10-Q 1 wlb-93013x10q.htm 10-Q WLB - 9.30.13 - 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________
FORM 10-Q
 __________________________________________
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                 
Commission File No. 001-11155
  ___________________________________________
WESTMORELAND COAL COMPANY
(Exact name of registrant as specified in its charter)
 __________________________________________
Delaware
23-1128670
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
9540 South Maroon Circle, Suite 200
Englewood, CO
80112
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (855) 922-6463
 __________________________________________­
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
 
Accelerated filer
x
Non-accelerated filer
¨
(Do not check if a smaller reporting company.)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 24, 2013: 14,592,231 shares of common stock, $2.50 par value.




TABLE OF CONTENTS
 


2


PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
 
(Unaudited)
 
 
 
September 30,
2013
 
December 31,
2012
 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
45,487

 
$
31,610

Receivables:
 
 
 
Trade
67,313

 
60,037

Contractual third-party reclamation receivables
11,230

 
10,207

Other
4,436

 
3,220

 
82,979

 
73,464

Inventories
39,334

 
37,734

Other current assets
21,220

 
16,504

Total current assets
189,020

 
159,312

Property, plant and equipment:
 
 
 
Land and mineral rights
263,181

 
261,741

Plant and equipment
656,718

 
635,720

 
919,899

 
897,461

Less accumulated depreciation, depletion and amortization
430,809

 
384,621

Net property, plant and equipment
489,090

 
512,840

Advanced coal royalties
4,936

 
4,316

Reclamation deposits
74,403

 
72,718

Restricted investments and bond collateral
87,219

 
87,209

Contractual third-party reclamation receivables, less current portion
80,679

 
84,158

Intangible assets, net of accumulated amortization of $13.7 million and $12.4 million at September 30, 2013 and December 31, 2012, respectively
1,941

 
3,203

Other assets
12,551

 
12,359

Total Assets
$
939,839

 
$
936,115

See accompanying Notes to Consolidated Financial Statements.

3


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
 
(Unaudited)
 
 
 
September 30,
2013
 
December 31,
2012
 
(In thousands)
Liabilities and Shareholders’ Deficit
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
22,125

 
$
23,791

Accounts payable and accrued expenses:
 
 
 
Trade
60,650

 
52,093

Production taxes
44,745

 
33,228

Workers’ compensation
805

 
820

Postretirement medical benefits
14,068

 
14,068

SERP
390

 
390

Deferred revenue
12,462

 
12,822

Asset retirement obligations
25,038

 
22,238

Other current liabilities
4,663

 
11,462

Total current liabilities
184,946

 
170,912

Long-term debt, less current installments
321,344

 
337,198

Workers’ compensation, less current portion
8,366

 
8,710

Excess of black lung benefit obligation over trust assets
8,409

 
8,356

Postretirement medical benefits, less current portion
322,801

 
319,775

Pension and SERP obligations, less current portion
53,906

 
54,250

Deferred revenue, less current portion
48,976

 
56,891

Asset retirement obligations, less current portion
238,163

 
241,609

Intangible liabilities, net of accumulated amortization of $12.2 million and $11.4 million at September 30, 2013 and December 31, 2012, respectively
5,861

 
6,625

Other liabilities
27,378

 
18,020

Total liabilities
1,220,150

 
1,222,346

Shareholders’ deficit:
 
 
 
Preferred stock of $1.00 par value
 
 
 
Authorized 5,000,000 shares;
 
 
 
Issued and outstanding 159,960 shares at September 30, 2013 and December 31, 2012
160

 
160

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

 
35,502

Other paid-in capital
134,133

 
130,852

Accumulated other comprehensive loss
(142,779
)
 
(148,345
)
Accumulated deficit
(290,655
)
 
(289,727
)
Total Westmoreland Coal Company shareholders’ deficit
(262,662
)
 
(271,558
)
Noncontrolling interest
(17,649
)
 
(14,673
)
Total deficit
(280,311
)
 
(286,231
)
Total Liabilities and Shareholders’ Deficit
$
939,839

 
$
936,115

See accompanying Notes to Consolidated Financial Statements.

4


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands, except per share data)
Revenues
$
176,792

 
$
161,332

 
$
500,739

 
$
441,410

Cost, expenses and other:
 
 
 
 
 
 
 
Cost of sales
138,193

 
117,088

 
399,142

 
339,906

Depreciation, depletion and amortization
17,434

 
15,534

 
47,257

 
42,542

Selling and administrative
12,498

 
11,665

 
36,354

 
37,157

Heritage health benefit expenses
4,057

 
3,881

 
11,117

 
11,743

Loss (gain) on sales of assets
(13
)
 
14

 
(321
)
 
291

Other operating income
(3,913
)
 
(2,301
)
 
(19,055
)
 
(10,503
)
 
168,256

 
145,881

 
474,494

 
421,136

Operating income (loss)
8,536

 
15,451

 
26,245

 
20,274

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(9,909
)
 
(11,096
)
 
(30,145
)
 
(32,011
)
Loss on extinguishment of debt

 

 
(64
)
 

Interest income
301

 
475

 
878

 
1,371

Other income
89

 
196

 
287

 
611

 
(9,519
)
 
(10,425
)
 
(29,044
)
 
(30,029
)
Income (loss) before income taxes
(983
)
 
5,026

 
(2,799
)
 
(9,755
)
Income tax expense (benefit)
30

 
(325
)
 
85

 
(1,239
)
Net income (loss)
(1,013
)
 
5,351

 
(2,884
)
 
(8,516
)
Less net income (loss) attributable to noncontrolling interest
(3,774
)
 
(2,271
)
 
(2,976
)
 
(4,914
)
Net income (loss) attributable to the Parent company
2,761

 
7,622

 
92

 
(3,602
)
Less preferred stock dividend requirements
340

 
340

 
1,020

 
1,020

Net income (loss) applicable to common shareholders
$
2,421

 
$
7,282

 
$
(928
)
 
$
(4,622
)
Net income (loss) per share applicable to common shareholders:
 
 
 
 
 
 
 
Basic
$
0.17

 
$
0.52

 
$
(0.06
)
 
$
(0.33
)
Diluted
$
0.16

 
$
0.50

 
$
(0.06
)
 
$
(0.33
)
Weighted average number of common shares outstanding
 
 
 
 
 
 
 
Basic
14,592

 
14,104

 
14,457

 
13,986

Diluted
14,927

 
15,326

 
14,457

 
13,986

See accompanying Notes to Consolidated Financial Statements.

5


W0ESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
(In thousands)
Net income (loss)
$
(1,013
)
 
$
5,351

 
$
(2,884
)
 
$
(8,516
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Pension and other postretirement plans:
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
872

 
729

 
2,617

 
2,187

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
1,002

 
643

 
3,004

 
1,929

Tax effect of other comprehensive income gains

 
(521
)
 

 
(1,496
)
Unrealized and realized gains and losses on available-for-sale securities
(16
)
 
(25
)
 
(55
)
 
(248
)
Other comprehensive income
1,858

 
826

 
5,566

 
2,372

Comprehensive income (loss) attributable to the Parent company
$
845

 
$
6,177

 
$
2,682

 
$
(6,144
)
See accompanying Notes to Consolidated Financial Statements.

6


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Deficit
Nine Months Ended September 30, 2013
(Unaudited)

 
Preferred Stock
 
Common Stock
 
Other
Paid-In
Capital
 
Accumulated
Other
Comprehensive Loss
 
Accumulated
Deficit
 
Non-controlling
Interest
 
Total
Shareholders’
Deficit
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
(In thousands, except shares data)
Balance at December 31, 2012
159,960

 
$
160

 
14,201,411

 
$
35,502

 
$
130,852

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

 

 

 

 

 

 
(1,020
)
 

 
(1,020
)
Common stock issued as compensation

 

 
224,129

 
560

 
4,034

 

 

 

 
4,594

Issuance of restricted stock

 

 
166,691

 
417

 
(753
)
 

 

 

 
(336
)
Net (loss) income

 

 

 

 

 

 
92

 
(2,976
)
 
(2,884
)
Other comprehensive income

 

 

 

 

 
5,566

 

 

 
5,566

Balance at September 30, 2013
159,960

 
$
160

 
14,592,231

 
$
36,479

 
$
134,133

 
$
(142,779
)
 
$
(290,655
)
 
$
(17,649
)
 
$
(280,311
)
See accompanying Notes to Consolidated Financial Statements.

7


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended September 30,
 
2013
 
2012
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(2,884
)
 
$
(8,516
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
47,257

 
42,542

Accretion of asset retirement obligation and receivable
9,507

 
9,037

Non-cash tax benefits

 
(1,496
)
Amortization of intangible assets and liabilities, net
498

 
492

Share-based compensation
4,594

 
4,776

Loss (gain) on sales of assets
(321
)
 
291

Amortization of deferred financing costs
2,790

 
2,904

Loss on extinguishment of debt
64

 

Gain on sales of investment securities
(25
)
 
(183
)
Changes in operating assets and liabilities:
 
 
 
Receivables, net
(8,491
)
 
(20,054
)
Inventories
(1,600
)
 
(488
)
Excess of black lung benefit obligation over trust assets
53

 
1,626

Accounts payable and accrued expenses
12,457

 
19,979

Deferred revenue
(8,275
)
 
(5,352
)
Income tax payable
(26
)
 

Accrual for workers’ compensation
(359
)
 
(212
)
Asset retirement obligations
(6,888
)
 
(6,144
)
Accrual for postretirement medical benefits
6,030

 
4,542

Pension and SERP obligations
2,273

 
1,949

Other assets and liabilities
1,815

 
(3,344
)
Net cash provided by operating activities
58,469

 
42,349

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(20,223
)
 
(16,066
)
Change in restricted investments and bond collateral and reclamation deposits
(9,652
)
 
(29,808
)
Cash payments related to acquisitions

 
(72,522
)
Net proceeds from sales of assets
604

 
385

Proceeds from the sale of restricted investments
7,927

 
1,828

Receivable from customer for property and equipment purchases
(1
)
 
(466
)
Net cash used in investing activities
(21,345
)
 
(116,649
)
Cash flows from financing activities:
 
 
 
Change in book overdrafts
20

 
853

Borrowings from long-term debt, net of debt discount

 
119,364

Repayments of long-term debt
(22,065
)
 
(16,431
)
Borrowings on revolving lines of credit
7,000

 
16,500

Repayments on revolving lines of credit
(7,000
)
 
(16,500
)
Debt issuance costs and other refinancing costs
(182
)
 
(5,564
)
Preferred dividends paid
(1,020
)
 
(1,020
)
Net cash provided by (used in) financing activities
(23,247
)
 
97,202

Net increase in cash and cash equivalents
13,877

 
22,902

Cash and cash equivalents, beginning of period
31,610

 
30,783

Cash and cash equivalents, end of period
$
45,487

 
$
53,685

See accompanying Notes to Consolidated Financial Statements.

8


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include accounts of Westmoreland Coal Company, or the Company, or Parent, and its subsidiaries and controlled entities. The Company’s current principal activities, all conducted within the United States, are the production and sale of coal from its mines in Montana, Wyoming, North Dakota and Texas, and the ownership of the Roanoke Valley power plants, or ROVA, in North Carolina. The Company’s activities are primarily conducted through wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.

The Company’s Kemmerer Mine is owned by its subsidiary Westmoreland Kemmerer, Inc., or Kemmerer. The Company’s Absaloka Mine is owned by its subsidiary Westmoreland Resources, Inc., or WRI. The 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 Company’s subsidiary Westmoreland Mining LLC, or WML.

The Company is subject to two major debt arrangements: (1) $90.0 million senior secured notes at WML that are collateralized by all assets of WML, Westmoreland Savage Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC; and (2) $251.5 million senior secured notes at the Parent level that are collateralized by the assets of the Parent, WRI, Kemmerer and ROVA.

These quarterly consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, or the 2012 Form 10-K. The accounting principles followed by the Company are set forth in the Notes to the Company’s consolidated financial statements in its 2012 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.
On May 30, 2013, WRI amended certain documents pertaining to a series of transactions that were originally entered into in October 2008 in order to enable WRI to take advantage of Indian Coal Production Tax Credits (ICTC) which it had not been able to fully utilize. The ICTC is provided under Section 45(e) of the Internal Revenue Code to producers of coal on Indian lands from facilities placed in service by January 1, 2009, if such coal is sold to unrelated parties. In January, 2013 the ICTC was extended one year to December 31, 2013. WRI's Absaloka Mine operates under a coal mineral lease with the Crow Tribe of Indians in Montana. To more fully realize the value of ICTC, Absaloka Coal, LLC, a variable interest entity consolidated by WRI, sold a 99% membership interest to a large East Coast financial institution (Investor). The Investor's share of Absaloka Coal, LLC's operations is reflected as Net income (loss) attributable to noncontrolling interest. The purpose of the amendments was to modify the contract mining fee mark up and the contingency adjustment and to change the per ton amount that Absaloka Coal, LLC pays Westmoreland Coal Sales Company (a subsidiary of Westmoreland Coal Company), all effective January 1, 2012. The amendments also extended the term of the transactions with the Investor to December 31, 2013 from the original expiration date of October 15, 2013.
In October, 2013 the Investor informed the Company they do not expect to extend the ICTC monetization transaction, which will expire on December 31, 2013. Since 2009, the Company has experienced a yearly average of $3.0 million of income and $6.2 million of cash receipts from the ICTC. The Company is currently evaluating alternative options regarding the future monetization of its ICTC, in the event that the IRS extends the ICTC beyond December 31, 2013.
    
The Company received business interruption insurance proceeds for the nine months ended September 30, 2013 due to an explosion and subsequent fire at a customer’s facility. The Company recognizes income as business interruption losses are incurred and reimbursement is virtually assured. The Company reports this income in Other operating income and has recognized $5.0 million and $16.3 million of income for the three and nine months ended September 30, 2013, respectively; and $3.3 million and $11.9 million of income for the three and nine months ended September 30, 2012, respectively. The Company received $6.0 million and $13.4 million of cash proceeds for the three and nine months ended September 30, 2013, respectively.

The consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles and require use of management’s estimates. The financial information contained in this Form 10-Q is unaudited, but reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2013 are not necessarily indicative of results to be expected for the year ending December 31, 2013.

9

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


Income Taxes

The difference between the statutory income tax rate and the effective income tax rate is due to a change in the valuation allowance.
2.
ACQUISITION
On January 31, 2012, the Company, through Westmoreland Kemmerer, Inc., acquired from Chevron Mining Inc., a Missouri corporation, the Kemmerer surface coal mine, associated processing facilities and other related real and personal property assets located in Kemmerer, Wyoming and assumed certain liabilities related to the mine. The Company did not acquire working capital in the acquisition, other than inventory.
The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on January 1, 2011. The unaudited pro forma results have been prepared based on estimates and assumptions, which the Company believes are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the acquisition occurred on January 1, 2011, or of future results of operations.
 
Nine Months
Ended
September 30, 2012
 
(In thousands)
Total Revenues
 
As reported
$
441,410

Pro forma
$
455,523

 
 
Operating Income
 
As reported
$
20,274

Pro forma
$
22,548

 
 
Net loss applicable to common shareholders
 
As reported
$
(4,622
)
Pro forma
$
(3,560
)
 
 
Net loss per share applicable to common shareholders
 
As reported
$
(0.33
)
Pro forma
$
(0.25
)
3.
ACCOUNTING POLICIES

Effective January 1, 2013, the Company adopted an accounting standards update which requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies would instead cross reference to the related footnote for additional information. This accounting standards update only affects the Company's disclosures.

10

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

4.
INVENTORIES
Inventories consisted of the following:
 
September 30, 2013
 
December 31, 2012
 
(In thousands)
Coal stockpiles
$
863

 
$
989

Coal fuel inventories
4,068

 
3,048

Materials and supplies
35,505

 
34,954

Reserve for obsolete inventory
(1,102
)
 
(1,257
)
Total
$
39,334

 
$
37,734

5.
RESTRICTED INVESTMENTS AND BOND COLLATERAL
The Company’s restricted investments and bond collateral consist of the following: 
 
September 30, 2013
 
December 31, 2012
 
(In thousands)
Coal Segment:
 
 
 
WML debt reserve account
$
13,066

 
$
13,062

Reclamation bond collateral:
 
 
 
Kemmerer Mine
24,715

 
24,702

Absaloka Mine
14,583

 
14,507

Rosebud Mine
12,496

 
12,495

Beulah Mine
1,270

 
1,270

Power Segment:
 
 
 
Letter of credit account
5,996

 
5,990

Corporate Segment:
 
 
 
Postretirement medical benefit bonds
8,445

 
8,593

Workers’ compensation bonds
6,648

 
6,590

Total restricted investments and bond collateral
$
87,219

 
$
87,209


For all of its restricted investments and bond collateral accounts, the Company can select from limited fixed-income investment options for the funds and receive the investment returns on these investments. Funds in the restricted investments and bond collateral accounts are not available to meet the Company’s cash needs.

These accounts include held-to-maturity securities. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts calculated on the effective interest method. Interest income is recognized when earned. Available-for-sale securities are reported at fair value with unrealized gains and losses excluded from earnings and reported in Accumulated other comprehensive loss.

The Company’s carrying value and estimated fair value of its restricted investments and bond collateral at September 30, 2013 are as follows:
 
Carrying Value
 
Fair Value
 
(In thousands)
Cash and cash equivalents
$
48,553

 
$
48,553

Time deposits
8,440

 
8,440

Held-to-maturity securities
30,226

 
30,196

 
$
87,219

 
$
87,189

For the nine months ended September 30, 2013, the Company recorded less than $0.1 million of gains on the sale of available-for-sale securities held as restricted investments and bond collateral.

11

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

Held-to-Maturity Restricted Investments and Bond Collateral

The amortized cost, gross unrealized holding gains and fair value of held-to-maturity securities at September 30, 2013 is as follows (in thousands):
Amortized cost
$
30,226

Gross unrealized holding gains
331

Gross unrealized holding losses
(361
)
Fair value
$
30,196

Maturities of held-to-maturity securities are as follows at September 30, 2013: 
 
Amortized Cost
 
Fair Value
 
(In thousands)
Due within one year
$
605

 
$
609

Due in five years or less
16,900

 
17,069

Due after five years to ten years
6,780

 
6,755

Due in more than ten years
5,941

 
5,763

 
$
30,226

 
$
30,196


The Company does not intend to sell its held-to-maturity securities and it is not more likely than not that the Company will be required to sell the securities before recovery of amortized cost bases, which may be maturity.
6.
LINES OF CREDIT AND LONG-TERM DEBT
The amounts outstanding under the Company’s long-term debt consisted of the following as of the dates indicated: 
 
Total Debt Outstanding
 
September 30, 2013
 
December 31, 2012
 
(In thousands)
10.75% senior notes due 2018
$
251,500

 
$
252,000

WML term debt due 2018
90,000

 
103,500

Capital lease obligations
9,567

 
13,926

Other
1,324

 
1,654

Debt discount
(8,922
)
 
(10,091
)
Total debt outstanding
343,469

 
360,989

Less current installments
(22,125
)
 
(23,791
)
Total debt outstanding, less current installments
$
321,344

 
$
337,198


In March 2013, the Company amended the WML Revolving Credit Agreement by extending the maturity date from June 26, 2013 to December 31, 2017. Issuance costs related to the amendment of $0.2 million have been capitalized. This Revolving Credit Agreement has a borrowing limit of $25.0 million.
During the nine months ended September 30, 2013, the Company paid $0.5 million, excluding accrued interest, to repurchase Senior Notes with a principal amount of $0.5 million. The Company recognized losses of $0.1 million on these repurchases, which were recorded as losses on extinguishment of debt. The losses on the repurchases were measured based on the carrying value of the repurchased portion of the Senior Notes, which included a portion of the unamortized debt issue costs and the debt discount on the dates of repurchase.
During the nine months ended September 30, 2013, the Company paid $2.7 million to purchase equipment under capital leases with a principal amount of $2.5 million. The difference between the purchase price and the carrying amount of the capital lease obligation was recorded as an adjustment to the carrying amount of the equipment.


12

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

Other than the foregoing, there were no significant changes to the Company's long-term debt subsequent to December 31, 2012. Information regarding the Company's debt is outlined in Note 5 to the Consolidated Financial Statements in the Company's 2012 Form 10-K.
7.
POSTRETIREMENT MEDICAL BENEFITS AND PENSION

Postretirement Medical Benefits

The Company provides postretirement medical benefits to retired employees and their dependents as mandated by the Coal Industry Retiree Health Benefit Act of 1992 and pursuant to collective bargaining agreements. The Company also provides these benefits to qualified full-time employees pursuant to collective bargaining agreements.

The components of net periodic postretirement medical benefit cost are as follows: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
2013
 
2012
 
2013
 
2012
 
(In thousands)
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
1,109

 
$
1,061

 
$
3,327

 
$
2,602

Interest cost
3,035

 
3,057

 
9,104

 
9,226

Amortization of deferred items
1,001

 
643

 
3,004

 
1,929

Total net periodic benefit cost
$
5,145

 
$
4,761

 
$
15,435

 
$
13,757

The following table shows the net periodic postretirement medical benefit costs that relate to current and former mining operations: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
 
(In thousands)
Former mining operations
$
3,119

 
$
2,828

 
$
9,356

 
$
8,485

Current operations
2,026

 
1,933

 
6,079

 
5,272

Total net periodic benefit cost
$
5,145

 
$
4,761

 
$
15,435

 
$
13,757

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

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

The Company incurred net periodic benefit costs of providing these pension benefits as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
587

 
$
576

 
$
1,760

 
$
1,606

Interest cost
1,590

 
1,669

 
4,771

 
4,816

Expected return on plan assets
(2,192
)
 
(2,164
)
 
(6,577
)
 
(6,243
)
Amortization of deferred items
872

 
729

 
2,617

 
2,187

Total net periodic pension cost
$
857

 
$
810

 
$
2,571

 
$
2,366

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


13

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

The Company did not contribute cash to its pension plans in the nine months ended September 30, 2013 and expects to make $0.6 million of pension plan contributions during the remainder of 2013.
8.
HERITAGE HEALTH BENEFIT EXPENSES

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
 
(In thousands)
Health care benefits
$
3,179

 
$
2,850

 
$
9,446

 
$
8,526

Combined benefit fund payments
576

 
561

 
1,727

 
1,682

Workers’ compensation benefits
99

 
121

 
331

 
382

Black lung benefits (credit)
203

 
349

 
(387
)
 
1,153

Total
$
4,057

 
$
3,881

 
$
11,117

 
$
11,743

9.
ASSET RETIREMENT OBLIGATIONS, CONTRACTUAL THIRD-PARTY RECLAMATION RECEIVABLE, AND RECLAMATION DEPOSITS
The asset retirement obligation, contractual third-party reclamation receivable, and reclamation deposits for each of the Company’s mines and ROVA at September 30, 2013 are summarized below: 
 
Asset
Retirement
Obligation
 
Contractual
Third-Party
Reclamation
Receivable
 
Reclamation
Deposits
 
(In thousands)
Rosebud
$
120,510

 
$
18,564

 
$
74,403

Jewett
72,927

 
72,927

 

Absaloka
27,717

 
418

 

Beulah
19,046

 

 

Kemmerer
17,022

 

 

Savage
5,103

 

 

ROVA
876

 

 

Total
$
263,201

 
$
91,909

 
$
74,403


Asset Retirement Obligations

Changes in the Company’s asset retirement obligations were as follows: 
 
Nine Months Ended September 30,
 
2013
 
2012
 
(In thousands)
Asset retirement obligations, beginning of year (including current portion)
$
263,847

 
$
247,478

Accretion
16,426

 
16,360

Liabilities settled
(17,072
)
 
(13,814
)
Changes due to amount and timing of reclamation

 
(4,757
)
ARO acquired

 
19,377

Asset retirement obligations, end of period
263,201

 
264,644

Less current portion
(25,038
)
 
(18,469
)
Asset retirement obligations, less current portion
$
238,163

 
$
246,175



14

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

Contractual Third-Party Reclamation Receivables

At September 30, 2013, the Company has recognized as an asset $91.9 million as contractual third-party reclamation receivables, representing the present value of customer obligations to reimburse the Company for future reclamation expenditures at the Company’s Rosebud, Jewett and Absaloka Mines.

Reclamation Deposits

The Company’s reclamation deposits will be used to fund final reclamation activities. The Company’s carrying value and estimated fair value of its reclamation deposits at September 30, 2013 are as follows: 
 
Carrying Value
 
Fair Value
 
Fair Value Hierarchy
 
(In thousands)
 
 
Cash and cash equivalents
$
48,323

 
$
48,323

 
Level 1
Held-to-maturity securities
11,719

 
12,424

 
Level 2
Time deposits
14,361

 
14,361

 
Level 1
 
$
74,403

 
$
75,108


 

Held-to-Maturity Reclamation Deposits

The amortized cost, gross unrealized holding gains and losses and fair value of held-to-maturity securities at September 30, 2013 are as follows (in thousands):
Amortized cost
$
11,719

Gross unrealized holding gains
779

Gross unrealized holding losses
(74
)
Fair value
$
12,424


Maturities of held-to-maturity securities are as follows at September 30, 2013:
 
Amortized Cost
 
Fair Value
 
(In thousands)
Within one year
$
26

 
$
28

Due in five years or less
6,664

 
7,011

Due after five years to ten years
3,118

 
3,236

Due in more than ten years
1,911

 
2,149

 
$
11,719

 
$
12,424



15

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

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 5 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.

Long-term debt fair value estimates are based on observed prices for securities with an active trading market when available (Level 2) and otherwise using discount rate estimates based on interest rates as of September 30, 2013 (Level 3). The estimated fair values of the Company’s debt with fixed interest rates are as follows:
 
Carrying Value
 
Fair Value
 
(In thousands)
December 31, 2012
$
345,408

 
$
359,753

September 30, 2013
$
332,576

 
$
363,553


The Company’s non-recurring fair value measurements include asset retirement obligations (refer to Note 9) and the purchase price allocations for the fair value of assets and liabilities acquired through business combinations (refer to Note 2).

The Company determines the estimated fair value of its asset retirement obligations by calculating the present value of estimated cash flows related to reclamation liabilities using level 3 inputs. The significant inputs used to calculate such liabilities includes estimates of costs to be incurred, the Company’s credit adjusted discount rate, inflation rates and estimated dates of reclamation. The asset retirement liability is accreted to its present value each period and the capitalized asset retirement cost is depleted using the units-of-production method.

The fair value of assets and liabilities acquired through business combinations is calculated using a discounted-cash flow approach using level 3 inputs. Cash flow estimates require forecasts and assumptions for many years into the future for a variety of factors.

16

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

11.
SHAREHOLDERS’ EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Preferred Stock

The Company has outstanding Series A Convertible Exchangeable Preferred Stock on which cumulative dividends of $2.125 per share are payable quarterly. The Company has paid $0.3 million and $1.0 million of preferred stock dividends for the three and nine months ended September 30, 2013, respectively.
 
Changes in Accumulated Other Comprehensive Income

The following table reflects the changes in accumulated other comprehensive income (loss) by component:
 
Pension
 
Postretirement
medical benefits
 
Available for
sale
securities
 
Tax effect of
other
comprehensive
income gains
 
Accumulated
other
comprehensive
loss
 
(In thousands)
Balance at December 31, 2012
$
(44,717
)
 
$
(77,527
)
 
$
55

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

 

 
(43
)
 

 
(43
)
Amounts reclassified from accumulated other comprehensive income (loss)
2,617

 
3,004

 
(12
)
 

 
5,609

Balance at September 30, 2013
$
(42,100
)
 
$
(74,523
)
 
$

 
$
(26,156
)
 
$
(142,779
)
The following table reflects the reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2013 are as follows (in thousands):
Details about accumulated other comprehensive income (loss) components
 
Amount reclassified from accumulated
other comprehensive income (loss)1
 
Affected line item
in the statement
where net income
(loss) is presented
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2013
 
Available-for sale securities
 
 
 
 
 
 
Realized gains and losses on available-for sale securities
 
$

 
$
(12
)
 
Other income (loss)
 
 
$

 
$
(12
)
 
Total
Amortization of defined benefit pension items
 
 
 
 
 
 
Actuarial losses
 
$
872

 
$
2,617

 
2 
Amortization of postretirement medical items
 
 
 
 
 
 
Prior service costs
 
$
(159
)
 
$
(477
)
 
3 
Actuarial losses
 
1,161

 
3,481

 
3 
 
 
$
1,002

 
$
3,004

 
Total
____________________
(1)
Amounts in parentheses indicate debits to income/loss.
(2)
These accumulated other comprehensive income components are included in the computation of net periodic pension cost. (See Note 7 - Pension for additional details)
(3)
These accumulated other comprehensive income components are included in the computation of net periodic postretirement medical cost. (See Note 7 - Postretirement Medical Benefits for additional details)
12.
SHARE-BASED COMPENSATION

The Company grants employees and non-employee directors restricted stock units from the Amended and Restated 2007 Equity Incentive Stock Plan. The Amended and Restated 2007 Equity Incentive Stock Plan provides that non-employee directors will receive equity awards of 7,000 shares of Company stock after each annual meeting.


17

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

In July 2013, the Company began contributing cash to its 401(k) plan instead of Company stock.

The Company recognized compensation expense from share-based arrangements shown in the following table:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
 
(In thousands)
Recognition of fair value of restricted stock units, stock options and SARs over vesting period; and issuance of stock
$
728

 
$
650

 
$
2,239

 
$
2,378

Contributions of stock to the Company’s 401(k) plan
95

 
665

 
2,355

 
2,398

Total share-based compensation expense
$
823

 
$
1,315

 
$
4,594

 
$
4,776


Restricted Stock Units

A summary of restricted stock award activity for nine months ended September 30, 2013 is as follows: 
 
Units
 
Weighted
Average
Grant-Date
Fair Value
 
Unamortized
Compensation
Expense
(In thousands)
 
Non-vested at December 31, 2012
680,185

 
$
8.88

 
 
 
Granted
103,730

 
11.70

 
 
 
Vested
(195,940
)
 
8.62

 
 
 
Non-vested at September 30, 2013
587,975

 
$
9.46

 
$
3,075

(1) 
____________________
(1)
Expected to be recognized over the next three years.

In April 2013, 54,730 restricted stock units were granted, of which 27,366 units will vest ratably over a three-year period. The remaining 27,364 units are performance-based, which will vest and pay out at the end of a three-year period if performance goals are met. The Company’s management believes it is probable that the target performance condition
will be met.

Stock Options and Stock Appreciation Rights (SARs)

During the nine months ended September 30, 2013, 16,400 stock options expired while no activity occurred with SARs.
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, and restricted stock units. No such items were included in the computation of diluted loss per share in the nine months ended September 30, 2013 and September 30, 2012 because the Company incurred a net loss applicable to common shareholders in these periods and the effect of inclusion would have been anti-dilutive.


18

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Income (loss) for basic earnings per share calculation:
 
 
 
 
 
 
 
Net income (loss) allocated to common shareholders
$
2,421

 
$
7,282

 
$
(928
)
 
$
(4,622
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
14,592

 
14,104

 
14,457

 
13,986

Effect of restricted stock units, stock options and SARS
335

 
129

 

 

Effect of convertible notes and securities

 
1,093

 

 

Diluted weighted average shares outstanding
14,927

 
15,326

 
14,457

 
13,986


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 September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013

2012
 
(In thousands)
Convertible securities
1,093

 

 
1,093

 
1,093

Restricted stock units, stock options and SARs
478

 
849

 
813

 
978

Total shares excluded from diluted shares calculation
1,571

 
849

 
1,906

 
2,071

14.   BUSINESS SEGMENT INFORMATION

Segment information is based on a management approach, which requires segmentation based upon the Company’s internal organization, reporting of revenue, and operating income.

The Company’s operations are classified into four reporting segments: coal, power, heritage and corporate.

Summarized financial information by segment is as follows:

19

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

 
Coal
 
Power
 
Heritage
 
Corporate
 
Consolidated
 
(In thousands)
Three Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
Revenues
$
151,881

 
$
24,911

 
$

 
$

 
$
176,792

Operating income (loss)
10,231

 
5,087

 
(4,326
)
 
(2,456
)
 
8,536

Depreciation, depletion, and amortization
14,792

 
2,551

 

 
91

 
17,434

Total assets
714,841

 
180,967

 
15,419

 
28,612

 
939,839

Capital expenditures
6,803

 
17

 

 
(64
)
 
6,756

Three Months Ended September 30, 2012
 
 
 
 
 
 
 
 
 
Revenues
$
138,798

 
$
22,534

 
$

 
$

 
$
161,332

Operating income (loss)
18,025

 
4,023

 
(4,149
)
 
(2,448
)
 
15,451

Depreciation, depletion, and amortization
12,896

 
2,534

 

 
104

 
15,534

Total assets
719,129

 
192,093

 
15,077

 
44,854

 
971,153

Capital expenditures
3,872

 
121

 

 
92

 
4,085

Nine Months Ended September 30, 2013









Revenues
$
433,330


$
67,409


$


$


$
500,739

Operating income (loss)
36,778


8,922


(12,031
)

(7,424
)

26,245

Depreciation, depletion, and amortization
39,347


7,632




278


47,257

Total assets
714,841


180,967


15,419


28,612


939,839

Capital expenditures
19,022


715




486


20,223

Nine Months Ended September 30, 2012









Revenues
$
382,272


$
59,138


$


$


$
441,410

Operating income (loss)
37,478


5,066


(12,687
)

(9,583
)

20,274

Depreciation, depletion, and amortization
34,671


7,554




317


42,542

Total assets
719,129


192,093


15,077


44,854


971,153

Capital expenditures
13,910

 
2,033

 

 
123

 
16,066


A reconciliation of segment income (loss) from operations to loss before income taxes follows: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Income (loss) from operations
$
8,536

 
$
15,451

 
$
26,245

 
$
20,274

Loss on extinguishment of debt

 

 
(64
)
 

Interest expense
(9,909
)
 
(11,096
)
 
(30,145
)
 
(32,011
)
Interest income
301

 
475

 
878

 
1,371

Other income (loss)
89

 
196

 
287

 
611

Loss before income taxes
$
(983
)
 
$
5,026

 
$
(2,799
)
 
$
(9,755
)
15.
CONTINGENCIES

Contingencies

The Company is a party to routine claims and lawsuits with respect to various matters. The Company provides for costs related to contingencies when a loss is probable and the amount is reasonably estimable. After conferring with counsel, it is the opinion of management that the ultimate resolution of pending claims will not have a material adverse effect on the consolidated financial condition, results of operations, or liquidity of the Company.

20

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

16.   SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
Pursuant to the indenture governing the 10.75% Senior Notes, certain 100% owned subsidiaries of the Company have fully and unconditionally guaranteed the notes on a joint and several basis.

Guarantees of the Senior Notes will be released under certain circumstances, including:

(1)
in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor Subsidiary, by way of merger, consolidation or otherwise, a sale or other disposition of all of the Equity Interests of such Guarantor Subsidiary then held by the Issuers or any Restricted Subsidiary; provided, that the sale or other disposition does not violate the “Asset Sales” provisions of the Indenture;
(2)
if such Guarantor Subsidiary is designated as an Unrestricted Subsidiary in accordance with the provisions of this Indenture, upon effectiveness of such designation;
(3)
upon Legal Defeasance or Covenant Defeasance (as such terms are defined in the indenture) or upon satisfaction and discharge of the Indenture;
(4)
upon the liquidation or dissolution of such Guarantor Subsidiary, provided no event of default has occurred and is continuing; or
(5)
at such time as such Guarantor Subsidiary is no longer required to be a Guarantor Subsidiary of the Senior Notes as described in the Indenture, provided no event of default has occurred and is continuing.
The following tables present unaudited consolidating financial information for (i) the issuer of the notes (Westmoreland Coal Company), (ii) the co-issuer of the notes (Westmoreland Partners), (iii) the guarantors under the notes, and (iv) the entities that are not guarantors under the notes:

21

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

CONSOLIDATING BALANCE SHEETS
September 30, 2013
(In thousands)

Assets
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
8,647

 
$
907

 
$
17,750

 
$
18,183

 
$

 
$
45,487

Receivables:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 

 
14,669

 
16,267

 
36,377

 

 
67,313

Contractual third-party reclamation receivables
 

 

 
58

 
11,172

 

 
11,230

Intercompany receivable/payable
 
(5,990
)
 

 
3,738

 
(30,817
)
 
33,069

 

Other
 
195

 

 
20,618

 
1,426

 
(17,803
)
 
4,436

 
 
(5,795
)
 
14,669

 
40,681

 
18,158

 
15,266

 
82,979

Inventories
 

 
4,067

 
16,888

 
18,379

 

 
39,334

Other current assets
 
6,196

 
577

 
9,269

 
5,178

 

 
21,220

Total current assets
 
9,048

 
20,220

 
84,588

 
59,898

 
15,266

 
189,020

Property, plant and equipment:
 
 
 
 
 
 
 
 
 
 
 
 
Land and mineral rights
 

 
1,395

 
93,031

 
168,755

 

 
263,181

Plant and equipment
 
3,850

 
220,769

 
229,720

 
202,379

 

 
656,718

 
 
3,850

 
222,164

 
322,751

 
371,134

 

 
919,899

Less accumulated depreciation, depletion and amortization
 
2,642

 
69,106

 
125,779

 
233,282

 

 
430,809

Net property, plant and equipment
 
1,208

 
153,058

 
196,972

 
137,852

 

 
489,090

Advanced coal royalties
 

 

 
500

 
4,436

 

 
4,936

Reclamation deposits
 

 

 

 
74,403

 

 
74,403

Restricted investments and bond collateral
 
15,092

 
5,996

 
39,298

 
26,833

 

 
87,219

Contractual third-party reclamation receivables
 

 

 
360

 
80,319

 

 
80,679

Intangible assets
 

 
1,693

 

 
248

 

 
1,941

Investment in subsidiaries
 
241,226

 

 
(792
)
 
3,770

 
(244,204
)
 

Other assets
 
9,044

 

 
2,300

 
3,207

 
(2,000
)
 
12,551

Total assets
 
$
275,618

 
$
180,967

 
$
323,226

 
$
390,966

 
$
(230,938
)
 
$
939,839


22

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

CONSOLIDATING BALANCE SHEETS
September 30, 2013
(In thousands)

Liabilities and Shareholders’ Deficit
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Current installments of long-term debt
 
$
(1,685
)
 
$

 
$
2,268

 
$
21,542

 
$

 
$
22,125

Accounts payable and accrued expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
3,427

 
9,318

 
14,825

 
50,863

 
(17,783
)
 
60,650

Production taxes
 

 
2

 
18,540

 
26,203

 

 
44,745

Workers’ compensation
 
805

 

 

 

 

 
805

Postretirement medical benefits
 
12,494

 

 
87

 
1,487

 

 
14,068

SERP
 
390

 

 

 

 

 
390

Deferred revenue
 

 
9,245

 
1,084

 
2,133

 

 
12,462

Asset retirement obligations
 

 

 
3,585

 
21,453

 

 
25,038

Other current liabilities
 
4,536

 

 
27

 
119

 
(19
)
 
4,663

Total current liabilities
 
19,967

 
18,565

 
40,416

 
123,800

 
(17,802
)
 
184,946

Long-term debt, less current installments
 
246,261

 

 
1,720

 
75,363

 
(2,000
)
 
321,344

Workers’ compensation, less current portion
 
8,366

 

 

 

 

 
8,366

Excess of black lung benefit obligation over trust assets
 
8,409

 

 

 

 

 
8,409

Postretirement medical benefits, less current portion
 
222,090

 

 
60,259

 
40,452

 

 
322,801

Pension and SERP obligations, less current portion
 
28,357

 
281

 
19,787

 
5,481

 

 
53,906

Deferred revenue, less current portion
 

 
43,174

 

 
5,802

 

 
48,976

Asset retirement obligations, less current portion
 

 
876

 
41,154

 
196,133

 

 
238,163

Intangible liabilities
 

 
5,861

 

 

 

 
5,861

Other liabilities
 
5,942

 

 
18,684

 
2,752

 

 
27,378

Intercompany receivable/payable
 
16,537

 

 
(1,803
)
 
3,904

 
(18,638
)
 

Total liabilities
 
555,929

 
68,757

 
180,217

 
453,687

 
(38,440
)
 
1,220,150

Shareholders’ deficit
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
160

 

 

 

 

 
160

Common stock
 
36,479

 
5

 
110

 
132

 
(247
)
 
36,479

Other paid-in capital
 
134,133

 
52,828

 
94,395

 
64,223

 
(211,446
)
 
134,133

Accumulated other comprehensive loss
 
(142,779
)
 
(351
)
 
(5,003
)
 
(23,245
)
 
28,599

 
(142,779
)
Accumulated earnings (deficit)
 
(290,655
)
 
59,728

 
53,507

 
(103,831
)
 
(9,404
)
 
(290,655
)
Total Westmoreland Coal Company shareholders’ deficit
 
(262,662
)
 
112,210

 
143,009

 
(62,721
)
 
(192,498
)
 
(262,662
)
Noncontrolling interest
 
(17,649
)
 

 

 

 

 
(17,649
)
Total equity (deficit)
 
(280,311
)
 
112,210

 
143,009

 
(62,721
)
 
(192,498
)
 
(280,311
)
Total liabilities and shareholders’ deficit
 
$
275,618

 
$
180,967

 
$
323,226

 
$
390,966

 
$
(230,938
)
 
$
939,839


23

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

CONSOLIDATING BALANCE SHEETS
December 31, 2012
(In thousands)

Assets
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
14,836

 
$
4,545

 
$
5,362

 
$
6,867

 
$

 
$
31,610

Receivables:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 

 
13,018

 
13,428

 
33,591

 

 
60,037

Contractual third-party reclamation receivables
 

 

 
56

 
10,151

 

 
10,207

Intercompany receivable/payable
 
(8,002
)
 

 
5,667

 
(30,641
)
 
32,976

 

Other
 
77

 

 
16,806

 
1,182

 
(14,845
)
 
3,220

 
 
(7,925
)
 
13,018

 
35,957

 
14,283

 
18,131

 
73,464

Inventories
 

 
3,047

 
16,538

 
18,149

 

 
37,734

Other current assets
 
739

 
298

 
5,550

 
9,917

 

 
16,504

Total current assets
 
7,650

 
20,908

 
63,407

 
49,216

 
18,131

 
159,312

Property, plant and equipment:
 
 
 
 
 
 
 
 
 
 
 
 
Land and mineral rights
 

 
1,395

 
91,741

 
168,605

 

 
261,741

Plant and equipment
 
3,198

 
219,857

 
215,751

 
196,914

 

 
635,720

 
 
3,198

 
221,252

 
307,492

 
365,519

 

 
897,461

Less accumulated depreciation, depletion and amortization
 
2,364

 
61,474

 
108,151

 
212,632

 

 
384,621

Net property, plant and equipment
 
834

 
159,778

 
199,341

 
152,887

 

 
512,840

Advanced coal royalties
 

 

 
500

 
3,816

 

 
4,316

Reclamation deposits
 

 

 

 
72,718

 

 
72,718

Restricted investments and bond collateral
 
15,183

 
5,990

 
39,208

 
26,828

 

 
87,209

Contractual third-party reclamation receivables
 

 

 
327

 
83,831

 

 
84,158

Intangible assets
 

 
2,923

 

 
280

 

 
3,203

Investment in subsidiaries
 
248,565

 

 
(792
)
 
3,770

 
(251,543
)
 

Other assets
 
10,267

 

 
635

 
3,457

 
(2,000
)
 
12,359

Total assets
 
$
282,499

 
$
189,599

 
$
302,626

 
$
396,803

 
$
(235,412
)
 
$
936,115


24

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

CONSOLIDATING BALANCE SHEETS
December 31, 2012
(In thousands)

Liabilities and Shareholders’ Deficit
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Current installments of long-term debt
 
$
(1,548
)
 
$

 
$
1,939

 
$
23,400

 
$

 
$
23,791

Accounts payable and accrued expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Trade
 
4,707

 
4,978

 
15,163

 
42,085

 
(14,840
)
 
52,093

Production taxes
 

 
3

 
10,014

 
23,211

 

 
33,228

Workers’ compensation
 
820

 

 

 

 

 
820

Postretirement medical benefits
 
12,494

 

 
87

 
1,487

 

 
14,068

SERP
 
390

 

 

 

 

 
390

Deferred revenue
 

 
8,788

 
2,997

 
1,037

 

 
12,822

Asset retirement obligations
 

 

 
3,519

 
18,719

 

 
22,238

Other current liabilities
 
11,312

 

 
10

 
144

 
(4
)
 
11,462

Total current liabilities
 
28,175

 
13,769

 
33,729

 
110,083

 
(14,844
)
 
170,912

Long-term debt, less current installments
 
245,456

 

 
2,473

 
91,269

 
(2,000
)
 
337,198

Workers’ compensation, less current portion
 
8,710

 

 

 

 

 
8,710

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

 

 

 

 

 
8,356

Postretirement medical benefits, less current portion
 
224,336

 

 
55,981

 
39,458

 

 
319,775

Pension and SERP obligations, less current portion
 
29,265

 
289

 
19,346

 
5,350

 

 
54,250

Deferred revenue, less current portion
 

 
50,239

 

 
6,652

 

 
56,891

Asset retirement obligations, less current portion
 

 
829

 
40,063

 
200,717

 

 
241,609

Intangible liabilities
 

 
6,625

 

 

 

 
6,625

Other liabilities
 
701

 

 
15,677

 
1,642

 

 
18,020

Intercompany receivable/payable
 
23,731

 

 
(7,972
)
 
35,787

 
(51,546
)
 

Total liabilities
 
568,730

 
71,751

 
159,297

 
490,958

 
(68,390
)
 
1,222,346

Shareholders’ deficit
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
160

 

 

 

 

 
160

Common stock
 
35,502

 
5

 
110

 
132

 
(247
)
 
35,502

Other paid-in capital
 
130,852

 
52,807

 
93,456

 
62,539

 
(208,802
)
 
130,852

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

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

 
54,750

 
(132,334
)
 
12,176

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

 
143,329

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

 

 

 

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

 
143,329

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

 
$
189,599

 
$
302,626

 
$
396,803

 
$
(235,412
)
 
$
936,115


25

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

CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2013
(In thousands)
 
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$

 
$
24,911

 
$
58,529

 
$
107,698

 
$
(14,346
)
 
$
176,792

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 
16,366

 
43,972

 
92,202

 
(14,347
)
 
138,193

Depreciation, depletion and amortization
92

 
2,551

 
7,027

 
7,765

 
(1
)
 
17,434

Selling and administrative
2,909

 
907

 
2,857

 
5,825

 

 
12,498

Heritage health benefit expenses
3,789

 

 

 
268

 

 
4,057

Loss (gain) on sales of assets

 

 
1

 
(14
)
 

 
(13
)
Other operating income

 

 
(3,913
)
 

 

 
(3,913
)
 
6,790

 
19,824

 
49,944

 
106,046

 
(14,348
)
 
168,256

Operating income (loss)
(6,790
)
 
5,087

 
8,585

 
1,652

 
2

 
8,536

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(7,622
)
 
(10
)
 
(61
)
 
(2,222
)
 
6

 
(9,909
)
Interest income
29

 
5

 
102

 
171

 
(6
)
 
301

Other income (loss)

 

 
55

 
34

 

 
89

 
(7,593
)
 
(5
)
 
96

 
(2,017
)
 

 
(9,519
)
Income (loss) before income taxes and income of consolidated subsidiaries
(14,383
)
 
5,082

 
8,681

 
(365
)
 
2

 
(983
)
Equity in income of subsidiaries
13,369

 

 

 

 
(13,369
)
 

Income (loss) before income taxes
(1,014
)
 
5,082

 
8,681

 
(365
)
 
(13,367
)
 
(983
)
Income tax expense (benefit)
(1
)
 

 
2,138

 
(395
)
 
(1,712
)
 
30

Net income (loss)
(1,013
)
 
5,082

 
6,543

 
30

 
(11,655
)
 
(1,013
)
Less net loss attributable to noncontrolling interest
(3,774
)
 

 

 

 

 
(3,774
)
Net income (loss) attributable to the Parent company
$
2,761

 
$
5,082

 
$
6,543

 
$
30

 
$
(11,655
)
 
$
2,761


26

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

CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2012
(In thousands)

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

 
$
22,534

 
$
53,091

 
$
94,103

 
$
(8,396
)
 
$
161,332

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 
14,982

 
34,658

 
75,844

 
(8,396
)
 
117,088

Depreciation, depletion and amortization
104

 
2,533

 
5,732

 
7,165

 

 
15,534

Selling and administrative
3,001

 
995

 
2,381

 
5,288

 

 
11,665

Heritage health benefit expenses
3,638

 

 

 
243

 

 
3,881

Loss (gain) on sales of assets

 

 
18

 
(4
)
 

 
14

Other operating income

 

 
(2,301
)
 

 

 
(2,301
)
 
6,743

 
18,510

 
40,488

 
88,536

 
(8,396
)
 
145,881

Operating income (loss)
(6,743
)
 
4,024

 
12,603

 
5,567

 

 
15,451

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(8,292
)
 
(10
)
 
(93
)
 
(2,723
)
 
22

 
(11,096
)
Interest income
44

 
2

 
107

 
344

 
(22
)
 
475

Other income
(3
)
 

 
193

 
6

 

 
196

 
(8,251
)
 
(8
)
 
207

 
(2,373
)
 

 
(10,425
)
Income (loss) before income taxes and income of consolidated subsidiaries
(14,994
)
 
4,016

 
12,810

 
3,194

 

 
5,026

Equity in income of subsidiaries
19,982

 

 

 

 
(19,982
)
 

Income (loss) before income taxes
4,988

 
4,016

 
12,810

 
3,194

 
(19,982
)
 
5,026

Income tax expense (benefit)
(363
)
 

 
605

 
1,625

 
(2,192
)
 
(325
)
Net income (loss)
5,351

 
4,016

 
12,205

 
1,569

 
(17,790
)
 
5,351

Less net loss attributable to noncontrolling interest
(2,271
)
 

 

 

 

 
(2,271
)
Net income (loss) attributable to the Parent company
$
7,622

 
$
4,016

 
$
12,205

 
$
1,569

 
$
(17,790
)
 
$
7,622



27

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

CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2013
(In thousands)

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

 
$
67,409

 
$
154,958

 
$
306,345

 
$
(27,973
)
 
$
500,739

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 
48,221

 
126,509

 
252,385

 
(27,973
)
 
399,142

Depreciation, depletion and amortization
278

 
7,632

 
17,505

 
21,842

 

 
47,257

Selling and administrative
9,093

 
2,633

 
8,112

 
16,516

 

 
36,354

Heritage health benefit expenses
10,322

 

 

 
795

 

 
11,117

Gain on sales of assets

 

 
(146
)
 
(175
)
 

 
(321
)
Other operating income

 

 
(19,053
)
 
(2
)
 

 
(19,055
)
 
19,693

 
58,486

 
132,927

 
291,361

 
(27,973
)
 
474,494

Operating income (loss)
(19,693
)
 
8,923

 
22,031

 
14,984

 

 
26,245

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(22,797
)
 
(30
)
 
(220
)
 
(7,121
)
 
23

 
(30,145
)
Loss on extinguishment of debt
(64
)
 

 

 

 

 
(64
)
Interest income
105

 
20

 
212

 
564

 
(23
)
 
878

Other income (loss)

 

 
297

 
(10
)
 

 
287

 
(22,756
)
 
(10
)
 
289

 
(6,567
)
 

 
(29,044
)
Income (loss) before income taxes and income of consolidated subsidiaries
(42,449
)
 
8,913

 
22,320

 
8,417

 

 
(2,799
)
Equity in income of subsidiaries
39,565

 

 

 

 
(39,565
)
 

Loss before income taxes
(2,884
)
 
8,913

 
22,320

 
8,417

 
(39,565
)
 
(2,799
)
Income tax expense (benefit)

 

 
63

 
6,137

 
(6,115
)
 
85

Net income (loss)
(2,884
)
 
8,913

 
22,257

 
2,280

 
(33,450
)
 
(2,884
)
Less net loss attributable to noncontrolling interest
(2,976
)
 

 

 

 

 
(2,976
)
Net income (loss) attributable to the Parent company
$
92

 
$
8,913

 
$
22,257

 
$
2,280

 
$
(33,450
)
 
$
92



28

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

CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2012
(In thousands)

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

 
$
59,138

 
$
136,202

 
$
268,031

 
$
(21,961
)
 
$
441,410

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 
43,644

 
94,909

 
223,314

 
(21,961
)
 
339,906

Depreciation, depletion and amortization
317

 
7,554

 
14,382

 
20,289

 

 
42,542

Selling and administrative
9,794

 
2,874

 
7,583

 
18,433

 
(1,527
)
 
37,157

Heritage health benefit expenses
11,006

 

 

 
737

 

 
11,743

Loss on sales of assets

 

 
18

 
273

 

 
291

Other operating loss (income)

 

 
(12,030
)
 

 
1,527

 
(10,503
)
 
21,117

 
54,072

 
104,862

 
263,046

 
(21,961
)
 
421,136

Operating income (loss)
(21,117
)
 
5,066

 
31,340

 
4,985

 

 
20,274

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(23,315
)
 
(30
)
 
(298
)
 
(8,438
)
 
70

 
(32,011
)
Interest income
192

 
6

 
224

 
1,019

 
(70
)
 
1,371

Other income
187

 

 
280

 
144

 

 
611

 
(22,936
)
 
(24
)
 
206

 
(7,275
)
 

 
(30,029
)
Income (loss) before income taxes and income of consolidated subsidiaries
(44,053
)
 
5,042

 
31,546

 
(2,290
)
 

 
(9,755
)
Equity in income of subsidiaries
34,200

 

 

 

 
(34,200
)
 

Loss before income taxes
(9,853
)
 
5,042

 
31,546

 
(2,290
)
 
(34,200
)
 
(9,755
)
Income tax expense (benefit)
(1,337
)
 

 
2,374

 
753

 
(3,029
)
 
(1,239
)
Net income (loss)
(8,516
)
 
5,042

 
29,172

 
(3,043
)
 
(31,171
)
 
(8,516
)
Less net loss attributable to noncontrolling interest
(4,914
)
 

 

 

 

 
(4,914
)
Net income (loss) attributable to the Parent company
$
(3,602
)
 
$
5,042

 
$
29,172

 
$
(3,043
)
 
$
(31,171
)
 
$
(3,602
)


29

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, 2013
(In thousands)

 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income (loss)
$
(1,013
)
 
$
5,082

 
$
6,543

 
$
30

 
$
(11,655
)
 
$
(1,013
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
872

 
7

 

 
215

 
(222
)
 
872

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
1,002

 

 

 
213

 
(213
)
 
1,002

Unrealized and realized gains and losses on available-for-sale securities
(16
)
 

 

 
(16
)
 
16

 
(16
)
Other comprehensive income (loss)
1,858

 
7

 

 
412

 
(419
)
 
1,858

Comprehensive income (loss) attributable to the Parent company
$
845

 
$
5,089

 
$
6,543

 
$
442

 
$
(12,074
)
 
$
845



30

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, 2012
(In thousands)

 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income (loss)
$
5,351

 
$
4,016

 
$
12,205

 
$
1,569

 
$
(17,790
)
 
$
5,351

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
729

 
6

 

 
185

 
(191
)
 
729

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
643

 

 

 
243

 
(243
)
 
643

Tax effect of other comprehensive income gains
(521
)
 

 

 

 

 
(521
)
Unrealized and realized gains and losses on available-for-sale securities
(25
)
 

 
1

 
(25
)
 
24

 
(25
)
Other comprehensive income (loss)
826

 
6

 
1

 
403

 
(410
)
 
826

Comprehensive income (loss) attributable to the Parent company
$
6,177

 
$
4,022

 
$
12,206

 
$
1,972

 
$
(18,200
)
 
$
6,177



31

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Nine Months Ended September 30, 2013
(In thousands)

 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income (loss)
$
(2,884
)
 
$
8,913

 
$
22,257

 
$
2,280

 
$
(33,450
)
 
$
(2,884
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
2,617

 
21

 

 
648

 
(669
)
 
2,617

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
3,004

 

 

 
640

 
(640
)
 
3,004

Unrealized and realized gains and losses on available-for-sale securities
(55
)
 

 
(17
)
 
(38
)
 
55

 
(55
)
Other comprehensive income (loss)
5,566

 
21

 
(17
)
 
1,250

 
(1,254
)
 
5,566

Comprehensive income (loss) attributable to the Parent company
$
2,682

 
$
8,934

 
$
22,240

 
$
3,530

 
$
(34,704
)
 
$
2,682



32

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Nine Months Ended September 30, 2012
(In thousands)

 
Parent/Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Net income (loss)
$
(8,516
)
 
$
5,042

 
$
29,172

 
$
(3,043
)
 
$
(31,171
)
 
$
(8,516
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Amortization of accumulated actuarial gains or losses, pension
2,187

 
16

 

 
557

 
(573
)
 
2,187

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
1,929

 

 

 
729

 
(729
)
 
1,929

Tax effect of other comprehensive income gains
(1,496
)
 

 

 

 

 
(1,496
)
Unrealized and realized gains and losses on available-for-sale securities
(248
)
 

 
1

 
(44
)
 
43

 
(248
)
Other comprehensive income (loss)
2,372

 
16

 
1

 
1,242

 
(1,259
)
 
2,372

Comprehensive income (loss) attributable to the Parent company
$
(6,144
)
 
$
5,058

 
$
29,173

 
$
(1,801
)
 
$
(32,430
)
 
$
(6,144
)



33

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

CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2013
(In thousands)

Statements of Cash Flows
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(2,884
)
 
$
8,913

 
$
22,257

 
$
2,280

 
$
(33,450
)
 
$
(2,884
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
39,565

 

 

 

 
(39,565
)
 

Depreciation, depletion, and amortization
 
278

 
7,632

 
17,505

 
21,842

 

 
47,257

Accretion of asset retirement obligation and receivable
 

 
48

 
3,145

 
6,314

 

 
9,507

Amortization of intangible assets and liabilities, net
 

 
467

 

 
31

 

 
498

Share-based compensation
 
1,868

 
30

 
877

 
1,819

 

 
4,594

Gain on sale of assets
 

 

 
(146
)
 
(175
)
 

 
(321
)
Amortization of deferred financing costs
 
2,353

 

 
35

 
402

 

 
2,790

Loss on extinguishment of debt
 
64

 

 

 

 

 
64

Gain on sales of investment securities
 

 

 
(4
)
 
(21
)
 

 
(25
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
(118
)
 
(1,651
)
 
(6,651
)
 
(4,557
)
 
4,486

 
(8,491
)
Inventories
 

 
(1,020
)
 
(350
)
 
(230
)
 

 
(1,600
)
Excess of black lung benefit obligation over trust assets
 
53

 

 

 

 

 
53

Accounts payable and accrued expenses
 
(8,223
)
 
4,314

 
7,264

 
12,060

 
(2,958
)
 
12,457

Deferred revenue
 

 
(6,608
)
 
(1,913
)
 
246

 

 
(8,275
)
Income tax payable
 

 

 
(1,679
)
 
1,653

 

 
(26
)
Accrual for workers’ compensation
 
(359
)
 

 

 

 

 
(359
)
Asset retirement obligations
 

 

 
(1,801
)
 
(5,087
)
 

 
(6,888
)
Accrual for postretirement medical benefits
 
118

 

 
4,278

 
1,634

 

 
6,030

Pension and SERP obligations
 
1,042

 
13

 
441

 
777

 

 
2,273

Other assets and liabilities
 
(215
)
 
(453
)
 
(1,652
)
 
4,134

 
1

 
1,815

Net cash provided by (used in) operating activities
 
33,542

 
11,685

 
41,606

 
43,122

 
(71,486
)
 
58,469

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Distributions received from subsidiaries
 
50,800

 

 

 

 
(50,800
)
 

Additions to property, plant and equipment
 
(486
)
 
(715
)
 
(11,342
)
 
(7,680
)
 

 
(20,223
)
Change in restricted investments and bond collateral and reclamation deposits
 
91

 
(6
)
 
(530
)
 
(9,207
)
 

 
(9,652
)

34

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

Net proceeds from sales of assets
 

 

 
335

 
269

 

 
604

Proceeds from the sale of investments
 

 

 
428

 
7,499

 

 
7,927

Receivable from customer for property and equipment purchases
 

 

 

 
(1
)
 

 
(1
)
Net cash provided by (used in) investing activities
 
50,405

 
(721
)
 
(11,109
)
 
(9,120
)
 
(50,800
)
 
(21,345
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 

 

 
20

 

 

 
20

Repayments of long-term debt
 
(500
)
 

 
(1,874
)
 
(19,691
)
 

 
(22,065
)
Borrowings on revolving lines of credit
 

 

 

 
7,000

 

 
7,000

Repayments on revolving lines of credit
 

 

 

 
(7,000
)
 

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

 

 
(156
)
 

 
(182
)
Dividends/distributions
 
(1,020
)
 
(14,500
)
 
(23,500
)
 
(12,800
)
 
50,800

 
(1,020
)
Transactions with Parent/affiliates
 
(88,590
)
 
(102
)
 
7,245

 
9,961

 
71,486

 

Net cash provided by (used in) financing activities
 
(90,136
)
 
(14,602
)
 
(18,109
)
 
(22,686
)
 
122,286

 
(23,247
)
Net increase (decrease) in cash and cash equivalents
 
(6,189
)
 
(3,638
)
 
12,388

 
11,316

 

 
13,877

Cash and cash equivalents, beginning of year
 
14,836

 
4,545

 
5,362

 
6,867

 

 
31,610

Cash and cash equivalents, end of year
 
$
8,647

 
$
907

 
$
17,750

 
$
18,183

 
$

 
$
45,487


35

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

CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2012
(In thousands)

Statements of Cash Flows
 
Parent/
Issuer
 
Co-Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(8,516
)
 
$
5,042

 
$
29,172

 
$
(3,043
)
 
$
(31,171
)
 
$
(8,516
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of subsidiaries
 
34,200

 

 

 

 
(34,200
)
 

Depreciation, depletion, and amortization
 
317

 
7,554

 
14,382

 
20,289

 

 
42,542

Accretion of asset retirement obligation and receivable
 

 
44

 
2,990

 
6,003

 

 
9,037

Amortization of intangible assets and liabilities, net
 

 
466

 

 
26

 

 
492

Non-cash tax benefits
 
(1,496
)
 

 

 

 

 
(1,496
)
Share-based compensation
 
2,118

 
34

 
428

 
2,196

 

 
4,776

Loss on sale of assets
 

 

 
18

 
273

 

 
291

Amortization of deferred financing costs
 
2,127

 

 
304

 
473

 

 
2,904

Gain on sales of investment securities
 
(183
)
 

 

 

 

 
(183
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
(29
)
 
(379
)
 
(21,186
)
 
(4,602
)
 
6,142

 
(20,054
)
Inventories
 

 
571

 
(638
)
 
(421
)
 

 
(488
)
Excess of black lung benefit obligation over trust assets
 
1,626

 

 

 

 

 
1,626

Accounts payable and accrued expenses
 
(2,624
)
 
642

 
16,698

 
11,673

 
(6,410
)
 
19,979

Deferred revenue
 

 
(6,307
)
 
(786
)
 
1,741

 

 
(5,352
)
Accrual for workers’ compensation
 
(212
)
 

 

 

 

 
(212
)
Asset retirement obligations
 

 

 
(1,089
)
 
(5,055
)
 

 
(6,144
)
Accrual for postretirement medical benefits
 
(143
)
 

 
3,536

 
1,149

 

 
4,542

Pension and SERP obligations
 
835

 
9

 
516

 
589

 

 
1,949

Other assets and liabilities
 
(190
)
 
(470
)
 
1,526

 
(4,210
)
 

 
(3,344
)
Net cash provided by (used in) operating activities
 
27,830

 
7,206

 
45,871

 
27,081

 
(65,639
)
 
42,349

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Distributions received from subsidiaries
 
8,550

 

 

 

 
(8,550
)
 

Additions to property, plant and equipment
 
(123
)
 
(2,033
)
 
(6,195
)
 
(7,715
)
 

 
(16,066
)
Change in restricted investments and bond collateral and reclamation deposits
 
(3,098
)
 
(5
)
 
(24,873
)
 
(1,832
)
 

 
(29,808
)
Cash payments related to acquisitions and other
 
4,000

 

 
(76,522
)
 

 

 
(72,522
)
Net proceeds from sales of assets
 

 

 
240

 
145

 

 
385


36

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

Proceeds from the sale of investments
 
1,828

 

 

 

 

 
1,828

Receivable from customer for property and equipment purchases
 

 

 

 
(466
)
 

 
(466
)
Net cash provided by (used in) investing activities
 
11,157

 
(2,038
)
 
(107,350
)
 
(9,868
)
 
(8,550
)
 
(116,649
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in book overdrafts
 

 
(259
)
 

 
1,112

 

 
853

Borrowings from long-term debt
 
119,364

 

 

 

 

 
119,364

Repayments of long-term debt
 

 

 
(1,912
)
 
(14,519
)
 

 
(16,431
)
Borrowings on revolving lines of credit
 

 

 

 
16,500

 

 
16,500

Repayments on revolving lines of credit
 

 

 

 
(16,500
)
 

 
(16,500
)
Debt issuance costs and other refinancing costs
 
(5,563
)
 

 

 
(1
)
 

 
(5,564
)
Dividends/distributions
 
(1,020
)
 
(1,050
)
 

 
(7,500
)
 
8,550

 
(1,020
)
Transactions with Parent/affiliates
 
(149,093
)
 
(66
)
 
68,496

 
15,024

 
65,639

 

Net cash provided by (used in) financing activities
 
(36,312
)
 
(1,375
)
 
66,584

 
(5,884
)
 
74,189

 
97,202

Net increase (decrease) in cash and cash equivalents
 
2,675

 
3,793

 
5,105

 
11,329

 

 
22,902

Cash and cash equivalents, beginning of year
 
26,141

 
6

 
143

 
4,493

 

 
30,783

Cash and cash equivalents, end of year
 
$
28,816

 
$
3,799

 
$
5,248

 
$
15,822

 
$

 
$
53,685


37


ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements.” Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make about our expectation that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future, our anticipated cash spend on heritage health and pension obligations, the possibility that we may from time to time use available cash to repurchase our 10.75% Senior Notes on the open market, and that we expect to have Excess Cash Flows for 2013.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We therefore caution you against relying on any of these forward-looking statements. They are statements neither of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include political, economic, business, competitive, market, weather and regulatory conditions and the following: 
risks associated with our estimated postretirement medical benefit and pension obligations, including those we assumed in the Kemmerer acquisition, and the impact of regulatory changes on those obligations;
changes in our black lung obligations, changes in our experience related to black lung claims, and the impact of the Patient Protection and Affordable Care Act;
our potential inability to maintain compliance with debt covenant requirements;
competition with natural gas and other non-coal energy resources, which may be increased as a result of energy policies, regulations and subsidies or other government incentives that encourage or mandate use of alternative energy sources;
coal-fired power plant capacity, including the impact of environmental regulations, energy policies and other factors that may cause utilities to phase out or close existing coal-fired power plants or reduce construction of any new coal-fired power plants;
railroad, export terminal capacity and other transportation performance, costs and availability;
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;
our potential inability to enter into new coal supply agreements with existing customers due to the unfavorable result of competitive bid processes or the shutdown of a power facility due to new environmental legislation or regulations;
risks associated with the structure of Westmoreland Energy LLC’s and its subsidiaries, collectively referred to herein as ROVA, contracts with its coal suppliers and power purchaser, which could dramatically affect the overall profitability of ROVA;
the effect of Environmental Protection Agency inquiries and regulations on the operations of ROVA and our customer's power facilities;
the effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers, including unplanned outages at our customers due to the impact of weather-related variances or catastrophic events;
the potential that insurance proceeds from our business interruption claim relating to the unexpected shutdown of one of the Absaloka mine customers will not be sufficient to cover our losses associated with the business interruption;
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
other factors that are described in “Risk Factors” in our 2012 Form 10-K and any subsequent quarterly filing on Form 10-Q

Unless otherwise specified, the forward-looking statements in this report speak as of the filing date of this report. Factors or events that could cause our actual results to differ may emerge from time-to-time, and it is not possible for us to

38

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

predict all of them. We undertake no obligation to publicly update any forward-looking statements, whether because of new information, future developments or otherwise, except as may be required by law.
Overview

Westmoreland Coal Company is an energy company whose operations include six surface coal mines in Montana, Wyoming, North Dakota and Texas, and two coal-fired power-generating units in North Carolina. We sold 21.7 million tons of coal in 2012 and 18.4 million tons through September 30, 2013. Our two principal operating segments are our coal and power segments. Our two non-operating segments are our heritage and corporate segments. 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 a holding company and conduct our operations through subsidiaries. We have significant cash requirements to fund our ongoing heritage health benefit costs and corporate overhead expenses. The principal sources of cash flow to us are distributions from our principal operating subsidiaries.
Indian Coal Production Tax Credits (ICTC) amendment and extension
On May 30, 2013, we extended our ICTC monetization transaction two and a half months to December 31, 2013 to coincide with the IRS's extension of the ICTC.  We also agreed with our partner in the transaction to adjust the mining fee WRI receives as compensation for mining to better reflect current market conditions.
In October, 2013 our partner informed us they do not expect to extend the ICTC monetization transaction, which will expire on December 31, 2013. Since 2009, we have experienced a yearly average of $3.0 million of income and $6.2 million of cash receipts from the ICTC. We are currently evaluating alternative options regarding the future monetization of our ICTC, in the event that the IRS extends the ICTC beyond December 31, 2013.
Xcel Fire

In November 2011, an explosion and subsequent fire occurred at Unit 3 of Xcel Energy's Sherburne County Generating Station, or Unit 3, which is the largest customer of our Absaloka Mine. Xcel indicated that Unit 3 would be offline for an extended period. Unit 3 resumed operations during October 2013. WRI, our wholly owned subsidiary that operates the Absaloka Mine, maintains business interruption insurance coverage and has recognized $5.0 million and $16.3 million of income for the three and nine months ended September 30, 2013, respectively; and $3.3 million and $11.9 million of income for the three and nine months ended September 30, 2012, respectively. We received $6.0 million and $13.4 million of cash proceeds for the three and nine months ended September 30, 2013, respectively. Insurance proceeds are included in Net cash provided by operating activities. At the time Unit 3 resumed operations, we will no longer record income from business interruption insurance.

Results of Operations
Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012
Summary
The following table shows the comparative consolidated results and changes between periods:
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2013
 
2012
 
$
 
%
 
(In millions)
Revenues
$
176.8

 
$
161.3

 
$
15.5

 
9.6
 %
Net income (loss) applicable to common shareholders
2.4

 
7.3

 
(4.9
)
 
(67.1
)%
Adjusted EBITDA(1)
30.1

 
35.5

 
(5.4
)
 
(15.2
)%
____________________
(1)
Adjusted EBITDA , a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.

39

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Our third quarter 2013 revenues increased primarily due to stronger power demand, favorable weather conditions, and fewer unplanned outages at ROVA.
Our third quarter 2013 net income applicable to common shareholders decreased by $4.9 million. The primary factors, in aggregate, driving this decrease in net income were:
 
Three Months Ended September 30, 2013
 
(In millions)
Decrease in our coal segment primarily due to costs incurred to increase production levels at the Absaloka Mine, coal mined at the Kemmerer Mine carried a higher royalty rate, and a contract adjustment related to employee benefit costs.
$
(6.2
)
Increase in our power segment operating income primarily due to fewer unplanned outages.
1.1

Increase due to other factors
0.2

Total
$
(4.9
)
Coal Segment Operating Results
The following table shows comparative coal revenues, operating income, adjusted EBITDA, sales volume, and percentage changes between periods: 
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2013
 
2012
 
$
 
%
 
(In thousands, except per ton data)
Revenues
$
151,881

 
$
138,798

 
$
13,083

 
9.4
 %
Operating income
10,231

 
18,025

 
(7,794
)
 
(43.2
)%
Adjusted EBITDA(1)
28,420

 
34,584

 
(6,164
)
 
(17.8
)%
Tons sold—millions of equivalent tons
6.6

 
6.0

 
0.6

 
10.0
 %
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
Our third quarter 2013 coal segment revenues and tons sold increased due to stronger power demand and favorable weather conditions. Operating income decreased mostly due to increased costs incurred at the Absaloka Mine in preparation for higher production levels, primarily in anticipation of resumed operations at Sherco Unit 3; coal mined at the Kemmerer Mine carried a higher royalty rate; and a contract adjustment related to employee benefit costs.
Power Segment Operating Results
The following table shows comparative power revenues, operating income, adjusted EBITDA, production and percentage changes between periods: 
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2013
 
2012
 
$
 
%
 
(In thousands)
Revenues
$
24,911

 
$
22,534

 
$
2,377

 
10.5
%
Operating income
5,087

 
4,023

 
1,064

 
26.4
%
Adjusted EBITDA(1)
7,814

 
6,742

 
1,072

 
15.9
%
Megawatts hours
454


417

 
37

 
8.9
%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
Our third quarter 2013 power segment revenues, operating income and megawatt hours increased due to fewer unplanned outages at our ROVA power plant.

40

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

We are actively pursuing various possibilities with ROVA in anticipation of the termination of our coal supply agreements beginning in 2014. Today’s open market price for Central Appalachia coal is significantly greater than the price in our coal supply agreements.
Heritage Segment Operating Results
The following table shows comparative heritage segment’s operating expenses and percentage change between periods: 
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2013
 
2012
 
$
 
%
 
(In thousands)
Heritage segment operating expenses
$
4,326

 
$
4,149

 
$
177

 
4.3
%
Our third quarter 2013 heritage segment operating expenses remained consistent with third quarter 2012.
Corporate Segment Operating Results
The following table shows comparative corporate segment’s operating expenses and percentage change between periods: 
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2013
 
2012
 
$
 
%
 
(In thousands)
Corporate segment operating expenses
$
2,456

 
$
2,448

 
$
8

 
0.3
%
Our third quarter 2013 corporate segment operating expenses remained consistent with third quarter 2012.
Nonoperating Results (including interest expense, interest income, other income, income tax expense, and net loss attributable to noncontrolling interest)
Our interest expense for the third quarter of 2013 decreased to $9.9 million compared with $11.1 million for the third quarter of 2012 primarily due to lower debt levels.
Our interest income and other income for the third quarter of 2013 is comparable to the third quarter of 2012.
Our income tax expense for the third quarter of 2013 increased to less than $0.1 million compared to income tax benefit of $0.3 million for the third quarter of 2012 due to higher taxable income.
Our net loss attributable to noncontrolling interest for the third quarter of 2013 increased to $3.8 million compared with $2.3 million for the third quarter of 2012 related to increased losses from a partially owned consolidated subsidiary.
Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012
Summary
The following table shows the comparative consolidated results and changes between periods:
 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2013
 
2012
 
$
 
%
 
(In millions)
Revenues
$
500.7

 
$
441.4

 
$
59.3

 
13.4
 %
Net income (loss) applicable to common shareholders
(0.9
)
 
(4.6
)
 
3.7

 
(80.4
)%
Adjusted EBITDA(1)
87.8

 
77.4

 
10.4

 
13.4
 %
____________________

41

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

(1)
Adjusted EBITDA , a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
Our revenues for the first nine months of 2013 increased primarily due to stronger power demand, favorable weather conditions and the Kemmerer acquisition. In addition, our ROVA power plant had fewer unplanned outages.
Our net loss applicable to common shareholders for the first nine months of 2013 decreased by $3.7 million. The primary factors, in aggregate, driving this decrease in net loss were:
 
Nine Months Ended September 30, 2013
 
(In millions)
Increase in our power segment operating income due to fewer unplanned outages.
$
3.9

Decrease in interest expense due to lower debt levels.
1.9

Decrease in our coal segment primarily due to costs incurred to increase production levels at the Absaloka Mine, coal mined at the Kemmerer Mine carried a higher royalty rate, and a contract adjustment related to employee benefit costs.
(1.1
)
Decrease due to other factors
(1.0
)
Total
$
3.7

Coal Segment Operating Results
The following table shows comparative coal revenues, operating income, adjusted EBITDA, sales volume, and percentage changes between periods: 
 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2013
 
2012
 
$
 
%
 
(In thousands, except per ton data)
Revenues
$
433,330

 
$
382,272

 
$
51,058

 
13.4
 %
Operating income
36,778

 
37,478

 
(700
)
 
(1.9
)%
Adjusted EBITDA(1)
87,993

 
84,080

 
3,913

 
4.7
 %
Tons sold—millions of equivalent tons
18.4

 
15.5

 
2.9

 
18.7
 %
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
Our coal segment revenues and tons sold increased for the first nine months of 2013 primarily due to stronger power demand, favorable weather conditions, and the Kemmerer acquisition. Operating income decreased mostly due to increased costs incurred at the Absaloka Mine in preparation for higher production levels, primarily in anticipation of resumed operations at Sherco Unit 3; coal mined at the Kemmerer Mine carried a higher royalty rate; and a contract adjustment related to employee benefit costs. These decreases in operating income were partially offset with increased revenues described above.
Power Segment Operating Results
The following table shows comparative power revenues, operating income, adjusted EBITDA, production, and percentage changes between periods: 

42

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2013
 
2012
 
$
 
%
 
(In thousands)
Revenues
$
67,409

 
$
59,138

 
$
8,271

 
14.0
%
Operating income
8,922

 
5,066

 
3,856

 
76.1
%
Adjusted EBITDA(1)
17,096

 
13,168

 
3,928

 
29.8
%
Megawatts hours
1,216

 
1,077

 
139

 
12.9
%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
Our power segment revenues, operating income and megawatt hours increased for the first nine months of 2013 due to fewer unplanned outages at our ROVA power plant.
Heritage Segment Operating Results
The following table shows comparative heritage segment’s operating expenses and percentage change between periods: 
 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2013
 
2012
 
$
 
%
 
(In thousands)
Heritage segment operating expenses
$
12,031

 
$
12,687

 
$
(656
)
 
(5.2
)%
Our heritage segment operating expenses decreased for the first nine months of 2013 primarily due to higher interest rates.
Corporate Segment Operating Results
The following table shows comparative corporate segment’s operating expenses and percentage change between periods: 
 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2013
 
2012
 
$
 
%
 
(In thousands)
Corporate segment operating expenses
$
7,424

 
$
9,583

 
$
(2,159
)
 
(22.5
)%
Our corporate segment operating expenses for the first nine months of 2013 decreased primarily due to a deductible on a claim paid by our captive insurance entity to our subsidiary related to the business interruption claim at our Absaloka Mine during the first quarter of 2012, however this expense was offset by proceeds recorded in the coal segment and thus had no impact on a consolidated basis. In addition, expenses decreased due to one-time recruiting and compensation expenses related to a new executive position occurring during the first nine months of 2012.
Nonoperating Results (including interest expense, interest income, other income, income tax expense, and net loss attributable to noncontrolling interest)
Our interest expense for the first nine months of 2013 decreased to $30.1 million compared with $32.0 million for the first nine months of 2012 primarily due to lower overall debt levels.
Our interest income and other income for the first nine months of 2013 is comparable to the first nine months of 2012.
Our income tax expense for the first nine months of 2013 increased to $0.1 million compared with $1.2 million of benefit for the first nine months of 2012 due to higher taxable income on improved results.

43

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Our net loss attributable to noncontrolling interest for the first nine months of 2013 decreased to $3.0 million compared with a loss of $4.9 million for the first nine months of 2012 related to decreased losses from a partially owned consolidated subsidiary due to the ICTC amendment.
Reconciliation of Adjusted EBITDA to Net Income (Loss)
The discussion in “Results of Operations” 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 company’s 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.
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.

44

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

The tables below show how we calculated Adjusted EBITDA, including a breakdown by segment, and reconciles Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure. Concerning the presentation of data for the Year Ended December 31, 2012 in the table below, please refer to our 2012 Form 10-K for additional information regarding our financial results. The Twelve Months Ended September 30, 2013 column is calculated from the prior three columns.

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Year Ended
December 31,
 
Twelve Months
Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
2012
 
2013
 
(In thousands)
Reconciliation of Adjusted EBITDA to Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(1,013
)
 
$
5,351

 
$
(2,884
)
 
$
(8,516
)
 
$
(13,662
)
 
$
(8,030
)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense (benefit)
30

 
(325
)
 
85

 
(1,239
)
 
90

 
1,414

Other income
(89
)
 
(196
)
 
(287
)
 
(611
)
 
(723
)
 
(399
)
Interest income
(301
)
 
(475
)
 
(878
)
 
(1,371
)
 
(1,496
)
 
(1,003
)
Loss on extinguishment of debt

 

 
64

 

 
1,986

 
2,050

Interest expense
9,909

 
11,096

 
30,145

 
32,011

 
42,677

 
40,811

Depreciation, depletion and amortization
17,434

 
15,534

 
47,257

 
42,542

 
57,145

 
61,860

Accretion of ARO and receivable
3,169

 
3,041

 
9,507

 
9,037

 
12,189

 
12,659

Amortization of intangible assets and liabilities
172

 
165

 
498

 
492

 
658

 
664

EBITDA
29,311

 
34,191

 
83,507

 
72,345

 
98,864

 
110,026

 
 
 
 
 
 
 
 
 
 
 
 
(Gain)/loss on sale of assets
(13
)
 
14

 
(321
)
 
291

 
528

 
(84
)
Share-based compensation
822

 
1,315

 
4,594

 
4,776

 
6,040

 
5,858

Adjusted EBITDA
$
30,120

 
$
35,520

 
$
87,780

 
$
77,412

 
$
105,432

 
$
115,800

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Adjusted EBITDA by Segment
 
 
 
 
 
 
 
Coal
$
28,420

 
$
34,584

 
$
87,993

 
$
84,080

Power
7,814

 
6,742

 
17,096

 
13,168

Heritage
(4,326
)
 
(4,149
)
 
(12,031
)
 
(12,687
)
Corporate
(1,788
)
 
(1,657
)
 
(5,278
)
 
(7,149
)
Total
$
30,120

 
$
35,520

 
$
87,780

 
$
77,412



45

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Adjusted EBITDA
 
 
 
 
 
 
 
Guarantor and Issuer
$
18,412

 
$
20,323

 
$
42,966

 
$
43,640

Non-Guarantor
11,708

 
15,197

 
44,814

 
33,772

Total
$
30,120

 
$
35,520

 
$
87,780

 
$
77,412

Liquidity and Capital Resources
We had the following liquidity at September 30, 2013 and December 31, 2012: 
 
September 30,
 
December 31,
 
2013
 
2012
 
(In millions)
Cash and cash equivalents
$
45.5

 
$
31.6

WML revolving line of credit
23.1

 
23.1

Corporate revolving line of credit
20.0

 
20.0

Total
$
88.6

 
$
74.7

We anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future.
We are a holding company and conduct our operations through subsidiaries. Our parent holding company has significant cash requirements to fund our debt obligations, ongoing heritage health benefit costs, pension contributions, and corporate overhead expenses. The principal sources of cash flow to the parent company are distributions from our principal operating subsidiaries. The cash at ROVA, Kemmerer, and WRI has no restrictions and is immediately available. 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. The cash at WRMI is also available to us through dividends and is subject to maintaining a statutory minimum level of capital, which is two hundred and fifty thousand dollars.
Under the indenture governing the 10.75% Senior Notes, we are required to offer a portion of our Excess Cash Flow (as defined by the indenture) for each fiscal year to purchase some of these notes at 100% of the principal amount. In addition to any Excess Cash Flow redemption required under the indenture, the Company may continue to use available cash to repurchase these notes on the open market, as permitted by the indenture. We expect to have Excess Cash Flow for 2013.
In July 2013, we began contributing cash to our 401(k) plan instead of Company stock. Annual requirements for this funding approximates three million dollars.
Debt Obligations
10.75% Senior Notes
The 10.75% Senior Notes were outstanding in the principal amount of $251.5 million at September 30, 2013. Interest is due at an annual fixed rate of 10.75% and paid in cash semi-annually, in arrears, on February 1 and August 1 of each year. The 10.75% Senior Notes mature February 1, 2018 and contain provisions that affect our sources of liquidity, such as limitations on our ability to enter into new capital leases and other forms of credit. The notes are fully and unconditionally guaranteed by ROVA, Kemmerer, WRI and their respective subsidiaries (other than Absaloka Coal, LLC) and by certain other subsidiaries.
During the nine months ended September 30, 2013, we paid $0.5 million, excluding accrued interest, to repurchase 10.75% Senior Notes with a principal amount of $0.5 million.

46

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

2012 Revolving Credit Agreement
Our 2012 Revolving Credit Agreement has a borrowing limit of $20.0 million and an expiration date of June 30, 2017. At September 30, 2013, availability on the revolver was $20.0 million with no outstanding balance and no supported letters of credit.
Two interest rate options exist under the revolver. The Base Rate option bears interest at the greater of a Federal Funds Rate plus 0.5% or the Prime Rate, as defined in the loan agreement and is payable monthly. The LIBOR Rate option bears interest at the London Interbank Offering Rate, or LIBOR, rate plus 2.25% and is payable monthly. In addition, a commitment fee of 0.75% of the average unused portion of the available revolver is payable monthly.
The loan agreement contains various affirmative, negative and financial covenants. Financial covenants in the agreement include a fixed charge coverage ratio and an EBITDA measure. The fixed charge coverage ratio must meet or exceed a specified minimum. The EBITDA covenant requires a minimum amount of EBITDA to be achieved. We met these covenant requirements as of September 30, 2013. All extensions of credit under the revolver are collateralized by a first priority security interest in and lien upon the inventory and accounts receivable of the Parent, WRI, Kemmerer and ROVA.
WML Term Debt and Revolving Credit Agreement
WML had $90.0 million of fixed rate term debt outstanding at September 30, 2013. This term debt matures March 31, 2018, and bears an annual fixed rate of 8.02%, payable quarterly. The principal on the WML notes is scheduled to be paid as follows (in millions): 
2013 remaining
$
4.5

2014
18.0

2015
20.0

2016
20.0

2017
22.0

2018
5.5

In March 2013, we amended the WML Revolving Credit Agreement by extending the maturity date from June 26, 2013 to December 31, 2017. WML's revolving line of credit has a borrowing limit of $25.0 million. The interest rate under the revolving line of credit at September 30, 2013 was 3.75% per annum. At September 30, 2013, WML had no outstanding balance under the revolving line of credit and the revolving line of credit supports a letter of credit of $1.9 million, leaving it with $23.1 million of borrowing availability. WML's revolving line of credit is only available to fund the operations of its respective subsidiaries.
WML's credit agreement contains various affirmative and negative covenants. Operational covenants in the agreements prohibit, among other things, WML from incurring or guaranteeing additional indebtedness, creating liens on its assets, making investments or engaging in asset sales or transactions with affiliates, in each case subject to specified exceptions. Financial covenants in the agreements impose requirements relating to specified debt service coverage and leverage ratios.
The debt service coverage ratio covenant requires that at the end of each quarter WML's ratio of EBITDA less unfinanced capital expenditures to debt service (all defined) for the four quarters then ended meets or exceeds a specified minimum. The coverage ratio as of September 30, 2013 was 1.70 and the specified minimum was 1.30. 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. The leverage ratio as of September 30, 2013 was 1.40, which did not exceed the maximum amount of 1.75. WML met all of its covenant requirements as of September 30, 2013.
WML's 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 WML's subsidiaries other than TWCC.
Capital Leases
During the nine months ended September 30, 2013, we paid $2.7 million to purchase equipment under capital leases with a principal amount of $2.5 million. The difference between the purchase price and the carrying amount of the capital lease obligation was recorded as an adjustment to the carrying amount of the equipment.

47

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Gross and Net Leverage Ratios

These ratios are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We use these ratios to assess our progress in reducing our aggregate debt levels. Refer to the Results of Operations section for the reconciliation of Adjusted EBITDA to net loss.
 
September 30,
 
December 31,
 
2013
 
2012
 
(In millions)
Gross debt
$
343.5

 
$
361.0

Less:
 
 
 
Cash and cash equivalents
45.5

 
31.6

WML debt reserve account
13.1

 
13.1

 
 
 
 
Net debt
$
284.9

 
$
316.3

 
 
 
 
Adjusted EBITDA (for the twelve months ended)
$
115.8

 
$
105.4

 
 
 
 
Gross leverage ratio
2.97
 
3.43
Net leverage ratio
2.46
 
3.00
Heritage Health Costs and Pension Contributions
Our liquidity continues to be affected by payments of our heritage health and pension obligations as follows: 
 
Nine Months Ended September 30,
 
2013 Remaining
Expected
Amounts
 
2013
 
2012
 
 
(In millions)
Postretirement medical benefits
$
8.9

 
$
9.2

 
$
3.0

CBF premiums
1.7

 
1.7

 
0.6

Workers’ compensation benefits
0.5

 
0.4

 
0.1

Total heritage health payments
$
11.1

 
$
11.3

 
$
3.7

 
 
 
 
 
 
Pension contributions
$

 
$
0.1

 
$
0.6

Historical Sources and Uses of Cash
The following is a summary of cash provided by or used in each of the indicated types of activities: 
 
Nine Months Ended September 30,
 
2013
 
2012
 
(In thousands)
Cash provided by (used in):
 
 
 
Operating activities
$
58,469

 
$
42,349

Investing activities
(21,345
)
 
(116,649
)
Financing activities
(23,247
)
 
97,202


Cash provided by operating activities increased $16.1 million for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 primarily due to stronger power demand, favorable weather conditions and the Kemmerer acquisition. In addition, our ROVA power plant had fewer unplanned outages.


48

WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Cash used in investing activities decreased $95.3 million for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 primarily due to the Kemmerer acquisition. Capital expenditures were $20.2 million and $16.1 million for the nine months ended September 30, 2013 and 2012, respectively.

Cash provided by financing activities decreased $120.4 million for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 primarily due to the Kemmerer acquisition debt. Debt repayments were $22.1 million and $16.4 million for the nine months ended September 30, 2013 and 2012, respectively.

We had a working capital surplus of $4.1 million at September 30, 2013 compared with a working capital deficit of $11.6 million at December 31, 2012 primarily due to increased cash from operations described above.
Critical Accounting Policies and Estimates

Please refer to the corresponding section in Part II, Item 7 of our 2012 Form 10-K and the footnote disclosures included in Part I, Item I of this report for a discussion of our accounting policies and estimates.
Recent Accounting Pronouncements

See Note 3 of Notes to Consolidated Financial Statements included in “Part I — Item 1 — 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. We utilize surety bonds and letters of credit 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.

Our off-balance sheet arrangements are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2012 Form 10-K.

49


ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There has been no material changes in our market risk during the nine months ended September 30, 2013. For additional information, refer to the “Quantitative and Qualitative Disclosures about Market Risk” in Item  7A of our 2012 Form 10-K.
ITEM 4
CONTROLS AND PROCEDURES.

As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, management has evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of September 30, 2013. Disclosure controls and procedures are designed to provide reasonable assurance that material information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding our required disclosure. Based on that evaluation, our management, including our chief executive officer and chief financial officer, concluded that the disclosure controls and procedures were effective as of such date.

Additionally, there have been no changes in internal control over financial reporting that occurred during the nine months ended September 30, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II
OTHER INFORMATION

ITEM 1
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 may result in a negative impact on 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.
ITEM 1A
RISK FACTORS.

We have disclosed under the heading “Risk Factors” in our 2012 Form 10-K, the risk factors that we believe materially affect our business, financial condition or results of operations. Except as provided below, there have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in the 2012 Form 10-K and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and or operating results.

Our Absaloka Mine benefits from the Indian Coal Tax Credit, the loss of which would adversely affect the financial condition of the operation.

The Indian Coal Tax Credits are set to expire in December, 2013 unless the relevant provisions of the Internal Revenue Code are extended or renewed by the U.S. Congress. While we have been actively seeking an extension or renewal to the tax credits, there can be no assurance that we will be successful in doing so. Further, the provisions regarding any extension or renewal may not be as favorable as those that currently exist. In addition, we cannot assure you that any extension or renewal of the tax credit would be enacted prior to its expiration or, if allowed to expire, that any extension or renewal enacted thereafter would be enacted with retroactive effect. Additionally, our current Indian Coal Tax Credit partner notified us in early October, 2013 that they will not be renewing our partnership when it expires on December 31, 2013. While we are actively seeking a new partner, there can be no assurance that we will be able to find a new partner in a timely manner, or, if  and when we are able to find a new partner, that they will agree to a partnership on the same terms. Since 2009, we have experienced a yearly average of $3.0 million of income and $6.2 million of cash receipts from the tax credit. Any delay or failure to extend or renew the Indian Coal Tax Credit would adversely affect the financial condition of the WRI operation.

ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The Company's purchases of its common stock during the three months ended September 30, 2013 were as follows:
Period
Total Number
of Shares
Purchased(1)
 
Average Price
Paid per Share
July 2, 2013
6,678

 
$
11.37

____________________
(1)
Shares purchased as indicated in this table represent the withholding of a portion of restricted shares to cover taxes on vested restricted shares.
ITEM 4
MINE SAFETY DISCLOSURE.

On July 21, 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Act. Section 1503(a) of the Act contains reporting requirements regarding mine safety. Mine safety violations and other regulatory matters, as required by Section 1503(a) of the Act and Item 104 of Regulation S-K, are included as Exhibit 95.1 to this report on Form 10-Q.
ITEM 6
— Exhibits

See Exhibit Index at page 53 of this report.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
WESTMORELAND COAL COMPANY
 
 
 
Date:
October 25, 2013
/s/ Kevin A. Paprzycki
 
 
Kevin A. Paprzycki
 
 
Chief Financial Officer and Treasurer
(Principal Financial Officer and A Duly Authorized Officer)
 
 
 
Date:
October 25, 2013
/s/ Russell H. Werner
 
 
Russell H. Werner
 
 
Controller
(Principal Accounting Officer and A Duly Authorized Officer)


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EXHIBIT INDEX

 
 
Incorporated by Reference
 
 
Exhibit
Number
Exhibit Description
Form
File
Number
Exhibit
Filing
Date
Filed
Herewith
Submitted
Herewith
 
 
 
 
 
 
 
 
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
 
 
 
 
X
 
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
 
 
 
 
X
 
32
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
 
 
 
 
X
 
95.1
Mine Safety Disclosure
 
 
 
 
X
 
101.INS
XBRL Instance Document
 
 
 
 
X
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
 
 
X
 
101.CAL
XBRL Taxonomy Calculation Linkbase Document
 
 
 
 
X
 
101.LAB
XBRL Taxonomy Label Linkbase Document
 
 
 
 
X
 
101.PRE
XBRL Taxonomy Presentation Linkbase Document
 
 
 
 
X
 
101.DEF
XBRL Taxonomy Definition Document
 
 
 
 
X
 
Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL-related document is "unaudited" or "unreviewed."

53