Delaware
|
001-11155
|
23-1128670
|
(State or Other Jurisdiction
of Incorporation)
|
(Commission
File Number)
|
(I.R.S. Employer
Identification No.)
|
9540 South Maroon Circle,
Suite 200,
Englewood, CO
|
80112
|
(Address of Principal Executive Offices)
|
(Zip Code)
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●
|
Because the Kemmerer Mine is not a stand-alone entity, separate, audited financial statements of the Kemmerer Mine have never been prepared and the Seller has not maintained the distinct and separate accounts necessary to present the full financial statements of the Kemmerer Mine. In addition, certain available financial information for the Kemmerer Mine is kept on separate accounting systems and at separate physical locations. It would be extremely costly and impractical to obtain complete financial statements in accordance with generally accepted accounting principles because separate financial statements were never historically required nor were such statements ever prepared. The preparation of such statements would involve many subjective assumptions, unreasonable effort and expense.
|
●
|
A determination of the portion of historical general and administrative expenses or other indirect expenses that were attributable to the Kemmerer Mine is not practicable due to the Seller not maintaining the distinct and separate records necessary to present such expenses.
|
●
|
In evaluating the Kemmerer Mine, the Company did not rely on any audited or unaudited financial statements relating to the Kemmerer Mine. In valuing the transaction, we relied on individual analysis of the specific assets we were going to purchase and the liabilities we were going to assume. In addition, we relied on an income statement that did not contain costs that were incurred on behalf of the Kemmerer Mine at the Seller’s level. The cost information provided by the Seller to the Company was summary level data containing direct operating and capital expenses. Management did not believe the historical earnings or operations of the Kemmerer Mine to be necessary or relevant to its decision to acquire the Kemmerer Mine.
|
●
|
The Company’s financial analysis of the Kemmerer Mine was based on internally generated forward-looking projections of the Kemmerer Mine earnings potential given the reserve potential of the Kemmerer Mine; the Company’s projection of the future pricing and revenue, operating, general and administrative and capital costs; information regarding the competitive environment; and the Company’s extensive knowledge and experience in the coal industry.
|
●
|
The omission of the full financial statements and other financial information would not have a material impact on a reader’s understanding of the Kemmerer Mine’s financial results and condition and related trends.
|
Exhibit No.
|
|
Description
|
4.1*
|
Supplemental Indenture, dated as of January 31, 2012, by and among Westmoreland Coal Company, Westmoreland Partners and Wells Fargo Bank, National Association, as trustee and note collateral agent.
|
|
4.2*
|
Form of 10.75% Senior Notes due 2018 (included as Exhibit A in Exhibit 4.1)
|
|
4.3*
|
Registration Rights Agreement, dated January 31, 2012, by and among Westmoreland Coal Company, Westmoreland Partners and Gleacher & Company Securities, Inc., as initial purchaser.
|
|
4.4*
|
Amendment No. 1 to the Pledge and Security Agreement dated January 26, 2012
|
|
Consent of Tanner LLC
|
||
99.1*
|
Amendment No. 1 to the Purchase and Sale Agreement dated January 25, 2012
|
|
99.2*
|
Press Release dated January 31, 2012 announcing issuance of the notes
|
|
99.3*
|
Press Release dated January 31, 2012 announcing closing of the Kemmerer acquisition
|
|
Audited financial statements of Kemmerer Mine as of December 31, 2011 and 2010, and for each of the years in the three-year period ended December 31, 2011, and Independent Auditors’ Report
|
||
Unaudited pro forma combined financial statements as of and for the year ended December 31, 2011
|
WESTMORELAND COAL COMPANY
|
|
Date: April 12, 2012
|
By: /s/ Kevin Paprzycki
|
Kevin Paprzycki
|
|
Chief Financial Officer and Treasurer
|
Exhibit No.
|
|
Description
|
4.1*
|
Supplemental Indenture, dated as of January 31, 2012, by and among Westmoreland Coal Company, Westmoreland Partners and Wells Fargo Bank, National Association, as trustee and note collateral agent.
|
|
4.2*
|
Form of 10.75% Senior Notes due 2018 (included as Exhibit A in Exhibit 4.1)
|
|
4.3*
|
Registration Rights Agreement, dated January 31, 2012, by and among Westmoreland Coal Company, Westmoreland Partners and Gleacher & Company Securities, Inc., as initial purchaser.
|
|
4.4*
|
Amendment No. 1 to the Pledge and Security Agreement dated January 26, 2012
|
|
Consent of Tanner LLC
|
||
99.1*
|
Amendment No. 1 to the Purchase and Sale Agreement dated January 25, 2012
|
|
99.2*
|
Press Release dated January 31, 2012 announcing issuance of the notes
|
|
99.3*
|
Press Release dated January 31, 2012 announcing closing of the Kemmerer acquisition
|
|
Audited financial statements of Kemmerer Mine as of December 31, 2011 and 2010, and for each of the years in the three-year period ended December 31, 2011, and Independent Auditors’ Report
|
||
Unaudited pro forma combined financial statements as of and for the year ended December 31, 2011
|
Tanner LLC
Key Bank Tower at City Creek
36 South State Street, Suite 600
Salt Lake City, Utah 84111-1400
Telephone (801) 532-7444
www.tannerco.com
|
2011
|
2010
|
|||||||
Assets Acquired
|
||||||||
Inventories, net
|
$ | 10,018,000 | $ | 8,522,000 | ||||
Property and equipment, net
|
145,011,000 | 148,763,000 | ||||||
Total assets to be acquired
|
155,029,000 | 157,285,000 | ||||||
Liabilities Assumed
|
||||||||
Accrued liabilities
|
835,000 | 870,000 | ||||||
Postretirement benefit obligation
|
55,670,000 | 42,686,000 | ||||||
Asset retirement obligation
|
22,045,000 | 32,857,000 | ||||||
Pension obligation
|
11,306,000 | 6,196,000 | ||||||
Pneumoconiosis benefit obligation
|
2,421,000 | 2,284,000 | ||||||
Total liabilities to be assumed
|
92,277,000 | 84,893,000 | ||||||
Net assets to be acquired
|
$ | 62,752,000 | $ | 72,392,000 |
See accompanying notes to financial statements.
|
|
1
|
2011
|
2010
|
2009
|
||||||||||
Net Revenues
|
||||||||||||
Product sales
|
$ | 144,112,000 | $ | 144,261,000 | $ | 118,851,000 | ||||||
Direct Operating Expenses
|
||||||||||||
Cost of sales
|
127,262,000 | 113,299,000 | 107,197,000 | |||||||||
|
||||||||||||
Depreciation, depletion,amortization and accretion
|
15,484,000 | 14,055,000 | 13,842,000 | |||||||||
Total direct operating expenses
|
142,746,000 | 127,354,000 | 121,039,000 | |||||||||
Excess of revenues over direct operating expenses (excess of direct
operating expenses over revenues)
|
$ | 1,366,000 | $ | 16,907,000 | $ | (2,188,000 | ) |
See accompanying notes to financial statements.
|
|
2
|
2011
|
2010
|
2009
|
||||||||||
Cash flows from operating activities:
|
||||||||||||
Excess of revenues over direct operating expenses (excess of direct operating
expenses over revenues)
|
$ | 1,366,000 | $ | 16,907,000 | $ | (2,188,000 | ) | |||||
Adjustments to reconcile excess of revenues over direct operating expenses (excess of
direct operating expenses over revenues) to net cash provided by operating activities:
|
||||||||||||
Depreciation, depletion, amortization and accretion
|
15,484,000 | 14,055,000 | 13,842,000 | |||||||||
(Gain) loss on disposal of property and equipment
|
5,871,000 | 1,683,000 | (39,000 | ) | ||||||||
Decrease (increase) in:
|
||||||||||||
Accounts receivable
|
(3,104,000 | ) | (2,030,000 | ) | 1,555,000 | |||||||
Inventories
|
(1,496,000 | ) | (2,805,000 | ) | 2,843,000 | |||||||
Increase (decrease) in:
|
||||||||||||
Accounts payable
|
1,145,000 | 1,146,000 | 29,000 | |||||||||
Accrued liabilities
|
(35,000 | ) | (58,000 | ) | (48,000 | ) | ||||||
Pneumoconiosis benefit obligation
|
127,000 | 126,000 | 152,000 | |||||||||
Postretirement benefit obligation
|
12,984,000 | 8,509,000 | 2,505,000 | |||||||||
Pension obligation
|
5,110,000 | (1,795,000 | ) | (2,194,000 | ) | |||||||
Asset retirement obligation
|
(12,423,000 | ) | 955,000 | 9,291,000 | ||||||||
Net cast provided by operating activities
|
25,029,000 | 36,693,000 | 25,748,000 | |||||||||
Cash flows from investing activities:
|
||||||||||||
Purchase of property and equipment
|
(15,883,000 | ) | (8,716,000 | ) | (20,694,000 | ) | ||||||
Proceeds from sale of property and equipment
|
5,000 | 118,000 | 240,000 | |||||||||
Net cash used in investing activities
|
(15,878,000 | ) | (8,598,000 | ) | (20,454,000 | ) | ||||||
Cash flows from financing activities:
|
||||||||||||
Change in due to / due from CMI
|
(9,151,000 | ) | (28,095,000 | ) | (5,294,000 | ) | ||||||
Net change in cash
|
- | - | - | |||||||||
Cash at beginning of year
|
- | - | - | |||||||||
Cash at end of year
|
$ | - | $ | - | $ | - |
See accompanying notes to financial statements.
|
|
3
|
1. Description of
Organization
|
Nature of Operations
The Kemmerer Mine (the Mine) in Lincoln County, Wyoming was an operation of Chevron Mining, Inc. (CMI). CMI is a wholly owned subsidiary of Chevron Corporation (the Parent). The Mine produces high-quality sub-bituminous coal for sale to the adjacent Naughton power station, as well as various industrial customers located in the proximate geographic region.
|
|
On January 31, 2012, Westmoreland Coal Company, through a wholly owned subsidiary, Westmoreland Kemmerer, Inc., or WKI, completed a Purchase and Sale Agreement, pursuant to which it agreed to purchase from CMI the Mine, including associated processing and shipping facilities and other related real and personal property assets located in the Hams Forks Region of southwestern Wyoming near the town of Kemmerer, Wyoming.
|
||
2. Summary
of Significant
Accounting
Policies
|
Basis of Presentation
The accompanying financial statements are presented on the accrual basis of accounting and reflect the assets to be acquired, liabilities to be assumed, revenues and direct operating expenses of the Mine. During the years presented, the Mine was not accounted for as a separate division by CMI and therefore, certain costs recorded at CMI, such as corporate and shared service expenses, interest, corporate income taxes, litigation expenses, and other indirect expenses, were not allocted to the Mine. Furthermore, all cash receipts and payments were made by CMI. Therefore, while the statements of cash flows present the sources and uses of cash, the cash flows were actually through CMI.
|
|
The Statements of Assets to be Acquired and Liabilities to be Assumed and the Statements of Revenues and Direct Operating Expenses are presented in lieu of the financial statements required under Rule 3-05 of the Securities and Exchange Commission Regulation S-X. The results presented in these financial statements may not be representative of future operations.
|
||
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
|
|
|
4
|
2. Summary
of Significant
Accounting
Policies
Continued
|
Inventories
Inventories, which include materials and supplies used for mining coal 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. Management periodically reviews inventories for excess supply, obsolescence, and valuations above estimated realizable amounts, and provides a reserve to reduce inventories to their net realizable values.
|
|
Property and Equipment
Mineral rights are recorded at cost less accumulated depletion. Mineral rights are depleted based upon estimated recoverable proven and probable reserves. Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and depletion are calculated using the straight-line method over the estimated economic useful lives of the assets, and the units of production method, as follows:
|
Plant and equipment
|
3-12 years
|
Mining equipment
|
4-10 years
|
Tip-load equipment
|
5-10 years
|
Management estimates the economic useful lives of property and equipment based on the expected number of years the assets will be used. Management revisits these assumptions annually and adjusts the economic useful lives if warranted.
Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Routine maintenance, repairs, and renewal costs are expensed as incurred. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation and amortization are removed from the related accounts and any gain or loss is reflected in the statements of revenues and direct operating expenses.
|
||
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the book value of an asset may not be fully recoverable. When this occurs, the Mine reviews the value assigned to long-lived assets by analyzing the anticipated, undiscounted cash flows they generate. When the expected future undiscounted cash flows from these assets do not exceed their carrying balances, the Mine determines the estimated fair value of such assets. Impairment is recognized to the extent the carrying amount of these assets exceeds their estimated fair value.
|
|
|
5
|
2. Summary
of Significant
Accounting
Policies
Continued
|
Postretirement Benefit Obligation
The Mine accrues the cost to provide other postretirement (OPEB) medical benefits, as well as life insurance, other than pension benefits, over the employees’ period of active service. These costs are determined on an actuarial basis. The plan is unfunded, and the Mine and retirees share the costs. Certain life insurance benefits are paid by the Mine. Under the accounting standards for postretirement benefits, the Mine recognized the underfunded status as a liability on the Statements of Assets to be Acquired and Liabilities to be Assumed.
|
|
Asset Retirement Obligation
The Mine’s asset retirement obligation (ARO) primarily consists of estimated costs to reclaim surface land and support facilities in accordance with the federal and state reclamation laws as established by each mining permit.
|
||
The Mine estimates its ARO 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 Mine 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 Mine, and the ARO liability is accreted to the projected settlement date. Changes in estimates occur due to revisions of Mine plans, changes in estimated costs, and changes in timing of the performance of reclamation activities, and are reflected in the period of change.
|
||
Pension Obligation
The Mine accrues the cost to provide the benefits over the employees’ period of active service for the non-contributory defined benefit pension plan it sponsors. These costs are determined on an actuarial basis. The Mine’s Statements of Assets to be Acquired and Liabilities to be Assumed reflect the unfunded status of the defined benefit pension plan.
|
||
Pneumoconiosis benefit obligation
The Mine is self-insured for federal and state pneumoconiosis (black lung) benefits for employees. The Mine accounts for these benefits on the accrual basis. Actuarial gains and losses are recognized in the period in which they arise.
|
|
|
6
|
2. Summary
of Significant
Accounting
Policies
Continued
|
Coal Revenues
The Mine recognizes coal sales revenue at the time title passes to the customer in accordance with the terms of the underlying sales agreements. Coal sales revenue is recognized based on the pricing contained in the contracts in place at the time that title passes.
Cost of Sales
Cost of sales consists primarily of product and product-related costs.
|
|
Income Taxes
Under the provisions of the Internal Revenue Code and applicable state laws, the Mine is taxed as part of a corporate consolidated income tax return, and as a result, is not directly subject to income taxes. Therefore, no provision for income tax expense or related assets or liabilities has been included in the accompanying financial statements. The Mine is unaware of any uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
|
||
Recent Accounting Pronouncements
In May 2011, accounting guidance was issued which generally aligns the principles for fair value measurements and the related disclosure requirements under US GAAP. This guidance requires additional disclosures regarding details about Level 3 fair value measurements, including quantitative information about the significant unobservable inputs used in estimating fair value, a discussion of the sensitivity of the measurement to these inputs and a description of the entity’s valuation processes. Disclosures will also be needed concerning any transfers between Level 1 and 2 of the fair value hierarchy (not just significant transfers as previous guidance required) and the hierarchy classification for items whose fair value is not recorded on the statement of assets acquired and liabilities to be assumed but is disclosed in the notes. This standard is effective for periods beginning after December 15, 2011. The Mine plans to adopt this standard in 2012. Management believes that there will not be a significant impact on the Mine’s financial statements as a result of adopting this standard.
|
||
Subsequent Events
Management has evaluated events and transactions for potential recognition or disclosure subsequent to December 31, 2011 and through April 12, 2012, which is the date the financial statements were available to be issued.
|
|
|
7
|
3. Inventories
|
Inventories consist of the following as of December 31:
|
2011
|
2010
|
|||||||
Materials and supplies
|
$ | 10,448,000 | $ | 9,548,000 | ||||
Coal
|
812,000 | 216,000 | ||||||
11,260,000 | 9,764,000 | |||||||
Less reserve for obsolete inventories
|
(1,242,000 | ) | (1,242,000 | ) | ||||
$ | 10,018,000 | $ | 8,522,000 |
4. Property and
Equipment
|
Property and equipment consist of the following as of December 31:
|
2011
|
2010
|
|||||||
Land and mineral rights
|
$ | 227,761,000 | $ | 228,979,000 | ||||
Mining equipment
|
119,553,000 | 119,275,000 | ||||||
Tip-load equipment
|
50,098,000 | 35,750,000 | ||||||
Plant and equipment
|
18,482,000 | 16,347,000 | ||||||
Asset retirement obligation
|
7,795,000 | 20,218,000 | ||||||
423,689,000 | 420,569,000 | |||||||
Less accumulated depreciation and depletion
|
(278,678,000 | ) | (271,806,000 | ) | ||||
$ | 145,011,000 | $ | 148,763,000 |
Depreciation and depletion expense on property and equipment for the years ended December 31, 2011, 2010 and 2009 was $13,757,000, $12,449,000, and $12,741,000, respectively.
|
||
5. Postretirement
Benefit
Obligation
|
The Mine provides postretirement medical benefits, as well as life insurance, to current employees and their dependents upon retirement, as mandated by the Coal Industry Retiree Health Act of 1992 and pursuant to collective bargaining agreements. These benefits are provided through self-insured programs.
|
|
|
8
|
5. Postretirement
Benefit
Obligation
Continued
|
In March 2010, the Patient Protection and Affordable Care Act, or PPACA was enacted, potentially impacting the Mine’s costs to provide healthcare benefits to current employees and their dependents upon retirement. 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 that occurred in 2010, but will continue to expand benefit obligations 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. The Mine will continue to evaluate the impact of the PPACA in future periods as additional information, interpretations and guidance becomes available.
|
The following table sets forth the actuarial present value of postretirement medical benefit obligations and amounts recognized in the Mine’s financial statements as of and for the years ended December 31:
|
2011
|
2010
|
|||||||
Change in benefit obligations:
|
||||||||
Net obligation at beginning of year
|
$ | 42,686,000 | $ | 34,177,000 | ||||
Service cost
|
1,676,000 | 928,000 | ||||||
Interest cost
|
2,241,000 | 1,965,000 | ||||||
Actuarial loss
|
9,067,000 | 5,616,000 | ||||||
Net obligation at end of year
|
$ | 55,670,000 | $ | 42,686,000 |
In 2011, the Mine’s postretirement medical benefit liabilities increased approximately $13.0 million primarily from decreases in discount rates and updated cost projections.
|
||
The components of net periodic postretirement medical benefit cost are as follows for the years ended December 31:
|
2011
|
2010
|
2009
|
||||||||||
Components of net periodic benefit cost:
|
||||||||||||
Service cost
|
$ | 1,676,000 | $ | 928,000 | $ | 901,000 | ||||||
Interest cost
|
2,241,000 | 1,965,000 | 1,980,000 | |||||||||
Amortization of actuarial loss
|
819,000 | 1,819,000 | 1,907,000 | |||||||||
Total net periodic benefit cost
|
$ | 4,736,000 | $ | 4,712,000 | $ | 4,788,000 |
|
|
9
|
5. Postretirement
Benefit
Obligation
Continued
|
Assumptions
The weighted-average assumptions used to determine the benefit obligations were as follows as of December 31:
|
2011
|
2010
|
|||||||
Discount rate
|
4.25 | % | 5.25 | % |
|
The discount rate assumption used to determine the postretirement benefit plan obligation and expense reflect the prevailing rates available on high-quality, fixed-income debt instruments. This rate was based on a cash flow analysis that matched estimated future benefit payments to the Citigroup Pension Discount Yield Curve as of December 31, 2011 and 2010.
|
The weighted-average assumptions used to determine the net periodic benefit cost were as follows as of December 31:
|
2011
|
2010
|
2009
|
||||||||||
Discount rate
|
5.25 | % | 5.75 | % | 6.25 | % | ||||||
Measurement date
|
January 1, 2011
|
January 1, 2010
|
January 1, 2009
|
The following presents information about the assumed health care trend rate:
|
2011
|
2010
|
|||||||
Health care cost trend rate assumed for next fiscal year
|
6.5% - 8.00 | % | 8.50 | % | ||||
Average assumed rate to which the cost trend is to decline (ultimate trend rate)
|
5.00 | % | 5.00 | % | ||||
Year that the rate reaches the ultimate trend rate
|
2023 | 2018 |
The effect of a one percentage 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:
|
1% Increase
|
1% Decrease
|
|||||||
Effect on service and interest cost components
|
$ | 1,109,000 | $ | (816,000 | ) | |||
Effect on postretirement medical benefit obligation
|
8,573,000 | (6,966,000 | ) |
|
|
10
|
5. Postretirement
Benefit
Obligation
Continued
|
Cash Flows
The following benefit payments are expected by the Mine as of December 31, 2011:
|
Years Ending December 31:
|
|||||
2012
|
$ | 101,000 | |||
2013
|
373,000 | ||||
2014
|
701,000 | ||||
2015
|
1,077,000 | ||||
2016
|
1,386,000 | ||||
2017 - 2021 | 11,165,000 | ||||
$ | 14,803,000 |
6. Asset
Retirement
Obligation
|
Changes in the Mine’s asset retirement obligation were as follows for the years ended December 31:
|
2011
|
2010
|
2009
|
||||||||||
Asset retirement obligation, beginning of the year
|
$ | 32,857,000 | $ | 30,409,000 | $ | 20,131,000 | ||||||
Accretion
|
1,611,000 | 1,493,000 | 987,000 | |||||||||
Changes due to amount and timing of reclamation
|
(12,423,000 | ) | 955,000 | 9,291,000 | ||||||||
Asset retirement obligations, end of the year
|
$ | 22,045,000 | $ | 32,857,000 | $ | 30,409,000 |
7. Pension
Obligation
|
The Mine provides a defined benefit pension plan to qualified full-time employees pursuant to a collective bargaining agreement. CMI prefunds the defined benefit plan as required by local regulations or in certain situations where prefunding provides economic advantages. In the United States, all qualified plans are subject to the Employee Retirement Income Security Act (ERISA) minimum funding standard.
|
|
|
11
|
7. Pension
Obligation
Continued
|
The following table provides a reconciliation of the changes in the plan’s benefit obligation and the fair value of the plan’s assets, and the amounts recognized in the Mine’s financial statements for the plan as of and for the years ended December 31:
|
2011
|
2010
|
|||||||
Change in benefit obligations:
|
||||||||
Net obligation at beginning of year
|
$ | 45,054,000 | $ | 41,582,000 | ||||
Service cost
|
1,167,000 | 1,113,000 | ||||||
Interest cost
|
2,417,000 | 2,432,000 | ||||||
Actuarial loss
|
5,035,000 | 1,987,000 | ||||||
Benefits paid
|
(2,176,000 | ) | (2,060,000 | ) | ||||
Net obligation at end of year
|
$ | 51,497,000 | $ | 45,054,000 | ||||
Change in plan assets:
|
||||||||
Fair value of plan assets at beginning of year
|
$ | 38,858,000 | $ | 33,891,000 | ||||
Actual return on plan assets
|
(491,000 | ) | 4,027,000 | |||||
Employer contributions
|
4,000,000 | 3,000,000 | ||||||
Benefits paid
|
(2,176,000 | ) | (2,060,000 | ) | ||||
Fair value of plan assets at end of year
|
40,191,000 | 38,858,000 | ||||||
Unfunded status at end of year
|
$ | (11,306,000 | ) | $ | (6,196,000 | ) | ||
Amounts recognized in the Statements of Assets to be acquired
and Liabilities to be Assumed consist of:
|
||||||||
Noncurrent liability
|
$ | 11,306,000 | $ | 6,196,000 | ||||
Net amount recognized at end of year
|
$ | 11,306,000 | $ | 6,196,000 | ||||
Amounts recognized in accumulated other comprehensive
loss consist of:
|
||||||||
Net actuarial loss
|
$ | 19,898,000 | $ | 12,211,000 | ||||
Prior service costs
|
608,000 | 749,000 | ||||||
Total
|
$ | 20,506,000 | $ | 12,960,000 |
|
|
12
|
7. Pension
Obligation
Continued
|
The following tables set forth information summarizing the changes in other comprehensive loss for the years ended December 31, 2011 and 2010:
|
2011
|
||||
Total other comprehensive loss at December 31, 2010
|
$ | 12,960,000 | ||
Adjustment to actuarial return on plan assets
|
3,415,000 | |||
Actuarial loss
|
5,035,000 | |||
Amortization of recognized actuarial losses
|
(764,000 | ) | ||
Amortization of prior period service costs
|
(140,000 | ) | ||
Total other comprehensive loss at December 31, 2011
|
$ | 20,506,000 | ||
2010
|
||||
Total other comprehensive loss at January 1, 2010
|
$ | 13,601,000 | ||
Adjustment to actuarial return on plan assets
|
(1,481,000 | ) | ||
Actuarial loss
|
1,987,000 | |||
Amortization of recognized actuarial losses
|
(764,000 | ) | ||
Amortization of prior period service costs
|
(383,000 | ) | ||
Total other comprehensive loss at December 31, 2010
|
$ | 12,960,000 | ||
The accumulated benefit obligation for the plan was $51,497,000 and $45,054,000 at December 31, 2011 and 2010, respectively.
|
|
|
13
|
7. Pension
Obligation
Continued
|
Prior service costs and credits and actuarial gains and losses are amortized over the expected future years of service of the plan’s participants using the corridor method. The following amounts will be amortized from accumulated other comprehensive loss into net periodic pension cost in the following years:
|
2012
|
||||
Prior period cost
|
$ | 140,000 | ||
Net loss
|
1,468,000 | |||
Total
|
$ | 1,608,000 |
2011
|
||||
Prior period cost
|
$ | 140,000 | ||
Net loss
|
764,000 | |||
Total
|
$ | 904,000 |
The components of net periodic benefit cost are as follows for the years ended December 31:
|
2011
|
2010
|
2009
|
||||||||||
Service cost
|
$ | 1,167,000 | $ | 1,113,000 | $ | 1,055,000 | ||||||
Interest cost
|
2,417,000 | 2,432,000 | 2,367,000 | |||||||||
Return on plan assets
|
(2,925,000 | ) | (2,545,000 | ) | (2,281,000 | ) | ||||||
Amortization of:
|
||||||||||||
Prior service cost
|
140,000 | 383,000 | 550,000 | |||||||||
Actuarial loss
|
764,000 | 764,000 | 1,064,000 | |||||||||
Total benefit cost
|
$ | 1,563,000 | $ | 2,147,000 | $ | 2,755,000 |
These costs are included in the Accompanying Statements of Revenues and Direct Operating Expenses.
|
Assumptions
The weighted-average assumptions used to determine the benefit obligations were as follows as of December 31:
|
2011
|
2010
|
|||||||
Discount rate
|
4.50 | % | 5.50 | % |
|
|
14
|
7. Pension
Obligation
Continued
|
Assumptions - Continued
The discount rate is adjusted annually based on an A 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 nineteenth percentiles, which excludes bonds with outlier yields.
|
|
The weighted-average assumptions used to determine the benefit cost were as follows for the years ended December 31:
|
2011
|
2010
|
2009
|
||||||||||
Discount rate
|
5.50 | % | 6.00 | % | 6.25 | % | ||||||
Expected long-term rate of return
|
7.75 | % | 7.75 | % | 7.75 | % | ||||||
Measurement date
|
12/31/11
|
12/31/10
|
12/31/09
|
Plan Assets
The pension plan’s investments were combined with the investments of Chevron Master Pension Trust (Master Trust) to maximize administrative efficiencies of CMI. The Master Trust also included the investment assets of other retirement plans sponsored by CMI. Investment income, investment management fees and other direct expenses relating to the Master Trust were allocated to the individual plans based upon the average daily balances. The Plan’s interest in the Master Trust was 0.46% and 0.45% as of December 31, 2011 and 2010, respectively.
|
||
The primary investment objectives of the pension plan are to achieve the highest rate of total return within prudent levels of risk and liquidity, to diversify and mitigate potential downside risk associated with the investments, and to provide adequate liquidity for benefit payments and portfolio management.
The Master Trust has an Investment Committee that regularly meets during the year to review the asset holdings and their returns. To assess the plans’ investment performance, long-term asset allocation policy benchmarks have been established.
|
||
For the Master Trust, the Chevron Board of Directors has established the following approved asset allocation ranges: Equities 40–70 percent, Fixed Income and Cash 20–65 percent, Real Estate 0–15 percent, and Other 0–5 percent. To mitigate concentration and other risks, assets are invested across multiple asset classes with active investment managers and passive index funds. CMI does not prefund the OPEB obligations.
|
|
|
15
|
7. Pension
Obligation
Continued
|
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly hypothetical transaction between market participants at a given measurement date. Valuation techniques used must maximize the use of observable inputs and minimize the use of unobservable inputs.
Fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value and is defined as:
|
|
Level 1, defined as observable inputs such as quoted prices in active markets for identical assets. Level 1 assets include available-for-sale equity securities generally valued based on independent third-party market prices.
Level 2, defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
|
|
|
16
|
7. Pension
Obligation
Continued
|
The following table summarizes the assets or liabilities carried by the Master Trust at fair values by fair value hierarchy level, as described above, as of December 31 (in billions):
|
2011
|
||||||||||||||||
Description
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Equities:
|
||||||||||||||||
U.S.
|
$ | 1,470 | $ | - | $ | - | $ | 1,470 | ||||||||
International
|
1,203 | - | - | 1,203 | ||||||||||||
Collective trusts/mutual funds
|
14 | 2,619 | - | 2,633 | ||||||||||||
Fixed Income:
|
||||||||||||||||
Government
|
146 | 476 | - | 622 | ||||||||||||
Corporate
|
- | 338 | - | 338 | ||||||||||||
Mortgage-back securities
|
- | 107 | - | 107 | ||||||||||||
Other asset backed
|
- | 61 | - | 61 | ||||||||||||
Collective trusts/mutual funds
|
- | 1,046 | - | 1,046 | ||||||||||||
U.S. Real Estate
|
- | - | 843 | 843 | ||||||||||||
Cash and Cash Equivalents
|
404 | - | - | 404 | ||||||||||||
Other
|
(79 | ) | 8 | 54 | (17 | ) | ||||||||||
Total
|
$ | 3,158 | $ | 4,655 | $ | 897 | $ | 8,710 |
2010
|
||||||||||||||||
Description
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Equities:
|
||||||||||||||||
U.S.
|
$ | 2,121 | $ | - | $ | - | $ | 2,121 | ||||||||
International
|
1,405 | - | - | 1,405 | ||||||||||||
Collective trusts/mutual funds
|
5 | 2,063 | - | 2,068 | ||||||||||||
Fixed Income:
|
||||||||||||||||
Government
|
19 | 640 | - | 659 | ||||||||||||
Corporate
|
- | 314 | - | 314 | ||||||||||||
Mortgage-back securities
|
- | 82 | - | 82 | ||||||||||||
Other asset backed
|
- | 74 | - | 74 | ||||||||||||
Collective trusts/mutual funds
|
- | 1,064 | - | 1,064 | ||||||||||||
U.S. Real Estate
|
- | - | 596 | 596 | ||||||||||||
Cash and Cash Equivalents
|
213 | - | - | 213 | ||||||||||||
Other
|
(87 | ) | 8 | 53 | (26 | ) | ||||||||||
Total
|
$ | 3,676 | $ | 4,245 | $ | 649 | $ | 8,570 |
|
|
17
|
7. Pension
Obligation
Continued
|
U.S. equities include investments in Chevron’s common stock in the amount of $35 at December 31, 2011, and $38 at December 31, 2010.
Collective trusts/mutual funds for U.S. plans are entirely index funds. For these index funds, the Level 2 designation is partially based on the restriction that advance notifications of redemptions, typically two business days, is required.
|
|
The year-end valuations of the U.S. real estate assets are based on internal appraisals by the real estate managers, which are updates of third-party appraisals that occur at least once a year for each property in the portfolio.
|
||
The other assets class includes net payables for securities not yet settled (level 1); dividends and interest and tax-related receivables (level 2); and insurance contracts and investments in private-equity limited partnerships (level 3).
|
||
The following tables set forth information summarizing the changes in fair value of the Plan’s Level 3 assets for the years ended December 31, 2011 and 2010 (in millions):
|
Beginning balance as of January 1, 2010
|
$ | 530 | ||
Actual return on plan assets:
|
||||
Assets held at the reporting date
|
32 | |||
Assets sold during the period
|
1 | |||
Purchases, sales, and settlements
|
86 | |||
Balance as of December 31, 2010
|
649 | |||
Actual return on plan assets:
|
||||
Assets held at the reporting date
|
102 | |||
Assets sold during the period
|
(1 | ) | ||
Purchases, sales, and settlements
|
147 | |||
Ending balance as of December 31, 2011
|
$ | 897 |
Contributions
Contributions of approximately $287,000 related to the 2011 plan year, and $1,883,000 related to the 2012 plan year, are expected to be made to the pension plan for 2012.
|
|
|
18
|
7. Pension
Obligation
Continued
|
Cash Flows
As of December 31, 2011, the following benefit payments are expected to be paid from the pension plan assets:
|
Years Ending December 31:
|
|||||
2012
|
$ | 2,339,000 | |||
2013
|
2,395,000 | ||||
2014
|
2,632,000 | ||||
2015
|
2,820,000 | ||||
2016
|
2,980,000 | ||||
2017 - 2021 | 17,170,000 | ||||
$ | 30,336,000 |
The benefits expected to be paid are based on the same assumptions used to measure the pension benefit obligation as of December 31, 2011 and include estimated future employee service.
|
8. Pneumoconiosis
Benefit
Obligation
|
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. The Mine has not determined 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 Mine will continue to evaluate the impact of the PPACA in future periods as additional information, interpretations, guidance and claims experience becomes available.
|
The Mine’s black lung obligation was $2,421,000 and $2,284,000 as of December 31, 2011 and 2010, respectively.
|
||
The discount rate used in determining the actuarial present value of the pneumoconiosis benefit obligation as of December 31, 2011 and 2010, was 6%.
|
|
|
19
|
9. Commitments
Contingencies, and
Concentrations
|
Litigation
The Mine is involved in legal proceedings from time to time arising in the normal course of business. The legal proceedings associated with the Kemmerer Mine are handled by CMI and any matters that are subject to legal settlements will be paid by CMI.
|
|
Concentrations
Customers accounting for 10% or more of revenues for the years ended December 31, 2011 and 2010 were as follows:
|
2011
|
2010
|
2009
|
||||||||||
Customer A
|
67 | % | 69 | % | 59 | % | ||||||
Customer B
|
12 | % | * | * |
*The customer accounted for less than 10% for the year indicated.
|
Production Commitment
In July 2010, the Mine entered into a production commitment with Customer A. Under the agreement, the Mine is obligated to sell between 2.4 million tons and 2.85 million tons of coal to Customer A per year. The agreement expires in December 2021. The base price is $35.662 per ton up to 2.4 million tons and $20.00 per ton between 2.4 million and 2.85 million tons and is subject to quarterly adjustments.
In addition, the Mine has entered into production commitments with approximately 11 other customers in which they are obligated to sell in aggregate between 1,907,000 and 4,161,000 tons of coal with a base price between $15.70 and $65.00 per ton per year. The production commitments were entered into beginning in 2004 and expiring in 2020.
|
||
Purchase Commitment
The Mine has a purchase commitment to buy a specific number of tires per year through 2014. The estimated annual amount of the purchase commitment is $3.5 million and may vary depending on the actual cost of the tires at the time of purchase.
|
||
Leases
The Mine 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 approximately $4.0 million, $6.8 million, and $6.0 million for the years ended December 31, 2011, 2010, and 2009, respectively.
|
|
|
20
|
10. Related Party
Transactions
|
The Mine purchased fuel from its Parent in the amounts of $16,263,000, $12,569,000, and $8,649,000 for the years ended December 31, 2011, 2010, and 2009, respectively.
The Mine purchased lube services from a related party in the amounts of $865,000, $764,000, and $727,000 for the years ended December 31, 2011, 2010, and 2009, respectively.
|
|
The Mine transfers assets to and from other mines periodically. The Mine received assets from another mine in the amount of $892,000 and $1,757,000 during 2011 and 2010, respectively.
|
|
|
21
|
Historical
|
Pro Forma
|
||||||||||||||||
Westmoreland
Coal Company
|
Kemmerer
Mine
|
Adjustments
|
Combined
|
||||||||||||||
|
|||||||||||||||||
Assets
|
|
|
|
|
|||||||||||||
Current assets:
|
|||||||||||||||||
$ | 119,365 |
(a)
|
|||||||||||||||
(72,523 | ) |
(b)
|
|||||||||||||||
Cash and cash equivalents
|
$ | 30,783 | $ | - | (29,448 | ) |
(c)
|
$ | 48,177 | ||||||||
Receivables:
|
|||||||||||||||||
Trade
|
46,235 | - | - | 46,235 | |||||||||||||
Contractual third party reclamation receivables
|
11,259 | - | - | 11,259 | |||||||||||||
Other
|
3,493 | - | - | 3,493 | |||||||||||||
60,987 | - | - | 60,987 | ||||||||||||||
Inventories
|
25,696 | 10,018 | (465 | ) |
(d)
|
35,249 | |||||||||||
Other current assets
|
4,987 | - | - | 4,987 | |||||||||||||
Total current assets
|
122,453 | 10,018 | 16,929 | 149,400 | |||||||||||||
Property, plant and equipment:
|
|||||||||||||||||
Land and mineral rights
|
84,338 | 227,761 | (202,393 | ) |
(d)
|
109,706 | |||||||||||
Capitalized asset retirement cost
|
113,863 | 7,795 | 7,308 |
(d)
|
128,966 | ||||||||||||
Plant and equipment
|
527,127 | 188,133 | (84,845 | ) |
(d)
|
630,415 | |||||||||||
725,328 | 423,689 | (279,930 | ) | 869,087 | |||||||||||||
Less accumulated depreciation, depletion and amortization
|
328,596 | 278,678 | (278,678 | ) |
(d)
|
328,596 | |||||||||||
Net property, plant and equipment
|
396,732 | 145,011 | (1,252 | ) | 540,491 | ||||||||||||
Advanced coal royalties
|
2,552 | - | - | 2,552 | |||||||||||||
Reclamation deposits
|
71,939 | - | - | 71,939 | |||||||||||||
Restricted cash and bond collateral
|
58,305 | - | 24,700 |
(c)
|
83,005 | ||||||||||||
Contractual third party reclamation receivables
|
87,674 | - | - | 87,674 | |||||||||||||
Intangible assets
|
4,879 | - | - | 4,879 | |||||||||||||
(4,000 | ) |
(b)
|
|||||||||||||||
Other assets
|
14,638 | - | 4,748 |
(c)
|
15,386 | ||||||||||||
Investment in subs
|
- | - | - | - | |||||||||||||
Total Assets
|
$ | 759,172 | $ | 155,029 | $ | 41,125 | $ | 955,326 |
Historical
|
Pro Forma
|
||||||||||||||||
Westmoreland
Coal Company
|
Kemmerer
Mine
|
Adjustments
|
Combined
|
||||||||||||||
|
|||||||||||||||||
Liabilities and Shareholders' Deficit
|
|||||||||||||||||
Current liabilities:
|
|
|
|
|
|||||||||||||
Current installments of long-term debt
|
$ | 20,795 | $ | - | $ | - | $ | 20,795 | |||||||||
Accounts payable and accrued expenses:
|
|||||||||||||||||
Trade
|
45,326 | 835 | 933 |
(e)
|
47,094 | ||||||||||||
Production taxes
|
25,605 | - | - | 25,605 | |||||||||||||
Workers’ compensation
|
911 | - | - | 911 | |||||||||||||
Postretirement medical benefits
|
13,179 | - | - | 13,179 | |||||||||||||
SERP
|
391 | - | - | 391 | |||||||||||||
Deferred revenue
|
9,852 | - | - | 9,852 | |||||||||||||
Asset retirement obligations
|
19,765 | - | - | 19,765 | |||||||||||||
Other current liabilities
|
8,298 | - | - | 8,298 | |||||||||||||
Total current liabilities
|
144,122 | 835 | 933 | 145,890 | |||||||||||||
Long-term debt, less current installments
|
261,474 | - | 119,365 |
(a)
|
380,839 | ||||||||||||
Workers’ compensation, less current portion
|
10,715 | - | - | 10,715 | |||||||||||||
Excess of pneumoconiosis benefit obligation over trust assets
|
6,565 | 2,421 | (2,421 | ) |
(f)
|
6,565 | |||||||||||
Postretirement medical benefits, less current portion
|
245,462 | 55,670 | (6,670 | ) |
(f)
|
294,462 | |||||||||||
Pension and SERP obligations, less current portion
|
28,991 | 11,306 | 518 |
(f)
|
40,815 | ||||||||||||
Deferred revenue, less current portion
|
65,834 | - | - | 65,834 | |||||||||||||
Asset retirement obligations, less current portion
|
227,713 | 22,045 | (6,942 | ) |
(f)
|
242,816 | |||||||||||
Intangible liabilities
|
7,644 | - | - | 7,644 | |||||||||||||
Other liabilities
|
10,510 | - | - | 10,510 | |||||||||||||
Total Liabilities
|
1,009,030 | 92,277 | 104,783 | 1,206,090 | |||||||||||||
Shareholders' deficit:
|
|||||||||||||||||
Preferred stock of $1.00 par value
|
160 | - | - | 160 | |||||||||||||
Common stock of $2.50 par value
|
34,527 | - | - | 34,527 | |||||||||||||
Other paid-in capital
|
126,288 | - | - | 126,288 | |||||||||||||
Accumulated other comprehensive loss
|
(121,455 | ) | - | - | (121,455 | ) | |||||||||||
Accumulated deficit
|
(281,141 | ) | 62,752 | (63,658 | ) | (282,047 | ) | ||||||||||
Total Westmoreland Coal Company shareholders' deficit
|
(241,621 | ) | 62,752 | (63,658 | ) | (242,527 | ) | ||||||||||
Noncontrolling interest
|
(8,237 | ) | - | - | (8,237 | ) | |||||||||||
Total deficit
|
(249,858 | ) | 62,752 | (63,658 | ) | (250,764 | ) | ||||||||||
Total Liabilities and Shareholders' Deficit
|
$ | 759,172 | $ | 155,029 | $ | 41,125 | $ | 955,326 |
Historical
|
Pro Forma
|
||||||||||||||||
Westmoreland
Coal Company
|
Kemmerer
Mine
|
Adjustments
|
Combined
|
||||||||||||||
|
|
|
|
|
|||||||||||||
Revenues
|
$ | 501,713 | $ | 144,112 | $ | - | $ | 645,825 | |||||||||
Cost and expenses:
|
|||||||||||||||||
(193 | ) |
(g)
|
|||||||||||||||
Cost of sales
|
392,787 | 128,875 | (280 | ) |
(h)
|
521,189 | |||||||||||
Depreciation, depletion and amortization
|
45,594 | 13,871 | (854 | ) |
(i)
|
58,611 | |||||||||||
Selling and administrative
|
40,276 | - | - | 40,276 | |||||||||||||
Heritage health benefit expenses
|
18,575 | - | - | 18,575 | |||||||||||||
Loss on sales of assets
|
640 | - | - | 640 | |||||||||||||
Other operating income
|
(6,785 | ) | - | - | (6,785 | ) | |||||||||||
491,087 | 142,746 | (1,327 | ) | 632,506 | |||||||||||||
Operating income
|
10,626 | 1,366 | 1,327 | 13,319 | |||||||||||||
Other income (expense):
|
|||||||||||||||||
(13,438 | ) |
(j)
|
|||||||||||||||
(548 | ) |
(k)
|
|||||||||||||||
Interest expense
|
(29,769 | ) | - | (464 | ) |
(l)
|
(44,219 | ) | |||||||||
Loss on extinguishment of debt
|
(17,030 | ) | - | - | (17,030 | ) | |||||||||||
Interest income
|
1,444 | - | - | 1,444 | |||||||||||||
Other income
|
(2,572 | ) | - | - | (2,572 | ) | |||||||||||
(47,927 | ) | - | (14,450 | ) | (62,377 | ) | |||||||||||
Income (loss) before income taxes
|
(37,301 | ) | 1,366 | (13,123 | ) | (49,058 | ) | ||||||||||
Income tax (benefit) expense
|
(426 | ) | - | - |
(m)
|
(426 | ) | ||||||||||
Net income (loss)
|
(36,875 | ) | 1,366 | (13,123 | ) | (48,632 | ) | ||||||||||
Less net loss attributable to noncontrolling interest
|
(3,775 | ) | - | - | (3,775 | ) | |||||||||||
Net income (loss) attributable to the Parent company
|
(33,100 | ) | 1,366 | (13,123 | ) | (44,857 | ) | ||||||||||
Less preferred stock dividend requirements
|
1,360 | - | - | 1,360 | |||||||||||||
Net income (loss) applicable to common shareholders
|
$ | (34,460 | ) | $ | 1,366 | $ | (13,123 | ) | $ | (46,217 | ) | ||||||
Net income (loss) per share applicable to common
shareholders:
|
|||||||||||||||||
Basic and diluted
|
$ | (2.61 | ) | $ | (3.50 | ) | |||||||||||
Weighted average number of common shares
Outstanding - Basic and diluted
|
13,192 | 13,192 | |||||||||||||||
Cash paid
|
$ | 76.5 | ||
|
||||
Estimated fair value of liabilities assumed:
|
||||
Postretirement medical cost obligations
|
49.0 | |||
Asset retirement obligations
|
15.1 | |||
Pension obligations
|
11.8 | |||
Accrued liabilities
|
0.9 | |||
Total estimated fair value of liabilities assumed
|
76.8 | |||
Total estimated purchase consideration
|
$ | 153.3 |
Allocation of Estimated Purchase Consideration
|
||||
Inventories
|
$ | 9.5 | ||
Land and mineral rights
|
25.4 | |||
Capitalized asset retirement costs
|
15.1 | |||
Plant and equipment
|
103.3 | |||
Total
|
$ | 153.3 |