|
|
(11,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,816 |
|
|
|
74,511 |
|
|
|
48,932 |
|
|
|
364,437 |
|
|
|
(51,554 |
) |
|
|
475,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(38,816 |
) |
|
|
7,651 |
|
|
|
3,711 |
|
|
|
(4,320 |
) |
|
|
|
|
|
|
(31,774 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2,618 |
) |
|
|
(5,946 |
) |
|
|
(2,195 |
) |
|
|
(12,977 |
) |
|
|
3 |
|
|
|
(23,733 |
) |
Interest income |
|
|
376 |
|
|
|
120 |
|
|
|
446 |
|
|
|
2,344 |
|
|
|
(68 |
) |
|
|
3,218 |
|
Other income (loss) |
|
|
5,691 |
|
|
|
448 |
|
|
|
28 |
|
|
|
(176 |
) |
|
|
|
|
|
|
5,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,449 |
|
|
|
(5,378 |
) |
|
|
(1,721 |
) |
|
|
(10,809 |
) |
|
|
(65 |
) |
|
|
(14,524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and income of
consolidated subsidiaries |
|
|
(35,367 |
) |
|
|
2,273 |
|
|
|
1,990 |
|
|
|
(15,129 |
) |
|
|
(65 |
) |
|
|
(46,298 |
) |
Equity in income of subsidiaries |
|
|
10,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(46,236 |
) |
|
|
2,273 |
|
|
|
1,990 |
|
|
|
(15,129 |
) |
|
|
10,804 |
|
|
|
(46,298 |
) |
Income tax expense (benefit) |
|
|
(17,074 |
) |
|
|
3,812 |
|
|
|
106 |
|
|
|
(4,224 |
) |
|
|
244 |
|
|
|
(17,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(29,162 |
) |
|
|
(1,539 |
) |
|
|
1,884 |
|
|
|
(10,905 |
) |
|
|
10,560 |
|
|
|
(29,162 |
) |
Less net loss attributable to
noncontrolling interest |
|
|
(1,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the Parent company |
|
$ |
(27,345 |
) |
|
$ |
(1,539 |
) |
|
$ |
1,884 |
|
|
$ |
(10,905 |
) |
|
$ |
10,560 |
|
|
$ |
(27,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
87,999 |
|
|
$ |
52,201 |
|
|
$ |
416,410 |
|
|
$ |
(50,553 |
) |
|
$ |
506,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
61,739 |
|
|
|
44,943 |
|
|
|
338,698 |
|
|
|
(50,553 |
) |
|
|
394,827 |
|
Depreciation, depletion and amortization |
|
|
391 |
|
|
|
10,131 |
|
|
|
7,897 |
|
|
|
26,271 |
|
|
|
|
|
|
|
44,690 |
|
Selling and administrative |
|
|
9,292 |
|
|
|
4,287 |
|
|
|
4,140 |
|
|
|
21,905 |
|
|
|
(143 |
) |
|
|
39,481 |
|
Heritage health benefit expenses |
|
|
13,732 |
|
|
|
|
|
|
|
|
|
|
|
689 |
|
|
|
|
|
|
|
14,421 |
|
Gain (loss) on sales of assets |
|
|
|
|
|
|
122 |
|
|
|
(5 |
) |
|
|
109 |
|
|
|
|
|
|
|
226 |
|
Other operating income |
|
|
|
|
|
|
|
|
|
|
(8,109 |
) |
|
|
|
|
|
|
|
|
|
|
(8,109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,415 |
|
|
|
76,279 |
|
|
|
48,866 |
|
|
|
387,672 |
|
|
|
(50,696 |
) |
|
|
485,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(23,415 |
) |
|
|
11,720 |
|
|
|
3,335 |
|
|
|
28,738 |
|
|
|
143 |
|
|
|
20,521 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(3,195 |
) |
|
|
(4,659 |
) |
|
|
(2,534 |
) |
|
|
(12,723 |
) |
|
|
119 |
|
|
|
(22,992 |
) |
Interest income |
|
|
246 |
|
|
|
36 |
|
|
|
141 |
|
|
|
1,448 |
|
|
|
(124 |
) |
|
|
1,747 |
|
Other income (loss) |
|
|
(3,389 |
) |
|
|
30 |
|
|
|
48 |
|
|
|
724 |
|
|
|
|
|
|
|
(2,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,338 |
) |
|
|
(4,593 |
) |
|
|
(2,345 |
) |
|
|
(10,551 |
) |
|
|
(5 |
) |
|
|
(23,832 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and income of
consolidated subsidiaries |
|
|
(29,753 |
) |
|
|
7,127 |
|
|
|
990 |
|
|
|
18,187 |
|
|
|
138 |
|
|
|
(3,311 |
) |
Equity in income of subsidiaries |
|
|
(26,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(3,485 |
) |
|
|
7,127 |
|
|
|
990 |
|
|
|
18,187 |
|
|
|
(26,130 |
) |
|
|
(3,311 |
) |
Income tax expense (benefit) |
|
|
(315 |
) |
|
|
368 |
|
|
|
21 |
|
|
|
3,945 |
|
|
|
(4,160 |
) |
|
|
(141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(3,170 |
) |
|
|
6,759 |
|
|
|
969 |
|
|
|
14,242 |
|
|
|
(21,970 |
) |
|
|
(3,170 |
) |
Less net loss attributable to
noncontrolling interest |
|
|
(2,645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the Parent company |
|
$ |
(525 |
) |
|
$ |
6,759 |
|
|
$ |
969 |
|
|
$ |
14,242 |
|
|
$ |
(21,970 |
) |
|
$ |
(525 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
Statements of Cash Flows |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(48,567 |
) |
|
$ |
(4,740 |
) |
|
$ |
146 |
|
|
$ |
(3,673 |
) |
|
$ |
8,267 |
|
|
$ |
(48,567 |
) |
Adjustments to reconcile net loss to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of subsidiaries |
|
|
(7,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,172 |
|
|
|
|
|
Depreciation, depletion, and amortization |
|
|
381 |
|
|
|
9,780 |
|
|
|
6,898 |
|
|
|
24,328 |
|
|
|
|
|
|
|
41,387 |
|
Accretion of asset retirement obligation and receivable |
|
|
|
|
|
|
32 |
|
|
|
950 |
|
|
|
8,546 |
|
|
|
|
|
|
|
9,528 |
|
Amortization of intangible assets and liabilities, net |
|
|
|
|
|
|
620 |
|
|
|
24 |
|
|
|
(46 |
) |
|
|
|
|
|
|
598 |
|
Share-based compensation |
|
|
2,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,733 |
|
Restructuring charges |
|
|
1,854 |
|
|
|
|
|
|
|
120 |
|
|
|
35 |
|
|
|
|
|
|
|
2,009 |
|
Loss (gain) on sale of assets |
|
|
1 |
|
|
|
(876 |
) |
|
|
(6 |
) |
|
|
(544 |
) |
|
|
|
|
|
|
(1,425 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
1,102 |
|
|
|
|
|
|
|
1,190 |
|
|
|
|
|
|
|
2,292 |
|
Amortization of deferred financing costs |
|
|
78 |
|
|
|
(105 |
) |
|
|
132 |
|
|
|
734 |
|
|
|
|
|
|
|
839 |
|
Non-cash interest expense |
|
|
8,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,934 |
|
Loss on investments securities |
|
|
271 |
|
|
|
|
|
|
|
|
|
|
|
629 |
|
|
|
|
|
|
|
900 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
(526 |
) |
|
|
(3,546 |
) |
|
|
4,510 |
|
|
|
(8,579 |
) |
|
|
1,901 |
|
|
|
(6,240 |
) |
Inventories |
|
|
|
|
|
|
959 |
|
|
|
(787 |
) |
|
|
3,972 |
|
|
|
|
|
|
|
4,144 |
|
Excess of pneumoconiosis benefit obligation over trust assets |
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23 |
) |
Accounts payable and accrued expenses |
|
|
(1,010 |
) |
|
|
(406 |
) |
|
|
(6,105 |
) |
|
|
10,446 |
|
|
|
(924 |
) |
|
|
2,001 |
|
Deferred revenue |
|
|
|
|
|
|
28,774 |
|
|
|
133 |
|
|
|
270 |
|
|
|
|
|
|
|
29,177 |
|
Accrual for workers compensation |
|
|
3,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,316 |
|
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(889 |
) |
|
|
|
|
|
|
(889 |
) |
Accrual for postretirement medical benefits |
|
|
3,175 |
|
|
|
|
|
|
|
|
|
|
|
6,846 |
|
|
|
|
|
|
|
10,021 |
|
Pension and SERP obligations |
|
|
(6,701 |
) |
|
|
|
|
|
|
|
|
|
|
4,822 |
|
|
|
(237 |
) |
|
|
(2,116 |
) |
Other assets and liabilities |
|
|
(750 |
) |
|
|
(2,302 |
) |
|
|
2,892 |
|
|
|
(2,611 |
) |
|
|
(603 |
) |
|
|
(3,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(44,006 |
) |
|
|
29,292 |
|
|
|
8,907 |
|
|
|
45,476 |
|
|
|
15,576 |
|
|
|
55,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received from subsidiaries |
|
|
35,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,525 |
) |
|
|
|
|
Additions to property, plant and equipment |
|
|
(75 |
) |
|
|
(1,711 |
) |
|
|
(2,364 |
) |
|
|
(27,170 |
) |
|
|
|
|
|
|
(31,320 |
) |
Change in restricted investments and bond collateral and
reclamation deposits |
|
|
(1,274 |
) |
|
|
19,868 |
|
|
|
(2,252 |
) |
|
|
8,024 |
|
|
|
(47 |
) |
|
|
24,319 |
|
Net proceeds from sales of assets |
|
|
|
|
|
|
876 |
|
|
|
672 |
|
|
|
1,093 |
|
|
|
|
|
|
|
2,641 |
|
Receivable from customer for property and equipment purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,228 |
) |
|
|
|
|
|
|
(2,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
34,176 |
|
|
|
19,033 |
|
|
|
(3,944 |
) |
|
|
(20,281 |
) |
|
|
(35,572 |
) |
|
|
(6,588 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in book overdrafts |
|
|
59 |
|
|
|
|
|
|
|
344 |
|
|
|
(5,446 |
) |
|
|
|
|
|
|
(5,043 |
) |
Borrowings from long-term debt |
|
|
15,000 |
|
|
|
64,880 |
|
|
|
|
|
|
|
125,497 |
|
|
|
|
|
|
|
205,377 |
|
Repayments of long-term debt |
|
|
|
|
|
|
(132,070 |
) |
|
|
(2,680 |
) |
|
|
(85,035 |
) |
|
|
|
|
|
|
(219,785 |
) |
Borrowings on revolving lines of credit |
|
|
|
|
|
|
|
|
|
|
70,100 |
|
|
|
99,500 |
|
|
|
|
|
|
|
169,600 |
|
Repayments on revolving lines of credit |
|
|
|
|
|
|
|
|
|
|
(71,500 |
) |
|
|
(102,000 |
) |
|
|
|
|
|
|
(173,500 |
) |
Debt issuance costs |
|
|
(623 |
) |
|
|
(296 |
) |
|
|
(225 |
) |
|
|
(4,160 |
) |
|
|
|
|
|
|
(5,304 |
) |
Exercise of stock options |
|
|
203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203 |
|
Dividends/distributions |
|
|
|
|
|
|
(21,000 |
) |
|
|
|
|
|
|
(14,525 |
) |
|
|
35,525 |
|
|
|
|
|
Transactions with Parent/affiliates |
|
|
(4,159 |
) |
|
|
30,151 |
|
|
|
(1,599 |
) |
|
|
(8,864 |
) |
|
|
(15,529 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
10,480 |
|
|
|
(58,335 |
) |
|
|
(5,560 |
) |
|
|
4,967 |
|
|
|
19,996 |
|
|
|
(28,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
650 |
|
|
|
(10,010 |
) |
|
|
(597 |
) |
|
|
30,162 |
|
|
|
|
|
|
|
20,205 |
|
Cash and cash equivalents, beginning of year |
|
|
306 |
|
|
|
15,674 |
|
|
|
597 |
|
|
|
3,159 |
|
|
|
|
|
|
|
19,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
956 |
|
|
$ |
5,664 |
|
|
$ |
|
|
|
$ |
33,321 |
|
|
$ |
|
|
|
$ |
39,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
Statements of Cash Flows |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(29,162 |
) |
|
$ |
(1,539 |
) |
|
$ |
1,884 |
|
|
$ |
(10,905 |
) |
|
$ |
10,560 |
|
|
$ |
(29,162 |
) |
Adjustments to reconcile net loss to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of subsidiaries |
|
|
10,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,869 |
) |
|
|
|
|
Gain on derivative instruments |
|
|
(5,674 |
) |
|
|
(448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,122 |
) |
Depreciation, depletion, and amortization |
|
|
418 |
|
|
|
9,764 |
|
|
|
8,265 |
|
|
|
25,807 |
|
|
|
|
|
|
|
44,254 |
|
Accretion of asset retirement obligation and receivable |
|
|
|
|
|
|
34 |
|
|
|
1,291 |
|
|
|
8,649 |
|
|
|
|
|
|
|
9,974 |
|
Amortization of intangible assets and liabilities, net |
|
|
|
|
|
|
621 |
|
|
|
|
|
|
|
(342 |
) |
|
|
|
|
|
|
279 |
|
Non-cash tax benefits |
|
|
(17,062 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,062 |
) |
Share-based compensation |
|
|
2,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,552 |
|
Loss (gain) on sale of assets |
|
|
|
|
|
|
12 |
|
|
|
78 |
|
|
|
101 |
|
|
|
|
|
|
|
191 |
|
Amortization of deferred financing costs |
|
|
1,143 |
|
|
|
(313 |
) |
|
|
572 |
|
|
|
573 |
|
|
|
|
|
|
|
1,975 |
|
Non-cash interest expense |
|
|
1,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,470 |
|
Gain (loss) on investments securities |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
423 |
|
|
|
|
|
|
|
412 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
102 |
|
|
|
8,341 |
|
|
|
661 |
|
|
|
7,910 |
|
|
|
(1,511 |
) |
|
|
15,503 |
|
Inventories |
|
|
|
|
|
|
(730 |
) |
|
|
(617 |
) |
|
|
130 |
|
|
|
|
|
|
|
(1,217 |
) |
Excess of pneumoconiosis benefit obligation over trust assets |
|
|
3,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,025 |
|
Accounts payable and accrued expenses |
|
|
(123 |
) |
|
|
(61 |
) |
|
|
(3,990 |
) |
|
|
(9,577 |
) |
|
|
(51 |
) |
|
|
(13,802 |
) |
Deferred revenue |
|
|
|
|
|
|
11,216 |
|
|
|
(139 |
) |
|
|
(591 |
) |
|
|
|
|
|
|
10,486 |
|
Accrual for workers compensation |
|
|
(1,619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,619 |
) |
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
|
(307 |
) |
|
|
(1,912 |
) |
|
|
|
|
|
|
(2,219 |
) |
Accrual for postretirement medical benefits |
|
|
(3,362 |
) |
|
|
|
|
|
|
|
|
|
|
11,124 |
|
|
|
|
|
|
|
7,762 |
|
Pension and SERP obligations |
|
|
2,682 |
|
|
|
|
|
|
|
|
|
|
|
491 |
|
|
|
|
|
|
|
3,173 |
|
Other assets and liabilities |
|
|
(1,220 |
) |
|
|
(2,427 |
) |
|
|
(2,307 |
) |
|
|
5,879 |
|
|
|
(330 |
) |
|
|
(405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(35,972 |
) |
|
|
24,470 |
|
|
|
5,391 |
|
|
|
37,760 |
|
|
|
(2,201 |
) |
|
|
29,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received from subsidiaries |
|
|
26,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,399 |
) |
|
|
|
|
Additions to property, plant and equipment |
|
|
(218 |
) |
|
|
(4,251 |
) |
|
|
(3,919 |
) |
|
|
(26,158 |
) |
|
|
|
|
|
|
(34,546 |
) |
Change in restricted investments and bond collateral and
reclamation deposits |
|
|
(2,239 |
) |
|
|
2,266 |
|
|
|
(1,399 |
) |
|
|
(3,229 |
) |
|
|
|
|
|
|
(4,601 |
) |
Net proceeds from sales of assets |
|
|
|
|
|
|
|
|
|
|
105 |
|
|
|
832 |
|
|
|
|
|
|
|
937 |
|
Proceeds from the sale of investments |
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
381 |
|
|
|
|
|
|
|
796 |
|
Receivable from customer for property and equipment purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,183 |
) |
|
|
|
|
|
|
(1,183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
24,357 |
|
|
|
(1,985 |
) |
|
|
(5,213 |
) |
|
|
(29,357 |
) |
|
|
(26,399 |
) |
|
|
(38,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in book overdrafts |
|
|
(291 |
) |
|
|
|
|
|
|
244 |
|
|
|
643 |
|
|
|
|
|
|
|
596 |
|
Borrowings from long-term debt |
|
|
|
|
|
|
|
|
|
|
7,764 |
|
|
|
798 |
|
|
|
|
|
|
|
8,562 |
|
Repayments of long-term debt |
|
|
|
|
|
|
(25,845 |
) |
|
|
(3,719 |
) |
|
|
(5,711 |
) |
|
|
|
|
|
|
(35,275 |
) |
Borrowings on revolving lines of credit |
|
|
|
|
|
|
|
|
|
|
79,116 |
|
|
|
15,000 |
|
|
|
|
|
|
|
94,116 |
|
Repayments on revolving lines of credit |
|
|
|
|
|
|
|
|
|
|
(73,016 |
) |
|
|
(15,000 |
) |
|
|
|
|
|
|
(88,016 |
) |
Debt issuance costs |
|
|
|
|
|
|
|
|
|
|
(256 |
) |
|
|
|
|
|
|
|
|
|
|
(256 |
) |
Dividends/distributions |
|
|
|
|
|
|
(7,706 |
) |
|
|
|
|
|
|
(18,693 |
) |
|
|
26,399 |
|
|
|
|
|
Transactions with Parent/affiliates |
|
|
11,705 |
|
|
|
5,540 |
|
|
|
(10,311 |
) |
|
|
(9,135 |
) |
|
|
2,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
11,414 |
|
|
|
(28,011 |
) |
|
|
(178 |
) |
|
|
(32,098 |
) |
|
|
28,600 |
|
|
|
(20,273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(201 |
) |
|
|
(5,526 |
) |
|
|
|
|
|
|
(23,695 |
) |
|
|
|
|
|
|
(29,422 |
) |
Cash and cash equivalents, beginning of year |
|
|
956 |
|
|
|
5,664 |
|
|
|
|
|
|
|
33,321 |
|
|
|
|
|
|
|
39,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
755 |
|
|
$ |
138 |
|
|
$ |
|
|
|
$ |
9,626 |
|
|
$ |
|
|
|
$ |
10,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements (Cont.)
CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Parent/ |
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
Statements of Cash Flows |
|
Issuer |
|
|
Co-Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,170 |
) |
|
$ |
6,759 |
|
|
$ |
969 |
|
|
$ |
14,242 |
|
|
$ |
(21,970 |
) |
|
$ |
(3,170 |
) |
Adjustments to reconcile net loss to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of subsidiaries |
|
|
(26,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,268 |
|
|
|
|
|
Gain on derivative instruments |
|
|
3,486 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,456 |
|
Depreciation, depletion, and amortization |
|
|
391 |
|
|
|
10,131 |
|
|
|
7,897 |
|
|
|
26,271 |
|
|
|
|
|
|
|
44,690 |
|
Accretion of asset retirement obligation and receivable |
|
|
|
|
|
|
51 |
|
|
|
3,007 |
|
|
|
8,482 |
|
|
|
|
|
|
|
11,540 |
|
Amortization of intangible assets and liabilities, net |
|
|
|
|
|
|
621 |
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
590 |
|
Share-based compensation |
|
|
4,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,049 |
|
Loss (gain) on sale of assets |
|
|
|
|
|
|
122 |
|
|
|
(5 |
) |
|
|
109 |
|
|
|
|
|
|
|
226 |
|
Amortization of deferred financing costs |
|
|
1,489 |
|
|
|
(308 |
) |
|
|
450 |
|
|
|
673 |
|
|
|
|
|
|
|
2,304 |
|
Non-cash interest expense |
|
|
1,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,236 |
|
Gain on investments securities |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
(507 |
) |
|
|
|
|
|
|
(604 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
358 |
|
|
|
(609 |
) |
|
|
(2,266 |
) |
|
|
(3,367 |
) |
|
|
1,156 |
|
|
|
(4,728 |
) |
Inventories |
|
|
|
|
|
|
635 |
|
|
|
(208 |
) |
|
|
1,873 |
|
|
|
|
|
|
|
2,300 |
|
Excess of pneumoconiosis benefit obligation over trust assets |
|
|
1,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,460 |
|
Accounts payable and accrued expenses |
|
|
2,333 |
|
|
|
884 |
|
|
|
(863 |
) |
|
|
8,189 |
|
|
|
(1,502 |
) |
|
|
9,041 |
|
Deferred revenue |
|
|
|
|
|
|
(6,010 |
) |
|
|
(375 |
) |
|
|
(1,014 |
) |
|
|
|
|
|
|
(7,399 |
) |
Accrual for workers compensation |
|
|
(841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(841 |
) |
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
|
(1,769 |
) |
|
|
(6,014 |
) |
|
|
|
|
|
|
(7,783 |
) |
Accrual for postretirement medical benefits |
|
|
(2,813 |
) |
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
(2,832 |
) |
Pension and SERP obligations |
|
|
(6,828 |
) |
|
|
|
|
|
|
93 |
|
|
|
2,833 |
|
|
|
|
|
|
|
(3,902 |
) |
Other assets and liabilities |
|
|
(923 |
) |
|
|
(211 |
) |
|
|
898 |
|
|
|
(3,986 |
) |
|
|
(58 |
) |
|
|
(4,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(26,138 |
) |
|
|
12,035 |
|
|
|
7,828 |
|
|
|
47,734 |
|
|
|
3,894 |
|
|
|
45,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received from subsidiaries |
|
|
31,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,300 |
) |
|
|
|
|
Additions to property, plant and equipment |
|
|
(550 |
) |
|
|
(2,207 |
) |
|
|
(4,275 |
) |
|
|
(15,782 |
) |
|
|
|
|
|
|
(22,814 |
) |
Change in restricted investments and bond collateral and
reclamation deposits |
|
|
(1,714 |
) |
|
|
142 |
|
|
|
(1,716 |
) |
|
|
(5,257 |
) |
|
|
|
|
|
|
(8,545 |
) |
Net proceeds from sales of assets |
|
|
|
|
|
|
1 |
|
|
|
66 |
|
|
|
645 |
|
|
|
|
|
|
|
712 |
|
Proceeds from the sale of investments |
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
2,151 |
|
|
|
|
|
|
|
2,307 |
|
Receivable from customer for property and equipment purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(840 |
) |
|
|
|
|
|
|
(840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
29,192 |
|
|
|
(2,064 |
) |
|
|
(5,925 |
) |
|
|
(19,083 |
) |
|
|
(31,300 |
) |
|
|
(29,180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in book overdrafts |
|
|
(111 |
) |
|
|
|
|
|
|
57 |
|
|
|
(541 |
) |
|
|
|
|
|
|
(595 |
) |
Repayments of long-term debt |
|
|
|
|
|
|
(9,355 |
) |
|
|
(4,440 |
) |
|
|
(6,610 |
) |
|
|
|
|
|
|
(20,405 |
) |
Borrowings on revolving lines of credit |
|
|
|
|
|
|
7,300 |
|
|
|
91,500 |
|
|
|
72,100 |
|
|
|
|
|
|
|
170,900 |
|
Repayments on revolving lines of credit |
|
|
|
|
|
|
(7,300 |
) |
|
|
(91,000 |
) |
|
|
(70,600 |
) |
|
|
|
|
|
|
(168,900 |
) |
Debt issuance costs |
|
|
(1,718 |
) |
|
|
|
|
|
|
(207 |
) |
|
|
|
|
|
|
|
|
|
|
(1,925 |
) |
Exercise of stock options |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Dividends/distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,300 |
) |
|
|
31,300 |
|
|
|
|
|
Transactions with Parent/affiliates |
|
|
(1,717 |
) |
|
|
126 |
|
|
|
2,187 |
|
|
|
3,298 |
|
|
|
(3,894 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(3,538 |
) |
|
|
(9,229 |
) |
|
|
(1,903 |
) |
|
|
(33,653 |
) |
|
|
27,406 |
|
|
|
(20,917 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(484 |
) |
|
|
742 |
|
|
|
|
|
|
|
(5,002 |
) |
|
|
|
|
|
|
(4,744 |
) |
Cash and cash equivalents, beginning of year |
|
|
755 |
|
|
|
138 |
|
|
|
|
|
|
|
9,626 |
|
|
|
|
|
|
|
10,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
271 |
|
|
$ |
880 |
|
|
$ |
|
|
|
$ |
4,624 |
|
|
$ |
|
|
|
$ |
5,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
WESTMORELAND RESOURCES, INC. AND SUBSIDIARY
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholder of
Westmoreland Resources, Inc.
We have audited the accompanying consolidated balance sheets of Westmoreland Resources, Inc. and
subsidiary (the Company) (a wholly owned subsidiary of Westmoreland Coal Company) as of December
31, 2010 and 2009 and the related consolidated statements of operations, shareholders equity and
comprehensive income (loss) and cash flows for the years then ended. These financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Companys internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Westmoreland Resources, Inc. and subsidiary as of
December 31, 2010 and 2009, and the result of their operations and their cash flow for the years
then ended in conformity with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Denver, Colorado
June 3, 2011
216
WESTMORELAND RESOURCES, INC. AND SUBSIDIARY
Independent Auditors Report
The Board of Directors
Westmoreland Resources, Inc:
We have audited the accompanying consolidated statements of operations, shareholders deficit and
comprehensive loss, and cash flows of Westmoreland Resources, Inc. (the Company) ( a wholly owned
subsidiary of Westmoreland Coal Company) for the year ended December 31, 2008. These consolidated
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the results of Westmoreland Resources, Inc operations and their cash flows for
the year ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.
The consolidated financial statements have been prepared assuming the Company will continue as a
going concern. During the year ended December 31, 2008, Westmoreland Coal Company had suffered
recurring losses from operations, had a working capital deficit, and had a net capital deficiency
that raised substantial doubt about the Companys ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might result from the outcome
of these uncertainties.
/s/ KPMG LLP
Denver, Colorado
April 24, 2009
217
Westmoreland Resources, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, 2010 and 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
583 |
|
|
$ |
923 |
|
Accounts receivable |
|
|
|
|
|
|
|
|
Trade |
|
|
3,712 |
|
|
|
3,427 |
|
Other |
|
|
2,435 |
|
|
|
1,713 |
|
|
|
|
|
|
|
|
|
|
|
6,147 |
|
|
|
5,140 |
|
Inventories |
|
|
4,320 |
|
|
|
3,786 |
|
Other current assets |
|
|
603 |
|
|
|
719 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
11,653 |
|
|
|
10,568 |
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost: |
|
|
|
|
|
|
|
|
Land and mineral rights |
|
|
17,806 |
|
|
|
17,764 |
|
Plant and equipment |
|
|
117,321 |
|
|
|
113,347 |
|
Asset retirement costs |
|
|
20,463 |
|
|
|
22,016 |
|
|
|
|
|
|
|
|
|
|
|
155,590 |
|
|
|
153,127 |
|
Less accumulated depreciation, depletion and amortization |
|
|
(82,233 |
) |
|
|
(74,534 |
) |
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
73,357 |
|
|
|
78,593 |
|
Restricted investments and bond collateral |
|
|
10,956 |
|
|
|
9,226 |
|
Contractual third-party reclamation receivables |
|
|
390 |
|
|
|
120 |
|
Advanced coal royalties |
|
|
998 |
|
|
|
|
|
Intangible assets, net of accumulated amortization of $1.5
million at December 31, 2010 and $1.0 million at 2009 |
|
|
|
|
|
|
550 |
|
Other assets |
|
|
1,683 |
|
|
|
1,927 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
99,037 |
|
|
$ |
100,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current installments of long-term debt |
|
$ |
2,255 |
|
|
$ |
14,117 |
|
Revolving line of credit |
|
|
|
|
|
|
16,400 |
|
Accounts payable |
|
|
4,682 |
|
|
|
3,949 |
|
Book overdrafts |
|
|
695 |
|
|
|
618 |
|
Payable to related parties |
|
|
465 |
|
|
|
953 |
|
Accrued expenses |
|
|
7,461 |
|
|
|
7,482 |
|
Asset retirement obligations |
|
|
3,371 |
|
|
|
4,512 |
|
Other current liabilities |
|
|
2,214 |
|
|
|
3,001 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
21,143 |
|
|
|
51,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current installments |
|
|
15,166 |
|
|
|
7,744 |
|
Revolving line of credit, less current installments |
|
|
16,900 |
|
|
|
|
|
Asset retirement obligations, less current portion |
|
|
28,967 |
|
|
|
27,916 |
|
Other liabilities |
|
|
3,149 |
|
|
|
1,156 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
85,325 |
|
|
|
87,848 |
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock of $1 par value. Authorized 40,000 shares;
issued and outstanding 10,000 shares at December 31, 2010
and December 31, 2009 |
|
|
10 |
|
|
|
10 |
|
Additional paid-in capital |
|
|
15,526 |
|
|
|
15,412 |
|
Advances to Parent |
|
|
(13,387 |
) |
|
|
(16,171 |
) |
Accumulated other comprehensive income |
|
|
120 |
|
|
|
106 |
|
Retained earnings |
|
|
15,905 |
|
|
|
15,596 |
|
|
|
|
|
|
|
|
Total Westmoreland Resources Inc. shareholders equity |
|
|
18,174 |
|
|
|
14,953 |
|
Noncontrolling interest |
|
|
(4,462 |
) |
|
|
(1,817 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
13,712 |
|
|
|
13,136 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
99,037 |
|
|
$ |
100,984 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
218
Westmoreland Resources, Inc. and Subsidiary
Consolidated Statements of Operations
Years Ended December 31, 2010, 2009 and 2008
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
$ |
74,997 |
|
|
$ |
78,360 |
|
|
$ |
80,148 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal and operating expenses |
|
|
71,614 |
|
|
|
74,931 |
|
|
|
67,859 |
|
Depreciation, depletion, and amortization |
|
|
7,886 |
|
|
|
8,252 |
|
|
|
6,885 |
|
Selling and administrative |
|
|
3,437 |
|
|
|
3,797 |
|
|
|
4,074 |
|
Restructuring charge |
|
|
|
|
|
|
|
|
|
|
120 |
|
Loss (gain) on sale of assets |
|
|
19 |
|
|
|
78 |
|
|
|
(6 |
) |
Other operating income |
|
|
(8,109 |
) |
|
|
(11,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,847 |
|
|
|
75,999 |
|
|
|
78,932 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
150 |
|
|
|
2,361 |
|
|
|
1,216 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2,534 |
) |
|
|
(2,195 |
) |
|
|
(1,543 |
) |
Interest income |
|
|
21 |
|
|
|
443 |
|
|
|
266 |
|
Other |
|
|
48 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,465 |
) |
|
|
(1,724 |
) |
|
|
(1,277 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(2,315 |
) |
|
|
637 |
|
|
|
(61 |
) |
Income tax expense |
|
|
21 |
|
|
|
106 |
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(2,336 |
) |
|
|
531 |
|
|
|
(199 |
) |
Less: net loss attributable to noncontrolling interests |
|
|
(2,645 |
) |
|
|
(1,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Parent company |
|
$ |
309 |
|
|
$ |
2,348 |
|
|
$ |
(199 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share applicable to Parent company |
|
$ |
30.90 |
|
|
$ |
234.80 |
|
|
$ |
(19.90 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
219
Westmoreland Resources, Inc. and Subsidiary
Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss)
Years Ended December 31, 2010, 2009 and 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Advances from (to) |
|
|
Comprehensive |
|
|
|
|
|
|
Noncontrolling |
|
|
Total Shareholders |
|
|
|
Common stock |
|
|
paid-in capital |
|
|
Parent |
|
|
Income (Loss) |
|
|
Retained Earnings |
|
|
Interest |
|
|
Equity |
|
Balance, December 31, 2007 |
|
$ |
10 |
|
|
$ |
15,167 |
|
|
$ |
(3,164 |
) |
|
$ |
|
|
|
$ |
13,447 |
|
|
$ |
|
|
|
$ |
25,460 |
|
Adjustment for
utilization of tax
losses of Westmoreland
Coal Company |
|
|
|
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138 |
|
Advances to Parent |
|
|
|
|
|
|
|
|
|
|
(1,691 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,691 |
) |
Unrealized gain on
available-for-sale
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
61 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199 |
) |
|
|
|
|
|
|
(199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138 |
) |
|
|
|
Balance, December 31, 2008 |
|
$ |
10 |
|
|
$ |
15,305 |
|
|
$ |
(4,855 |
) |
|
$ |
61 |
|
|
$ |
13,248 |
|
|
$ |
|
|
|
$ |
23,769 |
|
Adjustment for
utilization of tax
losses of Westmoreland
Coal Company |
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
Advances to Parent |
|
|
|
|
|
|
|
|
|
|
(11,316 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,316 |
) |
Unrealized gain on
available-for-sale
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
45 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,348 |
|
|
|
(1,817 |
) |
|
|
531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
576 |
|
|
|
|
Balance, December 31, 2009 |
|
$ |
10 |
|
|
$ |
15,412 |
|
|
$ |
(16,171 |
) |
|
$ |
106 |
|
|
$ |
15,596 |
|
|
$ |
(1,817 |
) |
|
$ |
13,136 |
|
Contribution of
Westmoreland Coal
Company common stock
to pension plan on the
Companys behalf |
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93 |
|
Adjustment for
utilization of tax
losses of Westmoreland
Coal Company |
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
Advances from Parent |
|
|
|
|
|
|
|
|
|
|
2,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,784 |
|
Unrealized gain on
available-for-sale
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309 |
|
|
|
(2,645 |
) |
|
|
(2,336 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,322 |
) |
|
|
|
Balance, December 31, 2010 |
|
$ |
10 |
|
|
$ |
15,526 |
|
|
$ |
(13,387 |
) |
|
$ |
120 |
|
|
$ |
15,905 |
|
|
$ |
(4,462 |
) |
|
$ |
13,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
220
Westmoreland Resources, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31, 2010, 2009 and 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,336 |
) |
|
$ |
531 |
|
|
$ |
(199 |
) |
Adjustments to reconcile net income to net cash from
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
7,886 |
|
|
|
8,252 |
|
|
|
6,885 |
|
Restructuring charge |
|
|
|
|
|
|
|
|
|
|
120 |
|
Accretion of asset retirement obligation and receivable |
|
|
3,007 |
|
|
|
1,346 |
|
|
|
980 |
|
Postretirement medical benefit costs allocated by
Parent, net of payments |
|
|
1 |
|
|
|
81 |
|
|
|
75 |
|
Pension contributions, net of pension costs allocated
by Parent |
|
|
(175 |
) |
|
|
(30 |
) |
|
|
28 |
|
Loss (gain) on sale of assets |
|
|
19 |
|
|
|
78 |
|
|
|
(6 |
) |
Amortization of deferred financing costs |
|
|
450 |
|
|
|
575 |
|
|
|
133 |
|
Amortization of intangible assets and liabilities, net |
|
|
(67 |
) |
|
|
(385 |
) |
|
|
(79 |
) |
Utilization of tax losses of Westmoreland Coal Company |
|
|
21 |
|
|
|
107 |
|
|
|
138 |
|
Change in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,007 |
) |
|
|
1,105 |
|
|
|
1,002 |
|
Inventories |
|
|
(534 |
) |
|
|
(507 |
) |
|
|
(854 |
) |
Accounts payable |
|
|
687 |
|
|
|
(1,946 |
) |
|
|
(1,398 |
) |
Payable to related parties |
|
|
(1,219 |
) |
|
|
802 |
|
|
|
(361 |
) |
Deferred revenues |
|
|
|
|
|
|
(285 |
) |
|
|
(445 |
) |
Asset retirement obligation |
|
|
(1,814 |
) |
|
|
(199 |
) |
|
|
(14 |
) |
Other assets and liabilities |
|
|
1,941 |
|
|
|
(2,521 |
) |
|
|
3,445 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
6,860 |
|
|
|
7,004 |
|
|
|
9,450 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(4,240 |
) |
|
|
(3,920 |
) |
|
|
(2,377 |
) |
Increase in restricted investments and bond collateral |
|
|
(1,716 |
) |
|
|
(1,399 |
) |
|
|
(2,252 |
) |
Proceeds from sales of assets |
|
|
41 |
|
|
|
103 |
|
|
|
672 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(5,915 |
) |
|
|
(5,216 |
) |
|
|
(3,957 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in book overdrafts |
|
|
77 |
|
|
|
227 |
|
|
|
391 |
|
Borrowings from long-term debt |
|
|
|
|
|
|
7,764 |
|
|
|
|
|
Repayments of long-term debt |
|
|
(4,440 |
) |
|
|
(3,725 |
) |
|
|
(2,679 |
) |
Borrowings on revolving line of credit |
|
|
91,500 |
|
|
|
79,116 |
|
|
|
70,100 |
|
Repayments on revolving line of credit |
|
|
(91,000 |
) |
|
|
(73,016 |
) |
|
|
(71,500 |
) |
Deferred financing costs |
|
|
(206 |
) |
|
|
(256 |
) |
|
|
(225 |
) |
Advances from (to) Parent |
|
|
2,784 |
|
|
|
(11,316 |
) |
|
|
(1,794 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,285 |
) |
|
|
(1,206 |
) |
|
|
(5,707 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(340 |
) |
|
|
582 |
|
|
|
(214 |
) |
Cash and cash equivalents, beginning of year |
|
|
923 |
|
|
|
341 |
|
|
|
555 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
583 |
|
|
$ |
923 |
|
|
$ |
341 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
2,238 |
|
|
$ |
1,801 |
|
|
$ |
1,330 |
|
|
Noncash transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued purchases of property and equipment |
|
$ |
51 |
|
|
$ |
26 |
|
|
$ |
866 |
|
Capital leases |
|
|
|
|
|
|
5,604 |
|
|
|
914 |
|
See accompanying Notes to Consolidated Financial Statements
221
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) |
|
Summary of Significant Accounting Policies |
|
(a) |
|
Nature of Operations |
|
|
|
|
Westmoreland Resources, Inc., or WRI, or the Company, a wholly owned subsidiary of
Westmoreland Coal Company, or WCC, or the Parent, owns a surface coal mining
operation located in eastern Montana. Coal produced from the Absaloka Mine is sold
to electric utilities based in the north central region of the United States.
Westmoreland Coal Company owns and operates the Company. All coal reserves are owned
by the Crow Tribe of Indians and the mineral rights to the coal reserves are leased
by the Company on a long-term basis. |
|
|
|
|
In various transactions in October 2008, the Company formed a limited liability
company, Absaloka Coal LLC, which it owns jointly with a newly formed subsidiary, WRI
Partners, Inc., to mine and sell coal from the Absaloka Mine. Absaloka Coal LLC
subleases the mineral rights from the Company entitling Absaloka Coal LLC to mine up
to 40.0 million tons of coal at the Absaloka Mine through 2012. WRI also assigned to
Absaloka Coal LLC all of its contracts to sell coal to third parties. The Company
sold a 99% interest in Absaloka Coal LLC to a third-party but continues to
consolidate Absaloka Coal LLC as the Company has effective control over its
operations. |
|
|
|
|
The Companys financial statements reflect substantially all of its costs of doing
business. Common expenses incurred by the Parent on behalf of the Company are
charged to the Company based on proportional cost allocations. The Company believes
the allocations used are reasonable. However, these financial statements may not
necessarily be representative of a stand-alone company. |
|
|
(b) |
|
WCC Liquidity |
|
|
|
|
On February 4, 2011 through a private placement offering, WCC issued $150.0 million
of Senior Secured Notes due in 2018 together with Westmoreland Partners as co-issuer
(hereafter, the Parent Notes). Substantially all of the assets of the Company
constitute collateral for the Parent Notes as to which the holders of these notes
have a first priority lien. WCC received approximately $135.2 million in proceeds
from the Parent Notes offering. WCC used the proceeds to pay the outstanding balance
on the Companys term debt. Also, the Companys credit facility was terminated in
February 2011, as result of the Parent Notes offering. |
|
|
|
|
Following the February 4, 2011 Parent Notes offering, WCC has cash on hand in excess
of $45 million. WCC also expects increases in coal operating profits and its
heritage health benefit expenditures to continue at their reduced 2010 rates. As a
result, WCC anticipates that its cash flows from operations, cash on hand and
available borrowing capacity will be sufficient to meet its investing, financing, and
working capital requirements for the next several years. |
|
|
|
|
As a result of the Parent Notes offering, the Company recorded the current portion of
its term debt as non-current liabilities in its consolidated balance sheet at
December 31, 2010. |
|
|
|
|
WCCs liquidity continues to be affected by its heritage health, pension, capital
expenditures and bond collateral obligations. Following the February 4, 2011 Parent
Notes offering, WCC expects that distributions from the Company and other
subsidiaries will comprise a significant source of liquidity. In addition, the cash
at WCCs subsidiary Westmoreland Mining, LLC, or WML, is available to it through
quarterly distributions, although it is subject to certain restrictions. |
|
|
(c) |
|
Consolidation Policy |
|
|
|
|
The Company consolidates any variable interest entity, or VIE, for which the Company
is considered the primary beneficiary. The Company provides for noncontrolling
interests in consolidated subsidiaries, which the Companys ownership is less than
100 percent. All intercompany accounts and transactions have been eliminated. |
222
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
|
|
|
A VIE is an entity that is unable to make significant decisions about its activities
or does not have the obligation to absorb losses or the right to receive returns
generated by its operations. If the entity meets one of these characteristics, then
the Company must determine if it is the primary beneficiary of the VIE. The party
exposed to the majority of the risks and rewards with the VIE is the primary
beneficiary and must consolidate the entity. |
|
|
|
The Company has determined that at December 31, 2010, 2009 and 2008 it was the
primary beneficiary in Absaloka Coal LLC, a VIE, in which it holds less than a 50%
ownership. As a result, the Company has consolidated this entity within its
operations. |
|
|
(d) |
|
Use of Estimates |
|
|
|
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and reported amounts
of revenues and expenses during the reporting period. Actual results could differ
from those estimates. |
|
|
(e) |
|
Cash and Cash Equivalents |
|
|
|
Cash and cash equivalents are stated at cost, which approximate fair value. Cash
equivalents consist of highly liquid investments with original maturities of three
months or less. |
|
|
(f) |
|
Accounts Receivable |
|
|
|
Accounts receivable are recorded at the invoiced amount and do not bear interest. The
Company evaluates the need for an allowance for doubtful accounts based on a review
of collectability. The Company has determined that no allowance is necessary for
accounts receivable as of December 31, 2010 and 2009. |
|
|
(g) |
|
Inventories |
|
|
|
Inventories, which include materials and supplies as well as raw coal, are stated at
the lower of cost or market. Cost is determined using the average cost method. Coal
inventory costs include labor, supplies, equipment, operating overhead and other
related costs. |
|
|
(h) |
|
Mine Development |
|
|
|
At the existing mine, additional pits may be added to increase production capacity in
order to meet customer requirements. These expansions may require significant capital
to purchase additional equipment, relocate equipment, expand the workforce, build or
improve existing haul roads and create the initial pre-production box cut to remove
overburden for new pits at the existing operation. If these pits operate in a
separate and distinct area of the mine, the costs associated with initially
uncovering coal for production are capitalized and amortized over the life of the
developed pit consistent with coal industry practices. Once production has begun,
mining costs are then expensed as incurred. |
|
|
|
Where new pits are routinely developed as part of a contiguous mining sequence, the
Company expenses such costs as incurred. The development of a contiguous pit
typically reflects the planned progression of an existing pit, thus maintaining
production levels from the same mining area utilizing the same employee group and
equipment. |
|
|
(i) |
|
Property, Plant, and Equipment |
|
|
|
Property, plant and equipment are recorded at cost. Expenditures that extend the
useful lives of existing plant and equipment or increase productivity of the assets
are capitalized. Maintenance and repair costs that do not extend the useful life or
increase productivity of the asset are expensed as incurred. Coal reserves are
recorded at cost, or at fair value in the case of acquired businesses. |
223
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
|
|
|
Coal reserves, mineral rights and mine development costs are depleted based upon
estimated recoverable proven and probable reserves. Plant and equipment are
depreciated on a straight-line basis over the assets estimated useful lives as
follows: |
|
|
|
|
|
Years |
Buildings and improvements
|
|
15 to 30 |
Machinery and equipment
|
|
3 to 30 |
|
|
|
The Company assesses the carrying value of its property, plant and equipment for
impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability is measured by comparing
estimated undiscounted cash flows expected to be generated from such assets to their
net book value. If net book value exceeds estimated cash flows, the asset is written
down to fair value. When an asset is retired or sold, its cost and related
accumulated depreciation and depletion are removed from the accounts. The difference
between the net book value of the asset and proceeds on disposition is recorded as a
gain or loss. Fully depreciated plant and equipment still in use is not eliminated
from the accounts. |
|
|
(j) |
|
Restricted Investments and Bond Collateral |
|
|
|
The Company has requirements to maintain restricted cash and investments for bonding
requirements. Amounts held are recorded as Restricted investments and bond
collateral. Funds in the restricted investment and bond collateral accounts are not
available to meet the Companys operating cash needs. |
|
|
(k) |
|
Contractual Third-Party Reclamation Receivables |
|
|
|
Certain of the Companys customers have agreed to reimburse the Company for
reclamation expenditures as they are incurred. Amounts that are reimbursable by
customers are recorded as Contractual third-party reclamation receivables when the
related reclamation obligation is recorded. |
|
|
(l) |
|
Fair Value Measurements |
|
|
|
The Company is required to disclose the fair value of financial instruments where
practicable. The carrying amounts of cash equivalents, accounts receivable and
accounts payable reflected on the balance sheet approximates the fair value of these
instruments due to the short duration to maturities. The fair value of the Companys
Level 1 available-for-sale equity securities is generally based on independent
third-party market prices. |
|
|
(m) |
|
Financial Instruments |
|
|
|
The Company evaluates all of its financial instruments to determine if such
instruments are derivatives, derivatives that qualify for the normal purchase normal
sale exception, or instruments, which contain features that qualify them as embedded
derivatives. Except for derivatives that qualify for the normal purchase normal sale
exception, all financial instruments are recognized in the balance sheet at fair
value. Changes in fair value are recognized in earnings if they are not eligible for
hedge accounting or Accumulated other comprehensive income (loss) if they qualify for
cash flow hedge accounting. |
|
|
|
Held-to-maturity financial instruments consist of non-derivative financial assets
with fixed or determinable payments and a fixed term, which the Company has the
ability and intent to hold until maturity, and, therefore, accounts for them as
held-to-maturity securities. Held-to-maturity securities are recorded at amortized
cost, adjusted for the amortization or accretion of premiums or discounts calculated
on the effective interest method. Interest income is recognized when earned. |
|
|
|
The Company has securities classified as available-for-sale, which are recorded at
fair value. The changes in fair values are recorded as unrealized gains (losses) as
a component of Accumulated other comprehensive loss in stockholders deficit. |
224
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
|
|
|
The Company reviews its securities routinely for other-than-temporary impairment.
The primary factors used to determine if an impairment charge must be recorded
because a decline in value of the security is other than temporary include (i)
whether the fair value of the investment is significantly below its cost basis, (ii)
the financial condition of the issuer of the security, (iii) the length of time that
the cost of the security has exceeded its fair value and (iv) the Companys intent
and ability to retain the investment for a period of time sufficient to allow for any
anticipated recovery in market value. Other-than-temporary impairments are recorded
as a component of Other income (expense). |
|
|
(n) |
|
Intangible Assets and Liabilities |
|
|
|
Identifiable intangible assets or liabilities acquired in a business combination must
be recognized and reported separately from goodwill. The Company has determined that
its most significant acquired identifiable intangible assets and liabilities are
related to sales and purchase agreements. Intangible assets result from more
favorable market prices than contracted prices in sales and purchase agreements as
measured during a business combination. Intangible liabilities result from less
favorable market prices than contracted prices in sales and purchase agreements as
measured during a business combination. The majority of these intangible assets and
liabilities are amortized on a straight-line basis over the respective period of the
sales and purchase agreements, while the remainder are amortized on a
unit-of-production basis. The intangible liabilities are recorded as Other
liabilities in the accompanying consolidated balance sheet. |
|
|
|
Amortization of intangible assets and liabilities recognized as an increase in
Revenues was $0.1 million, $0.4 million and $0.1 million in 2010, 2009 and 2008,
respectively. |
|
|
(o) |
|
Postretirement Medical Benefits and Pension Plans |
|
|
|
The Company, through a plan sponsored by WCC, provides certain medical benefits for
retired employees and their dependents. Effective September 1, 2009, WCC eliminated
these benefits for non-represented employees and retirees. These benefits are
provided through an unfunded self-insured program. |
|
|
|
WCC requires the costs of postretirement medical benefits other than pensions to be
accrued over the employees period of active service. These costs are determined on
an actuarial basis and are allocated by the Parent to the Company based on its share
of the plan participants. These costs are recorded in Cost of sales with a
corresponding decrease in Advances to Parent. The Parents consolidated balance
sheet reflects the unfunded status of these postretirement medical benefit
obligations. |
|
|
|
The Company also participates in the Parents noncontributory defined benefit pension
plan, which was frozen effective July 1, 2009. The costs to provide the benefits are
accrued over the employees period of active service and are determined on an
actuarial basis. The Company records an allocation of net periodic retirement
benefit costs from the Parent in Cost of sales with a corresponding decrease in
Advances to Parent. The Parents consolidated balance sheet reflects the unfunded
status of these defined benefit pension plan obligations. |
|
|
(p) |
|
Income Taxes |
|
|
|
The Company files consolidated federal and state tax returns with its Parent. As the
Company itself is not a taxable entity, the Parents tax expense for its income tax
return group included on the Parents consolidated income tax return is allocated
among the members of that group. This allocation is calculated as if each member
were a separate taxpayer. This allocation is reflected by the Company in Income tax
expense with the offset in Additional paid-in capital. There is no formal tax
sharing agreement with the Parent. |
|
|
|
The Company accounts for deferred income taxes using the asset and liability method.
Deferred tax liabilities and assets are recognized for the expected future tax
consequences of events that have been reflected in the Companys financial statements
based on the difference between the financial statement carrying amounts and tax
bases of assets and liabilities, as well as net operating loss and tax credit
carryforwards, using enacted tax rates in effect in the years in which the
differences are expected to reverse. The Company establishes a valuation allowance against its net deferred tax assets to
the extent the |
225
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
|
|
|
Company believes that it is more likely than not that it will not realize the net
deferred tax assets. |
|
|
|
Accounting guidance prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Under this guidance, a company can recognize
the benefit of an income tax position only if it is more likely than not (greater
than 50%) that the tax position will be sustained upon tax examination, based solely
on the technical merits of the tax position. This standard also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition. |
|
|
(q) |
|
Deferred Financing Costs |
|
|
|
The Company capitalizes costs incurred in connection with borrowings or establishment
of credit facilities and issuance of debt securities. These costs are amortized as an
adjustment to interest expense over the life of the borrowing or term of the credit
facility using the effective interest method. These amounts are recorded in Other
assets in the accompanying Consolidated Balance Sheet. |
|
|
(r) |
|
Asset Retirement Obligations |
|
|
|
The Companys asset retirement obligation, or ARO, liabilities primarily consist of
estimated costs related to reclaiming surface land and support facilities at its
mines in accordance with federal and state reclamation laws as established by each
mining permit. |
|
|
|
The Company estimates its ARO liabilities for final reclamation and mine closure
based upon detailed engineering calculations of the amount and timing of the
estimated future costs for a third party to perform the required work. Cost
estimates are escalated for inflation, and then discounted at the credit-adjusted
risk-free rate. The Company records an ARO asset associated with the initial
recorded liability. The ARO asset is amortized based on the units-of-production
method over the estimated recoverable, proven and probable reserves at the related
mine, and the ARO liability is accreted to the projected settlement date. Changes in
estimates could occur due to revisions of mine plans, changes in estimated costs, and
changes in the timing of the performance of reclamation activities. |
|
|
(s) |
|
Coal Revenues |
|
|
|
The Company recognizes coal sales revenue at the time title passes to the customer in
accordance with the terms of the underlying sales agreements and after any contingent
performance obligations have been satisfied. Coal sales revenue is recognized based
on the pricing contained in the coal contracts in place at the time that title passes
and any retroactive pricing adjustments to those contracts are recognized as revised
agreements are reached with the customers and any performance obligations included in
the agreements are satisfied. |
|
(t) |
|
Other Operating Income (Loss) |
|
|
|
Other operating income in the accompanying Consolidated Results of Operations
reflects income from sources other than coal revenues. Income from the Companys
Indian Coal Tax Credit monetization transaction is recorded as Other operating
income. |
|
|
(u) |
|
Exploration and Drilling Costs |
|
|
|
Exploration expenditures are charged to Cost of sales as incurred, including costs
related to drilling and study costs incurred to convert or upgrade mineral resources
to reserves. |
|
|
(v) |
|
Earnings (Loss) per Share |
|
|
|
Basic earnings (loss) per share have been computed by dividing the net income (loss)
applicable to common shareholders by the weighted average number of shares of common
stock outstanding during each period. Net income (loss) applicable to common
shareholders includes the adjustment for net income or loss attributable to
noncontrolling interest. |
226
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
(w) Accounting Pronouncements Adopted
|
|
|
In January 2010, the FASB issued authoritative guidance, which requires additional
disclosures and clarifies certain existing disclosure requirements regarding fair
value measurements. This guidance is effective for interim and annual reporting
periods beginning after December 15, 2009. The Company adopted this guidance
effective January 1, 2010. However, none of the specific additional disclosures were
applicable at December 31, 2010. |
|
|
|
On January 1, 2009, the Company adopted accounting guidance that establishes
accounting and reporting standards for (1) noncontrolling interests in partially
owned consolidated subsidiaries and (2) the loss of control of subsidiaries. This
guidance requires noncontrolling interests (minority interests) to be reported as a
separate component of equity. The amount of net income or loss attributable to the
noncontrolling interests will be included in consolidated net income or loss on the
face of the income statement. In addition, this guidance requires that a parent
recognize a gain or loss in net income or loss when a subsidiary is deconsolidated.
Such gain or loss will be measured using the fair value of the noncontrolling equity
investment on the deconsolidation date. This guidance also includes expanded
disclosure requirements regarding the interests of the parent and its noncontrolling
interest. The Company recorded $2.6 million and $1.8 million, respectively, of net
loss attributable to noncontrolling interest for the years ended December 31, 2010
and December 31, 2009, which is reflected in the Companys consolidated financial
statements. |
(2) |
|
Indian Coal Production Tax Credits (ICTCs) |
|
|
|
In August 2005, the Energy Policy Act of 2005 was enacted. Among other provisions, it
contains a tax credit for the production of coal owned by Indian tribes. The tax credit is
equal to $2.20 per ton in 2010 and increases annually based on an inflationadjustment
factor. The credit may be used against regular corporate income tax for all years and
against alternative minimum taxes for the initial four-year period after the placed in
service date of the facility. The Absaloka Mine produces coal that qualifies for this
credit. |
|
|
|
In July 2008, the Company finalized an agreement with the Crow Tribe covering the treatment
of the tax credit in determining royalties payable to the Tribe under its lease agreement
with the Tribe. |
|
|
|
On October 16, 2008, the Company entered into a series of transactions with a financial
institution, or Investor, designed to enable the Company to take advantage of ICTCs
generated by its mining operations. |
|
|
|
In these transactions, the Company formed a limited liability company, Absaloka Coal LLC,
which it owned jointly with a newly formed subsidiary, WRI Partners, Inc., to mine and sell
coal from the Absaloka Mine. Absaloka Coal LLC then entered into a sublease from the
Company for the coal leases with the Crow Tribe, entitling Absaloka Coal LLC to mine up to
40.0 million tons of coal at the Absaloka Mine through 2012. WRI also assigned to Absaloka
Coal LLC all of its contracts to sell coal to third parties. |
|
|
|
On October 16, 2008, the Company sold its interest in Absaloka Coal LLC to the Investor for
consideration consisting of an initial payment of $4.0 million, $34.0 million of fixed
principal and interest payments, and contingent payments based on 90% of the credits
allocated to the Investor in excess of the fixed payments. Based on current forecasts of
the Absaloka Mines coal sales, the total consideration to be paid by the Investor to the
Company is projected to be approximately $55.8 million through December 31, 2012. The
Company expects to share approximately $17.1 million of this consideration with the Crow
Tribe as royalties. |
|
|
|
The Investor will be entitled to 99% of Absaloka Coal LLCs earnings and related
distributions until it has received a 10% return on its initial $4.0 million cash
investment, after which it will be entitled to 5% of earnings and distributions. |
|
|
|
On October 3, 2008, the Company requested a private letter ruling, or PLR, request with the
IRS concerning various issues relating to the validity of the ICTCs. In March 2009, the
Company received a PLR confirming the availability of the ICTCs under the specific scenario
described whereby WRI subleased the right to mine a fixed amount of coal from the Companys
Absaloka Mine to the LLC. The Company recognizes the fixed and contingent payments from the
Investor as they are received as income in its consolidated financial statements. |
227
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
|
|
As part of the purchase agreement, the Company has an option to purchase the Investors
entire membership interest after October 16, 2013, and Investor is entitled to withdraw at
any time from Absaloka Coal LLC. In these events, or on dissolution of the LLC, the Company
would be required to pay the Investor the appraised value of its capital account balance. |
|
|
|
The Company is the sole manager of Absaloka Coal LLC has entered into a contract mining
agreement with Absaloka Coal LLC under which it receives an amount equal to all of its
mining costs plus a fee per ton of coal mined. Westmoreland Coal Sales Company acts as the
exclusive sales agent on behalf of Absaloka Coal LLC under a sales agency agreement and
receives a fee for its services based on the tons of coal sold. |
|
(3) |
|
Inventories |
|
|
|
Inventory consisted of the following at December 31, 2010 and 2009 (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Coal |
|
$ |
210 |
|
|
$ |
194 |
|
Materials and supplies |
|
|
4,155 |
|
|
|
3,712 |
|
Reserve for obsolete inventory |
|
|
(45 |
) |
|
|
(120 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
4,320 |
|
|
$ |
3,786 |
|
|
|
|
|
|
|
|
(4) |
|
Restricted Investments and Bond Collateral |
|
|
|
The Companys restricted investments and bond collateral consisted of the following (in
thousands): |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Reclamation bond collateral |
|
$ |
10,956 |
|
|
$ |
9,226 |
|
|
|
The Companys carrying value and estimated fair value of its restricted investments and
bond collateral at December 31, 2010, are as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Fair Value |
|
Cash and cash equivalents |
|
$ |
8,402 |
|
|
$ |
8,402 |
|
Held-to-maturity securities |
|
|
1,259 |
|
|
|
1,423 |
|
Available-for-sale securities |
|
|
1,295 |
|
|
|
1,295 |
|
|
|
|
|
|
|
|
|
|
$ |
10,956 |
|
|
$ |
11,120 |
|
|
|
|
|
|
|
|
|
|
Funds in the restricted investment and bond collateral accounts are not available to
meet the Companys operating cash needs. For all of its restricted investments and bond
collateral accounts, the Company can select from several investment options for the funds
and receives the investment returns on these investments. |
|
|
|
As of December 31, 2010, the Company had reclamation bond collateral in place for its active
Absaloka Mine. These government-required bonds assure that coal-mining operations comply
with applicable federal and state regulations relating to the performance and completion of
final reclamation activities. The amounts deposited in the bond collateral account secure
the bonds issued by the bonding company. |
228
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
|
a) |
|
Held-to-Maturity and Available-for-Sale Restricted Investments and Bond
Collateral |
|
|
|
The amortized cost, gross unrealized holding gains and losses and fair value of
held-to-maturity securities at December 31, 2010 and 2009, are as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Amortized cost |
|
$ |
1,259 |
|
|
$ |
2,139 |
|
Gross unrealized holding gains (losses) |
|
|
164 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
Fair value |
|
$ |
1,423 |
|
|
$ |
2,137 |
|
|
|
|
|
|
|
|
|
|
|
Maturities of held-to-maturity securities are as follows at December 31, 2010 (in
thousands): |
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
Due in more than ten years |
|
$ |
1,259 |
|
|
$ |
1,423 |
|
|
|
|
The cost basis, gross unrealized holding gains and fair value of available-for-sale
securities at December 31, 2010 and 2009, are as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Cost basis |
|
$ |
1,175 |
|
|
$ |
1,175 |
|
Gross unrealized holding gains |
|
|
120 |
|
|
|
106 |
|
|
|
|
|
|
|
|
Fair value |
|
$ |
1,295 |
|
|
$ |
1,281 |
|
|
|
|
|
|
|
|
(5) |
|
Line of Credit, Long-Term Debt and Capital Leases |
|
|
|
The amount outstanding at December 31, 2010 and 2009, under the Companys line of credit,
long-term debt and capital leases consisted of the following (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
Total Debt Outstanding |
|
|
|
2010 |
|
|
2009 |
|
Revolving line of credit |
|
$ |
16,900 |
|
|
$ |
16,400 |
|
Term debt |
|
|
9,600 |
|
|
|
12,000 |
|
Capital lease obligations |
|
|
7,821 |
|
|
|
9,861 |
|
|
|
|
|
|
|
|
Total debt outstanding |
|
|
34,321 |
|
|
|
38,261 |
|
Less current portion |
|
|
(2,255 |
) |
|
|
(30,517 |
) |
|
|
|
|
|
|
|
Total debt outstanding, less current portion |
|
$ |
32,066 |
|
|
$ |
7,744 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents aggregate contractual debt maturities of all long-term
debt and the revolving credit facilities at December 31, 2010 (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Parent Note |
|
|
|
As of December 31, 2010 |
|
|
Offering |
|
2011 |
|
$ |
21,555 |
|
|
$ |
2,255 |
|
2012 |
|
|
4,781 |
|
|
|
2,381 |
|
2013 |
|
|
3,993 |
|
|
|
1,593 |
|
2014 |
|
|
3,330 |
|
|
|
930 |
|
2015 |
|
|
662 |
|
|
|
662 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
34,321 |
|
|
$ |
7,821 |
|
|
|
|
|
|
|
|
|
|
In December 2010, WRIs Business Loan Agreement was amended and the $20.0 million
revolving line of credit was extended through December 18, 2011. The interest rate for the
term debt and the revolver were payable at the prime rate. The term debt and the revolver
were both subject to a per annum 8.0% and 7.0% floor, respectively. As described in Note 1,
the outstanding balance of the term debt and the revolving line of credit were repaid and
the revolving line of credit was terminated in February 2011. |
229
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
|
|
|
At December 31, 2010, the Company had $3.1 million of unused borrowings under the revolver.
The revolver did not have commitment fees for the unused portion of the available revolving
loan. |
|
|
|
|
The two debt instruments were collateralized by a first lien in WRIs inventory, chattel
paper, accounts and notes receivable, and equipment. WCC was the guarantor of the debt
under the Agreement and its guaranty was secured by a pledge of WCCs interest in WRI. |
|
|
|
|
WRIs Business Loan Agreement required it to comply with numerous covenants and minimum
financial ratio requirements primarily related to debt coverage, tangible net worth, capital
expenditures, and its operations. Primarily as a result of unfavorable market conditions
driving decreases in tonnages sold, WRI was not in compliance with a net worth requirement
contained in its Business Loan Agreement at April 30, 2010. As a result of this
non-compliance, the interest rates on WRIs term debt and revolving line of credit were
increased 1% (to 8% and 7%, respectively at December 31, 2010). As of December 31, 2010,
WRI was in compliance with all covenants, with the exception of the net worth requirement. |
|
|
|
|
WRI leases equipment utilized in its operations at the Absaloka Mine. The weighted average
interest rate for these capital leases outstanding at December 31, 2010 and 2009 was 6.65%
and 7.60%, respectively. |
|
|
(6) |
|
Postretirement Medical Benefits |
|
|
|
|
The Company participates in a postretirement medical benefit plan sponsored by the Parent.
The plan provided medical benefits for retired employees and their dependents. Effective
September 1, 2009, WCC eliminated these benefits for non-represented employees and retirees. |
|
|
|
|
The Company records an allocation of the net periodic postretirement medical benefit cost
from the Parent as a component of Cost of sales with a corresponding decrease in Advances to
Parent. In 2010 and 2009, the Company did not make medical benefit payments for its
retirees who participate in the Parents postretirement medical benefit plan. The Company
recorded postretirement medical benefit costs of less than $0.1 million in both 2010 and
2009. The benefit obligation attributable to the plan participants that are employees or
retirees of the Company was less than $0.1 million at December 31, 2010 and 2009. |
|
|
(7) |
|
Pension Plan |
|
|
|
|
The Company participates in a noncontributory defined benefit pension plan sponsored by the
Parent, which was frozen effective July 1, 2009. This plan covered nearly all of the
Companys full-time employees. Benefits are generally based on years of service, the
employees average annual compensation for the highest five continuous years of employment
as specified in the plan agreement and social security integration levels. |
|
|
|
|
The Company records an allocation of the net periodic pension benefit cost from the Parent
as Cost of sales with a corresponding decrease in Advances to Parent. The Company recorded
$0.1 million in 2009 and less than $0.1 million was allocated in net periodic pension
benefit cost in 2010 and 2008. In 2010 and 2009, the Company contributed $0.2 million and
$0.1 million, respectively, for its allocated share of contributions to the pension plan
sponsored by the Parent. The accumulated pension benefit obligation attributable to the
plan participants that are employees or retirees of the Company was $1.8 million and $1.4
million at December 31, 2010 and December 31, 2009, respectively. This obligation is funded
with $1.4 million and $0.9 million of plan assets held by the Parent at December 31, 2010
and 2009, respectively, resulting in a $0.4 million and $0.5 million unfunded liability
recorded on the Parents consolidated balance sheet at December 31, 2010 and 2009,
respectively. |
|
|
|
|
The Company expects to contribute $0.2 million to WCCs pension plan during 2011. |
a) Multi-Employer Pension
The Company contributes to a multiemployer defined benefit pension plan pursuant to
collective bargaining agreements. The contributions are based on hours worked and
totaled $0.9 million for the years ended December 31, 2010 and 2009 and $0.8 million for
year ended December 31, 2008.
230
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
(8) Asset Retirement Obligations and Contractual Third Party Reclamation Receivables
a) Asset Retirement Obligations
Changes in the Companys asset retirement obligations during the year ended December 31,
2010 and 2009 were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Asset retirement obligations beginning of year |
|
$ |
32,428 |
|
|
$ |
15,487 |
|
Accretion |
|
|
3,035 |
|
|
|
1,346 |
|
Liabilities settled |
|
|
(1,842 |
) |
|
|
(318 |
) |
Changes due to amount and timing of reclamation |
|
|
(1,283 |
) |
|
|
15,913 |
|
|
|
|
|
|
|
|
Asset retirement obligations end of year |
|
|
32,338 |
|
|
|
32,428 |
|
Less current portion |
|
|
(3,371 |
) |
|
|
(4,512 |
) |
|
|
|
|
|
|
|
Asset retirement obligations less current portion |
|
$ |
28,967 |
|
|
$ |
27,916 |
|
|
|
|
|
|
|
|
|
|
|
As permittee, the Company is responsible for the total amount. The financial
responsibility for a portion of final reclamation of the mine when it is closed has been
transferred by contract to one of the Companys customers. |
b) Contractual Third-Party Reclamation Receivables
|
|
|
The Company has recognized an asset of $0.5 million at December 31, 2010, as a
contractual third-party reclamation receivable, representing the present value of the
obligation of one of its customers to reimburse the Company for a portion of the asset
retirement costs. |
(9) |
|
Fair Value Measurements |
|
|
|
Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
The Company is required to disclose the fair value of financial instruments where
practicable. The carrying amounts of cash equivalents, accounts receivable and accounts
payable reflected on the Consolidated Balance Sheet approximate the fair value of these
instruments due to the short duration to their maturities. See Note 4 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 1 assets include available-for-sale equity securities
generally valued based on independent third-party market prices. |
|
|
|
Level 2, defined as observable inputs other than Level 1 prices. These include
quoted prices for similar assets or liabilities in an active market, quoted prices for
identical assets and liabilities in markets that are not active, or other inputs that
are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities. The Company had no Level 2 inputs at December
31, 2010 and 2009. |
|
|
|
Level 3, defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions. The Company had no Level
3 inputs at December 31, 2010 and 2009. |
231
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
|
|
|
The table below sets forth, by level, the Companys financial assets that are accounted for
at fair value (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2010 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
investments included in
Reclamation investments
and bond collateral |
|
$ |
1,295 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2009 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
investments included in
Reclamation investments and
bond collateral |
|
$ |
1,281 |
|
|
$ |
|
|
|
$ |
|
|
(10) |
|
Income Taxes |
|
|
|
Income tax expense attributable to net income before income taxes consists of (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
State |
|
|
21 |
|
|
|
106 |
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
21 |
|
|
$ |
106 |
|
|
$ |
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense attributable to net income before income taxes differed from the
amounts computed by applying the statutory federal income tax rate of 34% to pre-tax income
as a result of the following (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Computed tax expense (benefit) at statutory rate |
|
$ |
(787 |
) |
|
$ |
216 |
|
|
$ |
(21 |
) |
Increase in income tax expense resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
899 |
|
|
|
618 |
|
|
|
|
|
State income taxes, net of federal tax benefit |
|
|
10 |
|
|
|
70 |
|
|
|
25 |
|
State income taxes, return to provision adjustment |
|
|
5 |
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
288 |
|
Prior year permanent items tax adjustments |
|
|
41 |
|
|
|
|
|
|
|
|
|
Change in valuation allowance for net deferred tax assets |
|
|
(167 |
) |
|
|
(803 |
) |
|
|
8,000 |
|
Domestic production activities deduction |
|
|
|
|
|
|
|
|
|
|
(57 |
) |
Indian Coal Tax credit |
|
|
|
|
|
|
|
|
|
|
(8,104 |
) |
Other, net |
|
|
20 |
|
|
|
5 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
Actual income tax expense |
|
$ |
21 |
|
|
$ |
106 |
|
|
$ |
138 |
|
|
|
|
|
|
|
|
|
|
|
232
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
|
|
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are presented below (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Indian coal tax credit carryforward |
|
$ |
15,848 |
|
|
$ |
15,727 |
|
Accruals for following: |
|
|
|
|
|
|
|
|
Asset retirement obligations |
|
|
5,548 |
|
|
|
5,114 |
|
NOL carryforward |
|
|
2,414 |
|
|
|
1,981 |
|
Other accruals |
|
|
264 |
|
|
|
245 |
|
Pension and postretirement medical obligation |
|
|
89 |
|
|
|
|
|
Gain on sale of partnership interest |
|
|
5,819 |
|
|
|
7,331 |
|
|
|
|
|
|
|
|
Total gross deferred tax assets |
|
|
29,982 |
|
|
|
30,398 |
|
Less valuation allowance |
|
|
(17,923 |
) |
|
|
(17,365 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
|
12,059 |
|
|
|
13,033 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Pension and postretirement medical benefit obligations |
|
|
|
|
|
|
(174 |
) |
Property, plant and equipment, due to differences in
basis and depreciation, depletion and amortization |
|
|
(12,046 |
) |
|
|
(12,840 |
) |
Change in accounting method |
|
|
(13 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
Total gross deferred tax liabilities |
|
|
(12,059 |
) |
|
|
(13,033 |
) |
|
|
|
|
|
|
|
Net deferred taxes |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the Company has available Federal net operating loss
carryforwards to reduce future regular taxable income, which expires as follows: |
|
|
|
|
|
Expiration Date |
|
Regular Tax |
|
|
|
(In thousands) |
|
2029 |
|
$ |
3,196 |
|
2030 |
|
|
3,394 |
|
|
|
|
|
Total |
|
$ |
6,590 |
|
|
|
|
|
|
|
As of December 31, 2010, the Company also has an estimated $6.5 million in State net
operating loss carryforwards to reduce future taxable income. |
a) Leases
|
|
The gross value of property, plant, equipment and mine development assets under capital
leases was $4.6 million and $13.1 million as of December 31, 2010 and December 31, 2009,
respectively, related primarily to the leasing of mining equipment. The accumulated
amortization for these items was $1.1 million and $2.2 million at December 31, 2010 and
December 31, 2009, respectively. |
233
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
|
|
|
Future minimum capital and operating lease payments as of December 31, 2010, are as follows
(in thousands): |
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010 |
|
|
|
Capital Leases |
|
|
Operating Leases |
|
2011 |
|
$ |
2,705 |
|
|
$ |
588 |
|
2012 |
|
|
2,678 |
|
|
|
245 |
|
2013 |
|
|
1,751 |
|
|
|
123 |
|
2014 |
|
|
1,008 |
|
|
|
|
|
2015 |
|
|
681 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
8,824 |
|
|
$ |
956 |
|
|
|
|
|
|
|
|
|
Less imputed interest |
|
|
(1,003 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum capital
lease payments |
|
$ |
7,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense under operating leases during the year ending December 31, 2010, 2009
and 2008 totaled $1.0 million, $1.3 million and less than $0.1 million, respectively. |
|
|
The Company leases certain of its coal reserves from third parties and pays royalties based
on either a per ton rate or as a percentage of revenues received. Royalties charged to
expense under all such lease agreements amounted to $9.2 million, $9.6 million and $8.2
million in 2010, 2009 and 2008, respectively. |
(12) Coal Sales and Major Customers
|
|
Coal sales to major customers during the year ended December 31, 2010, 2009 and 2008 was as
follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Customer A |
|
$ |
45,211 |
|
|
$ |
49,670 |
|
|
$ |
49,482 |
|
Customer B |
|
|
15,171 |
|
|
|
15,889 |
|
|
|
18,753 |
|
Customer C |
|
|
7,491 |
|
|
|
6,156 |
|
|
|
5,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67,873 |
|
|
$ |
71,715 |
|
|
$ |
74,130 |
|
|
|
|
|
|
|
|
|
|
|
(13) Related Party Transactions
|
|
|
The Company engages in certain transactions with its Parent and other subsidiaries of the
Parent. |
|
|
|
During 2010, 2009 and 2008, Western Energy Company, or WECO, a wholly owned subsidiary of
WML, sold 0.2 million, 0.3 million and less than 0.1 million tons of coal, respectively, to
the Company for approximately $2.1 million, $3.8 million and $0.4 million, respectively. |
|
|
|
The Company was allocated audit and tax fees and information technology costs incurred by
its Parent. In 2010, 2009 and 2008, these fees were $0.4 million, $0.5 million and $0.4
million, respectively, and are included in Selling and administrative expenses. |
|
|
|
Advances to Parent primarily represent the Companys obligations for long-term loans from
the Parent and accruals for postretirement medical benefit costs and pension costs allocated
by the Parent, net of payments. |
234
Westmoreland Resources, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Cont.)
(14) |
|
Quarterly Financial Data (unaudited) |
|
|
|
Summarized quarterly financial data is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
(In thousands; except per share data) |
|
|
|
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
18,801 |
|
|
$ |
20,958 |
|
|
$ |
18,936 |
|
|
$ |
16,302 |
|
Operating income (loss) |
|
|
(936 |
) |
|
|
1,655 |
|
|
|
770 |
|
|
|
(1,339 |
) |
Net income (loss) applicable to
Parent company |
|
|
(574 |
) |
|
|
1,635 |
|
|
|
(165 |
) |
|
|
(587 |
) |
Basic income (loss) per common share |
|
$ |
(57.40 |
) |
|
$ |
163.50 |
|
|
$ |
(16.50 |
) |
|
$ |
(58.70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
19,657 |
|
|
$ |
20,210 |
|
|
$ |
20,287 |
|
|
$ |
18,206 |
|
Operating income (loss) |
|
|
(591 |
) |
|
|
5,334 |
|
|
|
(595 |
) |
|
|
(1,787 |
) |
Net income (loss) applicable to
Parent company |
|
|
(925 |
) |
|
|
5,551 |
|
|
|
257 |
|
|
|
(2,535 |
) |
Basic income (loss) per common share |
|
$ |
(92.50 |
) |
|
$ |
555.10 |
|
|
$ |
25.70 |
|
|
$ |
(253.50 |
) |
235
WESTMORELAND ENERGY LLC
Report of Independent Registered Public Accounting Firm
The Board of Directors of
Westmoreland Energy LLC
We have audited the accompanying consolidated balance sheets of Westmoreland Energy LLC and
subsidiaries (the Company) (a wholly owned subsidiary of Westmoreland Coal Company) as of December
31, 2010 and 2009, and the related consolidated statements of operations, members equity and
comprehensive income (loss), and cash flows for the years then ended. These financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Companys internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Westmoreland Energy LLC and subsidiaries at December
31, 2010 and 2009, and the results of their operations and their cash flows for the years then
ended in conformity with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Denver, Colorado
June 3, 2011
236
WESTMORELAND ENERGY LLC
Independent Auditors Report
The Board of Directors
Westmoreland Energy LLC:
We have audited the accompanying consolidated statements of operations, members equity and
comprehensive loss, and cash flows of Westmoreland Energy LLC (the Company) ( a wholly
owned subsidiary of Westmoreland Coal Company) for the year ended December 31, 2008. These
consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the results of Westmoreland Energy LLC operations and their cash flows for the
year ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.
The consolidated financial statements have been prepared assuming the Company will continue as a
going concern. During the year ended December 31, 2008, Westmoreland Coal Company had suffered
recurring losses from operations, had a working capital deficit, and had a net capital deficiency
that raised substantial doubt about the Companys ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might result from the outcome
of these uncertainties.
/s/ KPMG LLP
Denver, Colorado
June 3, 2011
237
Westmoreland Energy LLC
Consolidated Balance Sheets
December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
880 |
|
|
$ |
138 |
|
Accounts receivable |
|
|
14,346 |
|
|
|
13,737 |
|
Inventories |
|
|
1,936 |
|
|
|
2,571 |
|
Other current assets |
|
|
224 |
|
|
|
176 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
17,386 |
|
|
|
16,622 |
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment: |
|
|
|
|
|
|
|
|
Land |
|
|
1,156 |
|
|
|
1,156 |
|
Capitalized asset retirement costs |
|
|
239 |
|
|
|
239 |
|
Plant, equipment, and other |
|
|
215,851 |
|
|
|
214,531 |
|
|
|
|
|
|
|
|
|
|
|
217,246 |
|
|
|
215,926 |
|
Less accumulated depreciation and amortization |
|
|
(42,156 |
) |
|
|
(32,953 |
) |
|
|
|
|
|
|
|
|
|
|
175,090 |
|
|
|
182,973 |
|
Restricted investments |
|
|
8,563 |
|
|
|
8,705 |
|
Intangible assets, net of accumulated
amortization $7.4 million at December 31, 2010
and $5.7 million at December 31, 2009 |
|
|
6,203 |
|
|
|
7,842 |
|
Other assets |
|
|
400 |
|
|
|
543 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
207,642 |
|
|
$ |
216,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Members Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
|
|
|
|
9,806 |
|
Accounts payable |
|
|
8,549 |
|
|
|
7,469 |
|
Accrued expenses |
|
|
783 |
|
|
|
944 |
|
Deferred revenue |
|
|
8,805 |
|
|
|
6,840 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
18,137 |
|
|
|
25,059 |
|
|
Long-term debt, less current installments |
|
|
46,648 |
|
|
|
46,648 |
|
Deferred revenue, less current portion |
|
|
67,308 |
|
|
|
75,283 |
|
Pension |
|
|
154 |
|
|
|
178 |
|
Asset retirement obligation |
|
|
715 |
|
|
|
664 |
|
Intangible liabilities, net of accumulated
amortization of $4.6 million at December 31,
2010 and $3.6 million at December 31, 2009 |
|
|
8,664 |
|
|
|
9,682 |
|
Other liabilities |
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
141,626 |
|
|
|
157,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members equity: |
|
|
|
|
|
|
|
|
Contributed capital |
|
|
35 |
|
|
|
6 |
|
Accumulated other comprehensive income |
|
|
(203 |
) |
|
|
(164 |
) |
Retained earnings |
|
|
66,184 |
|
|
|
59,299 |
|
|
|
|
|
|
|
|
Total members equity |
|
|
66,016 |
|
|
|
59,141 |
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
207,642 |
|
|
$ |
216,685 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
238
Westmoreland Energy LLC
Consolidated Statements of Operations
Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Revenues |
|
$ |
87,999 |
|
|
$ |
82,162 |
|
|
$ |
90,006 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
61,739 |
|
|
|
60,504 |
|
|
|
59,761 |
|
Depreciation |
|
|
10,131 |
|
|
|
9,764 |
|
|
|
9,780 |
|
Selling and administrative |
|
|
4,287 |
|
|
|
4,231 |
|
|
|
3,867 |
|
Loss (gain) on sale of assets |
|
|
122 |
|
|
|
12 |
|
|
|
(876 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
76,279 |
|
|
|
74,511 |
|
|
|
72,532 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
11,720 |
|
|
|
7,651 |
|
|
|
17,474 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(4,659 |
) |
|
|
(5,946 |
) |
|
|
(9,497 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(1,345 |
) |
Interest income |
|
|
36 |
|
|
|
120 |
|
|
|
511 |
|
Other income |
|
|
30 |
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,593 |
) |
|
|
(5,378 |
) |
|
|
(10,331 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
7,127 |
|
|
|
2,273 |
|
|
|
7,143 |
|
Income tax expense |
|
|
368 |
|
|
|
3,812 |
|
|
|
11,883 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
6,759 |
|
|
$ |
(1,539 |
) |
|
$ |
(4,740 |
) |
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
239
Westmoreland Energy LLC
Consolidated Statements of Members Equity and Comprehensive Income (Loss)
Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
Total Members |
|
|
|
Contributed Capital |
|
|
Comprehensive Loss |
|
|
Retained Earnings |
|
|
Equity |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
1,351 |
|
|
$ |
(295 |
) |
|
$ |
57,371 |
|
|
$ |
58,427 |
|
Distributions |
|
|
|
|
|
|
|
|
|
|
(21,000 |
) |
|
|
(21,000 |
) |
Warrant repriced in lieu of registration
requirement |
|
|
355 |
|
|
|
|
|
|
|
|
|
|
|
355 |
|
Sale of Ft. Lupton interest |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Transactions with Parent/affiliates |
|
|
|
|
|
|
|
|
|
|
30,151 |
|
|
|
30,151 |
|
Amortization and adjustment of accumulated
actuarial loss of pension plans |
|
|
|
|
|
|
189 |
|
|
|
|
|
|
|
189 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(4,740 |
) |
|
|
(4,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
1,705 |
|
|
$ |
(106 |
) |
|
$ |
61,782 |
|
|
$ |
63,381 |
|
Distributions |
|
|
|
|
|
|
|
|
|
|
(7,706 |
) |
|
|
(7,706 |
) |
Cumulative effect of adoption of ASC 815-40 |
|
|
(1,699 |
) |
|
|
|
|
|
|
1,222 |
|
|
|
(477 |
) |
Transactions with Parent/affiliates |
|
|
|
|
|
|
|
|
|
|
5,540 |
|
|
|
5,540 |
|
Amortization and adjustment of accumulated
actuarial loss of pension plans |
|
|
|
|
|
|
(58 |
) |
|
|
|
|
|
|
(58 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
(1,539 |
) |
|
|
(1,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
6 |
|
|
$ |
(164 |
) |
|
$ |
59,299 |
|
|
$ |
59,141 |
|
Transactions with Parent/affiliates |
|
|
|
|
|
|
|
|
|
|
126 |
|
|
|
126 |
|
Contributions of Westmoreland Coal Company
common stock to pension plan on the
Companys behalf |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
29 |
|
Amortization and adjustment of accumulated
actuarial loss of pension plans |
|
|
|
|
|
|
(39 |
) |
|
|
|
|
|
|
(39 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
6,759 |
|
|
|
6,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
35 |
|
|
$ |
(203 |
) |
|
$ |
66,184 |
|
|
$ |
66,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
240
Westmoreland Energy LLC
Consolidated Statements of Cash Flows
Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
6,759 |
|
|
$ |
(1,539 |
) |
|
$ |
(4,740 |
) |
Adjustments to reconcile net income (loss) to net cash
from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
10,131 |
|
|
|
9,764 |
|
|
|
9,780 |
|
Accretion of asset retirement obligation |
|
|
51 |
|
|
|
34 |
|
|
|
32 |
|
Loss (gain) on the sale of assets |
|
|
122 |
|
|
|
12 |
|
|
|
(876 |
) |
Amortization of deferred financing costs |
|
|
(308 |
) |
|
|
(313 |
) |
|
|
(105 |
) |
Amortization of intangible assets and liabilities, net |
|
|
621 |
|
|
|
621 |
|
|
|
620 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
1,102 |
|
Gain on derivative |
|
|
(30 |
) |
|
|
(448 |
) |
|
|
|
|
Income tax
allocation |
|
|
|
|
|
|
|
|
|
|
11,883 |
|
Change in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(609 |
) |
|
|
8,341 |
|
|
|
(3,546 |
) |
Inventories |
|
|
635 |
|
|
|
(730 |
) |
|
|
959 |
|
Accounts payable and accrued expenses |
|
|
884 |
|
|
|
(61 |
) |
|
|
(406 |
) |
Deferred revenues |
|
|
(6,010 |
) |
|
|
11,216 |
|
|
|
28,774 |
|
Other assets and liabilities |
|
|
(211 |
) |
|
|
(2,427 |
) |
|
|
(2,302 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
12,035 |
|
|
|
24,470 |
|
|
|
41,175 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(2,207 |
) |
|
|
(4,251 |
) |
|
|
(1,711 |
) |
Change in restricted investments |
|
|
142 |
|
|
|
2,266 |
|
|
|
19,868 |
|
Proceeds from sale of assets |
|
|
1 |
|
|
|
|
|
|
|
876 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(2,064 |
) |
|
|
(1,985 |
) |
|
|
19,033 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt |
|
|
|
|
|
|
|
|
|
|
64,880 |
|
Repayments of long-term debt |
|
|
(9,355 |
) |
|
|
(25,845 |
) |
|
|
(132,070 |
) |
Borrowings on revolving lines of credit |
|
|
7,300 |
|
|
|
|
|
|
|
|
|
Repayments on revolving lines of credit |
|
|
(7,300 |
) |
|
|
|
|
|
|
|
|
Deferred financing costs |
|
|
|
|
|
|
|
|
|
|
(296 |
) |
Transactions with Parent/affiliates |
|
|
126 |
|
|
|
5,540 |
|
|
|
18,268 |
|
Distributions |
|
|
|
|
|
|
(7,706 |
) |
|
|
(21,000 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(9,229 |
) |
|
|
(28,011 |
) |
|
|
(70,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
742 |
|
|
|
(5,526 |
) |
|
|
(10,010 |
) |
Cash and cash equivalents, beginning of year |
|
|
138 |
|
|
|
5,664 |
|
|
|
15,674 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
880 |
|
|
$ |
138 |
|
|
$ |
5,664 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
5,159 |
|
|
$ |
6,531 |
|
|
$ |
9,364 |
|
Income taxes |
|
$ |
10 |
|
|
$ |
1,910 |
|
|
$ |
2,714 |
|
Noncash transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued purchases of property and equipment |
|
$ |
86 |
|
|
$ |
51 |
|
|
$ |
408 |
|
See accompanying Notes to Consolidated Financial Statements
241
Westmoreland Energy LLC
Notes to Consolidated Financial Statements
1. |
|
Summary of Significant Accounting Policies |
|
(a) |
|
Nature of Operations |
|
|
|
|
Westmoreland Energy LLC, or WELLC, or the Company, a wholly owned subsidiary of
Westmoreland Coal Company, or WCC, or the Parent, is a special purpose Delaware
Limited Liability Company formed on December 4, 2000. Through its subsidiaries, the
Company owns and operates two cogeneration facilities also known as Roanoke Valley
Power Plant, or ROVA, located in Weldon, North Carolina. The first facility, ROVA I,
is a 180 MW facility and the second facility, ROVA II, is a 50 MW facility adjacent
to ROVA I. ROVA I and ROVA II operate as exempt wholesale generators as determined
by the Federal Energy Regulatory Commission, or FERC. ROVA I commenced commercial
operation on May 29, 1994. ROVA II commenced commercial operation on June 1, 1995.
The Parent provides management and administrative support to WELLC and its
subsidiaries, including legal, environmental, sales, and accounting services. |
|
|
|
|
The Companys financial statements reflect substantially all of its costs of doing
business. Common expenses incurred by the Parent on behalf of the Company are
charged to the Company based on proportional cost allocations. The Company believes
the allocations used are reasonable. However, these financial statements may not
necessarily be representative of a stand-alone company. |
|
|
(b) |
|
WCCs Liquidity |
|
|
|
|
On February 4, 2011 through a private placement offering, WCC issued $150.0 million
of Senior Secured Notes due in 2018 together with Westmoreland Partners, an indirect
wholly owned subsidiary of WELLC, as co-issuer (hereafter, the Parent Notes). WCC
received approximately $135.2 million in proceeds from the Parent Notes offering. WCC
used the proceeds to pay the outstanding balance on the Companys term debt, which
the Company recorded as contributed capital. |
|
|
|
|
Following the February 4, 2011 Parent Notes offering, WCC has cash on hand in excess
of $45 million. WCC also expects increases in coal operating profits and heritage
health benefit expenditures to continue at their reduced 2010 rates. As a result,
WCC anticipates that its cash flows from operations, cash on hand and available
borrowing capacity will be sufficient to meet its investing, financing, and working
capital requirements for the next several years. |
|
|
|
|
Also, the Companys credit facility was terminated in February 2011 as a result of
the Parent Notes offering. As a result of the Parent Notes offering, the Company
recorded the current portion of its term debt as non-current liabilities in its
consolidated balance sheet at December 31, 2010. |
242
Westmoreland Energy LLC
Notes to Consolidated Financial Statements (Cont.)
|
(c) |
|
Consolidation Policy |
|
|
|
|
The consolidated financial statements of WELLC includes the accounts of the Company
and its wholly owned subsidiaries, after elimination of intercompany balances and
transactions. |
|
|
(d) |
|
Use of Estimates |
|
|
|
|
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and reported amounts
of revenues and expenses during the reporting period. Actual results could differ
from those estimates. |
|
|
(e) |
|
Cash and Cash Equivalents |
|
|
|
|
Cash and cash equivalents are stated at cost, which approximate fair value. Cash
equivalents consist of highly liquid investments with original maturities of three
months or less. |
|
|
(f) |
|
Accounts Receivable |
|
|
|
|
Accounts receivable are recorded at the invoiced amount and do not bear interest.
The Company evaluates the need for an allowance for doubtful accounts based on a
review of collectability. The Company has determined that no allowance is necessary
for accounts receivable as of December 31, 2010 and 2009. |
|
|
(g) |
|
Inventories |
|
|
|
|
Inventories, which consist primarily of coal, are stated at the lower of cost or
market. Cost is determined using the average cost method. |
|
|
(h) |
|
Restricted Investments |
|
|
|
|
The Company has requirements to maintain restricted cash and investments for letter
of credit requirements. Funds in the restricted investment accounts are not
available to meet the Companys operating cash needs. For all of its restricted
investments, the Company can select from several investment options for the funds
and receives the investment returns on these investments. |
|
|
(i) |
|
Property, Plant, and Equipment |
|
|
|
|
Property, plant and equipment are carried at cost and include expenditures for new
facilities, those expenditures that substantially increase the productive lives of
existing plant and equipment and long-term spare parts inventory. Maintenance and
repair costs that do not extend the useful life or increase the productivity of the
asset are expensed as incurred. Plant and equipment are depreciated on a
straight-line basis over the assets estimated useful lives as follows: |
|
|
|
|
|
|
|
Years |
|
Buildings and improvements |
|
|
15 to 30 |
|
Machinery and equipment |
|
|
3 to 36 |
|
|
|
|
Ash monofills are amortized on a cost per ton basis multiplied by tons sent to
each monofill. The ash monofills were built as disposal sites for the ash
generated during operations. Long-term spare parts inventory begins depreciation
when placed in service. |
243
Westmoreland Energy LLC
Notes to Consolidated Financial Statements (Cont.)
|
|
|
The Company assesses the carrying value of its property, plant and equipment for
impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability is measured by comparing
estimated undiscounted cash flows expected to be generated from such assets to
their net book value. If net book value exceeds estimated cash flows, the asset is
written down to fair value. |
|
|
|
|
When an asset is retired or sold, its cost and related accumulated depreciation and
depletion are removed from the accounts. The difference between the net book value
of the asset and proceeds on disposition is recorded as a gain or loss. Fully
depreciated plant and equipment still in use is not eliminated from the accounts. |
|
|
(j) |
|
Intangible Assets & Liabilities |
|
|
|
|
Identifiable intangible assets or liabilities acquired in a business combination
must be recognized and reported separately from goodwill. The Company has
determined that its acquired identifiable intangible assets and liabilities are
related to sales and purchase agreements. Intangible assets result from more
favorable market prices than contracted prices in sales and purchase agreements as
measured during a business combination. Intangible liabilities result from less
favorable market prices than contracted prices in sales and purchase agreements as
measured during a business combination. These intangible assets and liabilities are
amortized on a straight-line basis over the respective period of the sales and
purchase agreements. |
|
|
|
|
Amortization of intangible assets recognized in Cost of sales was $1.6 million in
2010, 2009 and 2008. Amortization of intangible assets and liabilities recognized
in Revenues was $1.0 million in 2010, 2009 and 2008. |
|
|
|
|
The estimated aggregate amortization amounts from intangibles assets and
liabilities for each of the next five years as of December 31, 2010 are as follows: |
|
|
|
|
|
|
|
Amortization Expense (Revenue) |
|
|
|
(In thousands) |
|
2011 |
|
$ |
621 |
|
2012 |
|
|
621 |
|
2013 |
|
|
621 |
|
2014 |
|
|
(26 |
) |
2015 |
|
|
(834 |
) |
|
(k) |
|
Fair Value Measurements |
|
|
|
|
The Company is required to disclose the fair value of financial instruments where
practicable. The carrying amounts of cash equivalents, accounts receivable and
accounts payable reflected on the balance sheet approximates the fair value of
these instruments due to the short duration to maturities. The fair value of
long-term debt is based on the interest rates available to the Company for debt
with similar terms and maturities. |
|
|
(l) |
|
Financial Instruments |
|
|
|
|
The Company evaluates all of its financial instruments to determine if such
instruments are derivatives, derivatives that qualify for the normal purchase
normal sale exception, or instruments, which contain features that qualify them as
embedded derivatives. Except for derivatives that qualify for the normal purchase
normal sale exception, all financial instruments are recognized in the balance
sheet at fair value. Changes in fair value are recognized in earnings if they are
not eligible for hedge accounting or Accumulated other comprehensive income (loss)
if they qualify for cash flow hedge accounting. |
244
Westmoreland Energy LLC
Notes to Consolidated Financial Statements (Cont.)
|
(m) |
|
Pension Plan |
|
|
|
|
The Company participates in the Parents noncontributory defined benefit pension
plan, which was frozen effective July 1, 2009. The costs to provide the benefits
are accrued over the employees period of active service and are determined on an
actuarial basis. The liability recorded for this obligation was $0.2 million at
year ended December 31, 2010 and 2009. |
|
|
(n) |
|
Deferred Financing Costs |
|
|
|
|
The Company capitalizes costs incurred in connection with borrowings or
establishment of credit facilities and issuance of debt securities. These costs are
amortized as an adjustment to interest expense over the life of the borrowing or
term of the credit facility using the effective interest method. Accumulated
amortization as of December 31, 2010 and 2009 was $1.7 million and $1.6 million,
respectively. |
|
|
(o) |
|
Deferred Revenue |
|
|
|
|
Deferred revenues represent funding received upon the negotiation of long-term
contracts. The deferred power revenues are recognized as power is delivered on a
pro rata basis, based on the payments estimated to be received and recognized over
the remaining term of the power sales agreements. |
|
|
(p) |
|
Asset Retirement Obligation |
|
|
|
|
The Companys asset retirement obligation, or ARO, liabilities primarily consist of
estimated costs related to reclaiming land at its facilities in accordance with
federal and state reclamation laws. |
|
|
|
|
The Company estimates its ARO liabilities based upon detailed engineering
calculations of the amount and timing of the future costs for a third party to
perform the required work. Cost estimates are escalated for inflation, and then
discounted at the credit-adjusted risk-free rate. The Company records an ARO asset
associated with the initial recorded liability. The ARO asset is amortized on a
straight-line basis and the ARO liability is accreted to the projected settlement
date. Changes in estimates could occur due to revisions of plant operating plans,
changes in estimated costs, and changes in timing of the performance of reclamation
activities. |
|
|
|
|
As of December 31, 2010 and 2009, the Companys obligation recorded in Asset
retirement obligation was $0.7 million. Changes in the Companys asset retirement
obligations for the years ended December 31, 2010 and 2009 were as follows: |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Asset retirement obligation beginning of period |
|
$ |
664 |
|
|
$ |
490 |
|
Accretion |
|
|
51 |
|
|
|
34 |
|
Changes due to amount and timing of reclamation |
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
Asset retirement obligation end of period |
|
$ |
715 |
|
|
$ |
664 |
|
|
|
|
|
|
|
|
|
(q) |
|
Income Taxes |
|
|
|
|
The Company is an LLC which is treated as a disregarded entity for U.S. Federal and
State income tax purposes and as a result is included in the determination of
taxable income or loss of WCC. In preparing these separate financial statements,
income taxes have been provided like any other tax-paying enterprise based upon the
requirement that single-member LLCs are subsidiaries of the member for financial
reporting purposes, and income taxes generally are allocated under ASC paragraphs
740-10-30-27 and 30-28. |
|
|
|
|
The Company files consolidated federal and state tax returns with its Parent. As
the Company itself is not a taxable entity, the Parents tax expense for its income
tax return group included on the Parents consolidated income tax return is
allocated among the members of that group. This allocation is calculated |
245
Westmoreland Energy LLC
Notes to Consolidated Financial Statements (Cont.)
|
|
|
as if
each member were a separate taxpayer. This allocation is reflected by the Company
in Income tax expense with a corresponding amount in Members Equity. There is no
formal tax sharing agreement with the Parent. |
|
|
|
|
The Company accounts for deferred income taxes using the asset and liability
method. Deferred tax liabilities and assets are recognized for the expected future
tax consequences of events that have been reflected in the Companys consolidated
financial statements based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities, as well as net operating
loss and tax credit carryforwards, using enacted tax rates in effect in the years
in which the differences are expected to reverse. The Company establishes a
valuation allowance against its net deferred tax assets to the extent the Company
believes that it is more likely than not that it will not realize the net deferred
tax assets. |
|
|
|
|
Accounting guidance prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Under this guidance, a company can recognize
the benefit of an income tax position only if it is more likely than not (greater
than 50%) that the tax position will be sustained upon tax examination, based
solely on the technical merits of the tax position. This accounting standard also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. |
|
|
(r) |
|
Power Revenues |
|
|
|
|
ROVA supplies power under long-term power sales agreements. Under these
agreements, ROVA invoices and collects capacity payments based on kilowatt-hours
produced if the units are dispatched or for the kilowatt-hours of available
capacity if the units are not fully dispatched. |
|
|
|
|
A portion of the capacity payments under the agreements is considered to be an
operating lease. The Company is recognizing amounts invoiced under the power sales
agreements as revenue on a pro rata basis, based on the weighted average per
kilowatt hour capacity payments estimated to be received over the remaining term of
the power sales agreements. Under this method of recognizing revenue, $6.0 million
of prior deferred revenue was recognized during 2010 while $11.2 million and $28.8
million of amounts invoiced during 2009 and 2008, respectively, were deferred from
recognition. The Company began to recognize prior deferred revenue during 2010 at
ROVA II and during 2009 at ROVA I. |
|
|
(s) |
|
Accounting Pronouncements Adopted |
|
|
|
|
In January 2010, the FASB issued authoritative guidance, which requires additional
disclosures and clarifies certain existing disclosure requirements regarding fair
value measurements. This guidance is effective for interim and annual reporting
periods beginning after December 15, 2009. The Company adopted this guidance
effective January 1, 2010. However, none of the specific additional disclosures
were applicable at December 31, 2010. |
|
|
|
|
On January 1, 2009, the Company adopted accounting guidance that clarifies how to
determine whether certain instruments or features are indexed to an entitys own
stock. This guidance was effective for financial statements issued for fiscal
years beginning after December 15, 2008 and interim periods within those fiscal
years. The Company recorded a cumulative effect of change in accounting principles
upon adoption of this guidance. See Note 4 for additional information. |
246
Westmoreland Energy LLC
Notes to Consolidated Financial Statements (Cont.)
2. Restricted Investments
|
|
The Companys restricted investments consist of the following at December 31, 2010 and
2009: |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Letter of credit |
|
$ |
5,989 |
|
|
$ |
6,038 |
|
Repairs and maintenance account |
|
|
1,067 |
|
|
|
|
|
Debt protection account |
|
|
905 |
|
|
|
2,067 |
|
Ash reserve account |
|
|
602 |
|
|
|
600 |
|
|
|
|
|
|
|
|
Total restricted investments |
|
$ |
8,563 |
|
|
$ |
8,705 |
|
|
|
|
|
|
|
|
|
|
|
All restricted investments at December 31, 2010, consisted of cash and cash
equivalents. |
|
|
|
|
All underlying financial instruments included in the restricted investment accounts have
Level I inputs available regarding fair value measurements. Level I inputs are quoted
prices in active markets for identical financial instruments that the Company has the
ability to access at the fair value measurement date. |
|
|
|
|
Pursuant to the terms of its loan agreement, ROVA was required to maintain either three or
six months debt service reserves in its debt protection accounts, which was based on the
calculation of its current debt service coverage ratio. |
|
|
|
|
The loan agreement required ROVA to fund an ash reserve account to $0.6 million. The ash
reserve account was fully funded at December 31, 2010. |
|
|
|
|
The loan agreement also required ROVA to fund a repairs and maintenance account up to a
maximum amount of $2.6 million. The funds for the repairs and maintenance account were
required to be deposited every three months based on a formula contained in the agreement. |
|
|
|
|
Following the Parent Notes offering in February 2011, the debt protection, ash reserve, and
repairs and maintenance accounts are no longer required and will be available for current
operating needs. |
3. |
|
Lines of Credit and Long-Term Debt |
Long-term debt at December 31, 2010 and 2009 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Term debt |
|
$ |
46,220 |
|
|
$ |
55,575 |
|
Debt premiums |
|
|
428 |
|
|
|
879 |
|
|
|
|
|
|
|
|
Total debt outstanding |
|
|
46,648 |
|
|
|
56,454 |
|
Less current portion |
|
|
|
|
|
|
(9,806 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
46,648 |
|
|
$ |
46,648 |
|
|
|
|
|
|
|
|
247
Westmoreland Energy LLC
Notes to Consolidated Financial Statements (Cont.)
|
|
Future principal payments on long-term debt at December 31, 2010 are as follows: |
|
|
|
|
|
|
|
As of |
|
|
|
December 31, 2010 |
|
|
|
(In thousands) |
|
2011 |
|
$ |
8,025 |
|
2012 |
|
|
8,820 |
|
2013 |
|
|
9,645 |
|
2014 |
|
|
9,470 |
|
2015 |
|
|
10,260 |
|
Thereafter |
|
|
|
|
|
|
|
|
Total |
|
|
46,220 |
|
Plus: debt premium |
|
|
428 |
|
|
|
|
|
Total debt |
|
$ |
46,648 |
|
|
|
|
|
Following the Parent Notes Offering in February 2011, all of the Companys outstanding
debt was paid off.
At December 31, 2010, ROVAs outstanding fixed rate term debt had interest rates varying
from 6.0% to 11.42%. The weighted average interest rate on the fixed rate term debt at
December 31, 2010 and 2009 was 9.93% and 10.0%, respectively. As described in Note 1, the
outstanding balance of the fixed rate term debt was repaid in February 2011.
ROVA had a $6.0 million revolving loan with interest payable quarterly at the three-month
LIBOR rate plus 1.375% (1.68% per annum at December 31, 2010). In addition, a commitment
fee of 1.375% of the unused portion of the available revolving loan was payable quarterly.
At December 31, 2010, the Company had $6.0 million of unused borrowings under the revolver.
ROVAs revolving line of credit was terminated as part of the Parent Notes offering
described in Note 1.
The term debt as well as the revolving loan were secured by a pledge of the quarterly cash
distributions from ROVA. ROVA was required to comply with certain loan covenants related
to interest and fixed charge coverage. As of December 31, 2010, ROVA was in compliance
with such covenants.
The Company calculates the fair value of its long-term debt by using discount rate
estimates based on interest rates as of December 31, 2010 and 2009. The carrying value and
estimated fair value of the Companys long-term debt instruments as of December 31, 2010
and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
|
(In thousands) |
|
December 31, 2010 |
|
$ |
46,648 |
|
|
$ |
50,583 |
|
December 31, 2009 |
|
$ |
56,455 |
|
|
$ |
60,330 |
|
4. |
|
Derivative Instruments |
|
|
|
Adoption of ASC 815-40 |
|
|
|
|
On January 1, 2009, the Company adopted ASC 815-40, Determining Whether an Instrument (or
Embedded Feature) is Indexed to an Entitys Own Stock. As part of the adoption of ASC
815-40, the value of the Companys warrant was recorded as a liability. |
248
Westmoreland Energy LLC
Notes to Consolidated Financial Statements (Cont.)
The Company recorded the following cumulative effect of change in accounting principle
pursuant to its adoption of ASC 815-40:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative |
|
|
Other |
|
|
|
|
|
|
Liability |
|
|
Paid-In-Capital |
|
|
Accumulated Deficit |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Record January 1,
2009, derivative
instrument
liability related
to warrant |
|
|
477 |
|
|
|
|
|
|
|
477 |
|
Record the reversal
of prior accounting
related to the
warrant |
|
|
|
|
|
|
(1,699 |
) |
|
|
(1,699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
477 |
|
|
$ |
(1,699 |
) |
|
$ |
(1,222 |
) |
|
|
|
|
|
|
|
|
|
|
Warrant
The Companys warrant expired August 20, 2010 and therefore had no value at December 31,
2010. The following assumptions were used for the warrant at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Included in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Life |
|
Warrant |
|
Dividend Yield |
|
|
Volatility |
|
|
Risk Free Rate |
|
|
(in years) |
|
173,228 |
|
None |
|
|
65 |
% |
|
|
0.20 |
% |
|
|
1.0 |
|
The fair value of outstanding derivative instruments not designated as hedging
instruments on the accompanying Consolidated Balance Sheets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
Derivative Instruments |
|
Balance Sheet Location |
|
|
2010 |
|
|
2009 |
|
Warrant |
|
Other liabilities |
|
|
|
|
|
|
30 |
|
The effect of derivative instruments not designated as hedging instruments on the
accompanying Consolidated Statements of Operations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Recognized in |
|
|
|
|
|
|
|
Earnings on Derivatives |
|
|
|
|
|
|
|
Year Ended December 31, |
|
Derivative |
|
Statement of |
|
|
|
|
|
|
|
Instruments |
|
Operations Location |
|
|
2010 |
|
|
2009 |
|
Warrant |
|
Other income |
|
|
30 |
|
|
|
448 |
|
5. |
|
Income Taxes |
|
|
|
Income tax expense consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
296 |
|
|
$ |
3,128 |
|
|
$ |
9,891 |
|
State |
|
|
72 |
|
|
|
684 |
|
|
|
1,992 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
368 |
|
|
$ |
3,812 |
|
|
$ |
11,883 |
|
|
|
|
|
|
|
|
|
|
|
249
Westmoreland Energy LLC
Notes to Consolidated Financial Statements (Cont.)
Income tax expense attributable to net income before income taxes differed from the
amounts computed by applying the statutory federal income tax rate of 35% to pre-tax income
as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Computed tax expense at statutory rate |
|
$ |
2,495 |
|
|
$ |
829 |
|
|
$ |
2,500 |
|
Increase (decrease) in income tax expense
resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State tax, net of federal benefit |
|
|
47 |
|
|
|
445 |
|
|
|
1,295 |
|
Prior year permanent items tax return true-up |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
Adjustments to deferred tax assets
attributable to prior years |
|
|
38 |
|
|
|
|
|
|
|
27 |
|
Change in valuation allowance for net
deferred tax assets |
|
|
(2,170 |
) |
|
|
2,693 |
|
|
|
8,690 |
|
Domestic production and activities deduction |
|
|
|
|
|
|
|
|
|
|
(631 |
) |
Other, net |
|
|
(8 |
) |
|
|
(155 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
368 |
|
|
$ |
3,812 |
|
|
$ |
11,883 |
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accruals for the following: |
|
|
|
|
|
|
|
|
Pension and postretirement medical benefit obligation |
|
$ |
61 |
|
|
$ |
71 |
|
Deferred revenue |
|
|
30,157 |
|
|
|
32,538 |
|
Reclamation |
|
|
228 |
|
|
|
208 |
|
MBO bonus |
|
|
284 |
|
|
|
191 |
|
Other accruals |
|
|
59 |
|
|
|
9 |
|
|
|
|
|
|
|
|
Total gross deferred tax assets: |
|
|
30,789 |
|
|
|
33,017 |
|
Less valuation allowance |
|
|
(11,816 |
) |
|
|
(14,176 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
18,973 |
|
|
|
18,841 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
(200 |
) |
|
|
(252 |
) |
Other |
|
|
(868 |
) |
|
|
(774 |
) |
Property, plant, and equipment, principally due to
differences in depreciation, depletion, and
amortization |
|
|
(17,905 |
) |
|
|
(17,815 |
) |
|
|
|
|
|
|
|
Total gross deferred tax liabilities: |
|
|
(18,973 |
) |
|
|
(18,841 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Coal Supply Agreement
Westmoreland Partners, which owns ROVA, has two coal supply agreements with contracts
expiring in 2014 and 2015. If Westmoreland Partners continues to purchase coal under these
contracts at the current volume and pricing, then Westmoreland Partners would be obligated
to pay $28.6 million in each of the years of 2011, 2012, 2013, $17.1 million for 2014 and
$2.8 million for 2015.
7. |
|
Power Sales and Major Customers |
Substantially all of the Companys power sales during the years ended December 31, 2010,
2009 and 2008 were made to one customer. ROVA supplies power to Dominion Virginia Power
under long-term contracts, which expire in 2019 and 2020. The Company can extend, by
mutual consent, the contracts with Dominion Virginia Power for five-year terms at mutually
agreeable pricing.
250
Westmoreland Energy LLC
Notes to Consolidated Financial Statements (Cont.)
8. |
|
Related-Party Transactions |
The Company incurred various costs which were paid to WCC relating to accounting services
and are included in Selling and administrative expenses. Fees paid totaled $0.3 million in
the years ended December 31, 2010, 2009 and 2008.
In addition, WCC allocated $0.2 million in 2010 and 2008 and $0.1 million in 2009, of audit
and tax fees to the Company, which are included in Selling and administrative expenses.
9. |
|
Quarterly Financial Data (unaudited) |
Summarized quarterly financial data is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
22,889 |
|
|
$ |
21,174 |
|
|
$ |
23,598 |
|
|
$ |
20,338 |
|
Operating income |
|
|
4,170 |
|
|
|
1,307 |
|
|
|
5,058 |
|
|
|
1,185 |
|
Net income |
|
|
2,943 |
|
|
|
117 |
|
|
|
3,890 |
|
|
|
266 |
|
|
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
21,845 |
|
|
$ |
23,551 |
|
|
$ |
20,696 |
|
|
$ |
16,070 |
|
Operating income
(loss) |
|
|
2,961 |
|
|
|
5,189 |
|
|
|
680 |
|
|
|
(1,179 |
) |
Net income (loss) |
|
|
1,557 |
|
|
|
3,434 |
|
|
|
(448 |
) |
|
|
(2,332 |
) |
251
WESTMORELAND COAL COMPANY
WESTMORELAND PARTNERS
Offer to Exchange
$150,000,000 10.75% Senior Secured Notes due 2018
for $150,000,000 10.75% Senior Secured Notes due 2018
that have been registered under the Securities Act of 1933
Until
October 27, 2011, all dealers that effect transactions in these
securities, whether or not participating in the exchange offer, may
be required to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters with respect to their unsold allotments or subscriptions.
252