Business and Basis of Presentation

Walter Energy, Inc. ("Walter"), together with its consolidated subsidiaries ("the Company"), is a leading producer and exporter of metallurgical coal for the global steel industry from underground and surface mines with mineral reserves located in the United States (U.S.), Canada and the United Kingdom (U.K.). The Company also extracts, processes, markets and/or possesses mineral reserves for thermal coal and anthracite coal, as well as produces metallurgical coke and coal bed methane gas.

The Company reports all of its operations located in the U.S. in the U.S. Operations segment and its mining operations located in Northeast British Columbia (Canada) and South Wales (United Kingdom) in the Canadian and U.K. Operations segment. The Other segment primarily consists of unallocated Corporate activities and expenditures. See Note 20 for segment information.

Basis of Presentation

The consolidated financial statements include the accounts of all wholly and majority owned subsidiaries. Preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. The notes to consolidated financial statements, except where otherwise indicated, relate to continuing operations only. The 2013 consolidated balance sheet has been reclassified to present current and long-term pension benefit obligations, previously classified in other current liabilities and long-term liabilities, respectively, as a component of pension and other postretirement benefit obligations. In addition, trade receivables, net and other current receivables, which were previously combined and classified as receivables, net, in 2013, have been reclassified to present these components as separate balance sheet line items.

During the second quarter of 2014, the Company corrected its classification of accelerated amortization of debt issuance costs that it recognized upon the extinguishment or partial extinguishment of debt to present these amounts as a component of the gain (loss) recognized upon the extinguishment of debt as one line item in the accompanying Consolidated Statements of Operations in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Section 470-50. Components of the gain (loss) on the extinguishment of debt were previously recognized within interest expense and other income (loss) in the accompanying Consolidated Statements of Operations. The Company has concluded that this revision is not material to previously issued financial statements, as the net effect of these revisions did not impact operating loss, net loss, stockholders' equity or cash flows. Previously reported interest expense and other income (loss) have decreased by the same amount to correct the classification and interest income and interest expense have been netted in the current presentation. The following reflects the revisions for the years ended December 31, 2013 and 2012:



	2013			2012
Interest expense, prior to revision	$	(233,854	)	$	(139,356	)
Interest income	1,103			804
Revision of loss on extinguishment of debt	11,168			5,555
Interest expense, net revised	$	(221,583	)	$	(132,997	)



	2013			2012
Other income (loss), net, prior to revision	$	2,875		$	(13,081	)
Revision of gain on extinguishment of debt	(4,293		)	—
Other loss, net revised	$	(1,418	)	$	(13,081	)

During the second quarter of 2013, the Company identified an immaterial cumulative error related to the mineral interest value acquired in the acquisition of Western Coal Corp. The related correction resulted in an $8.4 million reduction to depreciation and depletion expense in the quarter. Prior period balances were not restated as management determined that the effect was not material.

During the first quarter of 2013, the Company determined that the $7.8 million cash dividend declared and paid in the fourth quarter of 2012 should have been reported as a reduction to the capital in excess of par value component of stockholders' equity rather than retained earnings as the Company was in an accumulated deficit position. This amount has been reclassified from accumulated deficit to capital in excess of par value. Management has determined that the effect of this classification change was immaterial to the prior reporting period affected as the change had no effect on total stockholders' equity.

During the first quarter of 2013, the Company began to classify certain administrative costs as cost of sales as opposed to selling, general and administrative costs as it determined that these costs are directly supportive of operations. If this classification of these costs had been retrospectively applied, selling, general and administrative expenses for the year ended December 31, 2012 would have been reduced by $24.5 million and cost of sales would have been increased by a similar amount. Prior period balances were not restated as management determined that the effect of this classification change was immaterial to prior reporting periods. The change in classification had no effect on net income.