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EX-32 - EXHIBIT 32 - WESTMORELAND COAL Coexh32_2016q1.htm
EX-31.2 - EXHIBIT 31.2 - WESTMORELAND COAL Coexh31-2_2016q1.htm
EX-95.1 - EXHIBIT 95.1 - WESTMORELAND COAL Coexh95-1_2016q1.htm
EX-31.1 - EXHIBIT 31.1 - WESTMORELAND COAL Coexh31-1_2016q1.htm
EX-10.1 - EXHIBIT 10.1 - WESTMORELAND COAL Coexh10-1_sjreclamationbonda.htm

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 March 31, 2016
or
o 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
  ___________________________________________
(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 o
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 o
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
o
 
Accelerated filer
x
Non-accelerated filer
o
(Do not check if a smaller reporting company.)
Smaller reporting company
o
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 May 6, 2016: 18,537,502 shares of common stock, $0.01 par value.




TABLE OF CONTENTS
 


2


PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
 
March 31,
2016
 
December 31,
2015
 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
17,754

 
$
22,936

Receivables:
 
 
 
Trade
150,068

 
134,141

Loan and lease receivables
5,968

 
6,157

Contractual third-party reclamation receivables
12,564

 
8,020

Other
19,021

 
11,598

 
187,621

 
159,916

Inventories
143,399

 
121,858

Other current assets
19,951

 
16,103

Total current assets
368,725

 
320,813

Property, plant and equipment:
 
 
 
Land and mineral rights
596,448

 
476,447

Plant and equipment
869,901

 
790,677

 
1,466,349

 
1,267,124

Less accumulated depreciation, depletion and amortization
586,968

 
554,008

Net property, plant and equipment
879,381

 
713,116

Loan and lease receivables
51,823

 
49,313

Advanced coal royalties
16,367

 
19,781

Reclamation deposits
77,807

 
77,364

Restricted investments
143,345

 
140,807

Contractual third-party reclamation receivables, less current portion
154,816

 
86,915

Investment in joint venture
29,014

 
27,374

Intangible assets, net of accumulated amortization of $2.9 million and $15.9 million at March 31, 2016 and December 31, 2015, respectively
28,574

 
29,190

Other assets
20,837

 
11,904

Total Assets
$
1,770,689

 
$
1,476,577

See accompanying Notes to Consolidated Financial Statements.

3


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(Unaudited)
 
March 31,
2016
 
December 31,
2015
 
(In thousands)
Liabilities and Shareholders’ Deficit
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
77,375

 
$
38,852

Revolving lines of credit

 
1,970

Accounts payable and accrued expenses:
 
 
 
Trade and other accrued liabilities
136,844

 
109,850

Interest payable
11,749

 
15,527

Production taxes
54,215

 
46,895

Postretirement medical benefits
13,855

 
13,855

SERP
368

 
368

Deferred revenue
20,303

 
10,715

Asset retirement obligations
49,445

 
43,950

Other current liabilities
36,782

 
30,688

Total current liabilities
400,936

 
312,670

Long-term debt, less current installments
1,051,674

 
979,073

Workers’ compensation, less current portion
5,034

 
5,068

Excess of black lung benefit obligation over trust assets
17,423

 
17,220

Postretirement medical benefits, less current portion
288,437

 
285,518

Pension and SERP obligations, less current portion
44,221

 
44,808

Deferred revenue, less current portion
21,986

 
24,613

Asset retirement obligations, less current portion
450,422

 
375,813

Intangible liabilities, net of accumulated amortization of $10.0 million and $9.8 million at March 31, 2016 and December 31, 2015, respectively
3,203

 
3,470

Other liabilities
37,434

 
30,208

Total liabilities
2,320,770

 
2,078,461

Shareholders’ deficit:
 
 
 
Common stock of $0.01 par value
 
 
 
Authorized 30,000,000 shares; issued and outstanding 18,402,961 shares at March 31, 2016 and 18,162,148 shares at December 31, 2015
184

 
182

Other paid-in capital
243,297

 
240,721

Accumulated other comprehensive loss
(151,897
)
 
(171,300
)
Accumulated deficit
(641,635
)
 
(672,219
)
Total Westmoreland Coal Company shareholders’ deficit
(550,051
)
 
(602,616
)
Noncontrolling interest
(30
)
 
732

Total deficit
(550,081
)
 
(601,884
)
Total Liabilities and Deficit
$
1,770,689

 
$
1,476,577

See accompanying Notes to Consolidated Financial Statements.

4


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands, except per share data)
Revenues
$
354,721

 
$
371,483

Cost, expenses and other:
 
 
 
Cost of sales
273,802

 
301,711

Depreciation, depletion and amortization
35,013

 
38,059

Selling and administrative
31,672

 
26,716

Heritage health benefit expenses
3,015

 
3,059

Loss on sale/disposal of assets
336

 
229

Restructuring charges

 
553

Derivative loss (gain)
2,600

 
(5,276
)
Income from equity affiliates
(1,293
)
 
(2,025
)
Other operating loss (gain)
(1,962
)
 
2

 
343,183

 
363,028

Operating income
11,538

 
8,455

Other income (expense):
 
 
 
Interest expense
(29,669
)
 
(24,735
)
Interest income
1,791

 
2,140

Gain (loss) on foreign exchange
(1,387
)
 
2,109

Other income (loss)
(122
)
 
193

 
(29,387
)
 
(20,293
)
Loss before income taxes
(17,849
)
 
(11,838
)
Income tax expense (benefit)
(47,935
)
 
2,040

Net income (loss)
30,086

 
(13,878
)
Less net loss attributable to noncontrolling interest
(498
)
 
(2,146
)
Net income (loss) applicable to common shareholders
$
30,584

 
$
(11,732
)
Net income (loss) per share applicable to common shareholders:
 
 
 
Basic and diluted
$
1.67

 
$
(0.67
)
Weighted average number of common shares outstanding:
 
 
 
Basic
18,262

 
17,621

Diluted
18,269

 
17,621

See accompanying Notes to Consolidated Financial Statements.

5


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Net income (loss)
$
30,086

 
$
(13,878
)
Other comprehensive income (loss):
 
 
 
Pension and other postretirement plans:
 
 
 
Amortization of accumulated actuarial gains or losses, pension
818

 
1,110

Adjustments to accumulated actuarial losses and transition obligations, pension
172

 
203

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefit
200

 
327

Adjustments of accumulated actuarial losses and transition obligations, postretirement medical benefit
(688
)
 

Tax effect of other comprehensive income gains
(57
)
 
(575
)
Change in foreign currency translation adjustment
19,239

 
(27,140
)
Unrealized and realized gains and losses on available-for-sale securities
(281
)
 
325

Other comprehensive income (loss)
19,403

 
(25,750
)
Comprehensive income (loss) attributable to the Parent company
$
49,489

 
$
(39,628
)
See accompanying Notes to Consolidated Financial Statements.

6


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Deficit
Three Months Ended March 31, 2016
(Unaudited)

 
Common Stock
 
Other
Paid-In
Capital
 
Accumulated
Other
Comprehensive Loss
 
Accumulated
Deficit
 
Non-controlling
Interest
 
Total
Deficit
 
Shares
 
Amount
 
 
 
 
 
 
(In thousands, except shares data)
Balance at December 31, 2015
18,162,148

 
$
182

 
$
240,721

 
$
(171,300
)
 
$
(672,219
)
 
$
732

 
$
(601,884
)
WMLP distributions

 

 

 

 

 
(262
)
 
(262
)
Common stock issued as compensation
240,813

 
2

 
2,576

 

 

 

 
2,578

Net income (loss)

 

 

 

 
30,584

 
(498
)
 
30,086

Other comprehensive income (loss)

 

 

 
19,403

 

 
(2
)
 
19,401

Balance at March 31, 2016
18,402,961

 
$
184

 
$
243,297

 
$
(151,897
)
 
$
(641,635
)
 
$
(30
)
 
$
(550,081
)
See accompanying Notes to Consolidated Financial Statements.

7


WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
30,086

 
$
(13,878
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
35,013

 
38,059

Accretion of asset retirement obligation and receivable
7,007

 
7,031

Share-based compensation
2,578

 
1,522

Non-cash interest expense
2,269

 
1,327

Amortization of deferred financing costs
3,214

 
2,532

Loss (gain) on derivative instruments
2,600

 
(5,276
)
Loss (gain) on foreign exchange
1,387

 
(2,109
)
Income from equity affiliates
(1,293
)
 
(2,025
)
Deferred income tax expense (benefit)
(47,973
)
 
2,766

Other
299

 
(499
)
Changes in operating assets and liabilities:
 
 


Receivables
(10,052
)
 
(15,899
)
Inventories
(6,956
)
 
(4,957
)
Accounts payable and accrued expenses
2,098

 
12,336

Deferred revenue
3,389

 
605

Asset retirement obligations
(7,977
)
 
(4,838
)
Other assets and liabilities
2,552

 
(15,057
)
Net cash provided by operating activities
18,241

 
1,640

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(5,548
)
 
(13,027
)
Change in restricted investments
(3,172
)
 
2,106

Cash payments in escrow for future acquisitions

 
34,000

Cash payments related to acquisitions and other
(126,865
)
 
(35,887
)
Cash acquired related to acquisition, net

 
2,783

Net proceeds from sales of assets
1,626

 
1,123

Receipts from loan and lease receivables
1,620

 
2,591

Payments related to loan and lease receivables
(312
)
 
(1,044
)
Other
1,530

 
(3,295
)
Net cash used in investing activities
(131,121
)
 
(10,650
)
Cash flows from financing activities:
 
 
 
Borrowings from long-term debt, net of debt discount
121,225

 
79,359

Repayments of long-term debt
(9,018
)
 
(17,160
)
Borrowings on revolving lines of credit
77,500

 
32,675

Repayments on revolving lines of credit
(79,500
)
 
(42,251
)
Debt issuance costs and other refinancing costs
(2,927
)
 
(2,806
)
Other
(262
)
 
98

Net cash provided by financing activities
107,018

 
49,915

Effect of exchange rate changes on cash
680

 
(1,770
)
Net increase (decrease) in cash and cash equivalents
(5,182
)
 
39,135

Cash and cash equivalents, beginning of period
22,936

 
14,258

Cash and cash equivalents, end of period
$
17,754

 
$
53,393

Non-cash transactions:
 
 
 
Accrued purchases of property and equipment
$
2,279

 
$
8,107

Capital leases and other financing sources

 
12,700

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 including those of Westmoreland Resource Partners LP (“WMLP”). All intercompany transactions and accounts have been eliminated in consolidation. The consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles and require the use of management’s estimates. The financial information contained in this Quarterly Report on 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. Certain prior amounts have been reclassified to conform to current period presentation. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016.
These unaudited 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, 2015 (“2015 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 2015 Form 10-K.
Recently Adopted Accounting Pronouncements
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this standard on January 1, 2016 and retrospectively applied the guidance to prior periods.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, issued as a new Topic, Accounting Standards Codification (ASC) Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to fiscal years beginning after December 15, 2017. The Company can either adopt these standards retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations, cash flows and financial position.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The amendments in ASU 2016-02 require companies that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations generated by contracts longer than one year. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The guidance is required to be applied by the modified retrospective transition approach. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations, cash flows and financial position.
2. ACQUISITION
Acquisition of San Juan
On January 31, 2016, Westmoreland San Juan, LLC (“WSJ”), a variable interest entity of the Company, acquired San Juan Coal Company (“SJCC”), which operates the San Juan mine in Farmington, New Mexico, and San Juan Transportation Company (together with SJCC, the “San Juan Entities” and such transaction, the “San Juan Acquisition”) for a total cash purchase price of approximately $126.9 million, subject to post-closing adjustments. The San Juan mine is the exclusive supplier of coal to the adjacent San Juan Generating Station (“SJGS”) under a coal supply agreement through 2022. The San Juan operations are included in the Company’s Coal - U.S. segment. See Note 3 - Variable Interest Entity for additional information.
WSJ financed the San Juan Acquisition with a $125.0 million loan from NM Capital Utility Corporation, an affiliate of Public Service Company of New Mexico (one of the owners of SJGS), and with available cash on hand. See Note 6 - Debt and Lines of Credit for additional information.

9

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

The San Juan Acquisition has been accounted for under the acquisition method of accounting that requires the total purchase consideration to be allocated to the assets acquired and liabilities assumed based on estimates of fair value.
The allocation of the purchase price is preliminary pending the completion of various analyses and the finalization of estimates. During the measurement period (which is not to exceed one year from the acquisition date), additional assets or liabilities may be recognized if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The preliminary allocation may be adjusted after obtaining additional information regarding, among other things, asset valuations, liabilities assumed and revisions of previous estimates, and these adjustments may be significant. Certain estimates in the San Juan purchase price allocation are classified as Level 3 fair value estimates.
A preliminary allocation of the purchase consideration follows (in millions):
 
Provisional
as of
March 31,
2016
Purchase price:
 
Cash paid
$
126.9

 
 
Preliminary allocation of purchase price:
 
Assets:
 
     Inventories - coal and supplies
$
8.8

     Other Receivables
9.5

Contractual third-party reclamation receivable
4.6

Total current assets
22.9

     Land and mineral rights
108.8

     Plant and equipment
73.5

Contractual third-party reclamation receivable
66.8

Other assets
10.5

Total assets
282.5

Liabilities:
 
     Trade payables and other accrued liabilities
13.5

Production taxes
2.0

     Other liabilities
9.4

Asset retirement obligations
4.6

Total current liabilities
29.5

     Asset retirement obligations, less current portion
66.8

Postretirement medical
1.9

Deferred income taxes
48.0

     Other liabilities
9.4

Total liabilities
155.6

Net fair value
$
126.9



10

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

Unaudited Pro Forma Information
The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the San Juan Acquisition occurred on January 1, 2015. 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 acquisitions occurred on the dates indicated above, or of future results of operations.
(In thousands, except per share data)
Three Months Ended March 31,
 
Three Months Ended March 31,
 
2016
 
2015
Total Revenues
 
 
 
As reported
$
354,721

 
$
371,483

Pro forma (unaudited)
$
380,996

 
$
451,782

 


 
 
Operating Income
 
 
 
As reported
$
11,538

 
$
8,455

Pro forma (unaudited)
$
12,633

 
$
18,148

 
 
 
 
Net income (loss) applicable to common shareholders
 
 
 
As reported
$
30,584

 
$
(11,732
)
Pro forma (unaudited)
$
31,009

 
$
(5,587
)
 
 
 
 
Net income (loss) per share applicable to common shareholders (basic and diluted)
 
 
 
As reported
$
1.67

 
$
(0.67
)
Pro forma (unaudited)
$
1.70

 
$
(0.32
)

3. VARIABLE INTEREST ENTITY

As of March 31, 2016, we consolidated our 100% owned WSJ subsidiary which is a variable interest entity (“VIE”). WSJ is a VIE due to another party potentially having the right to receive WSJ’s expected residual returns. The Company is the primary beneficiary because it has the power to direct the activities that most significantly impact WSJ’s economic performance. See Note 2 - Acquisition and Note 6 - Debt and Lines of Credit for additional information. The following table presents amounts included in our Consolidated Balance Sheet that are for the use of or are the obligation of our consolidated VIE.
 
March 31, 2016
 
Balance Sheet Classification
 
(In thousands)
 
 
Assets (liabilities):
 
 
 
Cash and cash equivalents
$
4,349

 
Cash and cash equivalents
Receivables
26,866

 
Receivables
Inventories and other current assets
14,482

 
Other current assets
Land and mineral rights
108,641

 
Land and mineral rights
Property, plant and equipment, net
69,743

 
Property, plant and equipment, net
Contractual third-party reclamation receivables
71,336

 
Contractual third-party reclamation receivables
Other noncurrent assets
8,875

 
Other noncurrent assets
Debt
(114,464
)
 
Current installments of long-term debt and Long-term debt, less current installments
Trade accounts payable
(22,530
)
 
Accounts payable
Other current liabilities
(25,361
)
 
Other current liabilities
Asset retirement obligations
(71,495
)
 
Asset retirement obligations and Asset retirement obligations, less current portion
Deferred income taxes
(47,977
)
 
Deferred income taxes
Other liabilities
$
(9,361
)
 
Other noncurrent liabilities

11

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

4. INVENTORIES
Inventories consisted of the following:
 
March 31, 2016
 
December 31, 2015
 
(In thousands)
Coal stockpiles
$
51,960

 
$
38,636

Coal fuel inventories
7,619

 
7,194

Materials and supplies
86,741

 
78,784

Reserve for obsolete inventory
(2,921
)
 
(2,756
)
Total
$
143,399

 
$
121,858


5. RESTRICTED INVESTMENTS
The Company invests certain bond collateral, reclamation deposits, and other restricted investments in a limited selection of fixed-income investment options and receives the investment returns on these investments. These investments are not available to meet the Company’s general cash needs.
These accounts include available-for-sale securities. 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 March 31, 2016 were as follows:
 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cash and cash equivalents
$
85,948

 
$
29,554

 
$
115,502

Time deposits
2,455

 

 
2,455

Available-for-sale
54,942

 
48,253

 
103,195

 
$
143,345

 
$
77,807

 
$
221,152

The Company’s carrying value and estimated fair value of its restricted investments and bond collateral at December 31, 2015 were as follows:
 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cash and cash equivalents
$
102,539

 
$
45,819

 
$
148,358

Time deposits
2,455

 

 
2,455

Available-for-sale
35,813

 
31,545

 
67,358

 
$
140,807

 
$
77,364

 
$
218,171


12

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

Available-for-Sale Restricted Investments
The cost basis, gross unrealized holding gains and losses, and fair value of available-for-sale securities at March 31, 2016 were as follows (in thousands):
 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cost basis
$
55,868

 
$
48,945

 
$
104,813

Gross unrealized holding gains
245

 
382

 
627

Gross unrealized holding losses
(1,171
)
 
(1,074
)
 
(2,245
)
Fair value
$
54,942

 
$
48,253

 
$
103,195

The cost basis, gross unrealized holding gains and losses, and fair value of available-for-sale securities at December 31, 2015 were as follows:

 
Restricted Investments and Bond Collateral
 
Reclamation Deposits
 
Total Restricted Investments
 
(In thousands)
Cost basis
$
36,715

 
$
31,977

 
$
68,692

Gross unrealized holding gains
167

 
521

 
688

Gross unrealized holding losses
(1,069
)
 
(953
)
 
(2,022
)
Fair value
$
35,813

 
$
31,545

 
$
67,358



6. DEBT AND LINES OF CREDIT
The Company and its subsidiaries are subject to the following debt arrangements:
 
Total Debt Outstanding
 
March 31, 2016
 
December 31, 2015
 
(In thousands)
8.75% Notes
$
350,000

 
$
350,000

WCC Term Loan Facility
326,349

 
327,172

San Juan Loan
125,000

 

WMLP Term Loan Facility
301,215

 
299,248

Capital lease obligations
65,439

 
71,168

Revolving Credit Facility

 
1,970

Other
6,647

 
7,251

Total debt
1,174,650


1,056,809

Less debt discount and debt issuance costs
(45,601
)
 
(36,914
)
Less current installments
(77,375
)
 
(40,822
)
Total debt outstanding, less current installments
$
1,051,674

 
$
979,073


13

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

The following table presents aggregate contractual debt maturities of all debt: 
 
March 31,
2016
 
(In thousands)
2016
$
61,292

2017
70,626

2018
315,889

2019
17,096

2020
338,584

Thereafter
371,163

Total debt
$
1,174,650

8.75% Notes
The $350 million in principal amount of 8.75% senior secured notes due 2022 (“8.75% Notes”) were issued by the Parent and are guaranteed by Westmoreland Energy LLC, Westmoreland Mining LLC and Westmoreland Resources, Inc. and their respective subsidiaries (other than Absaloka Coal, LLC, Westmoreland Risk Management, Inc. and certain other immaterial subsidiaries). The 8.75% Notes are not guaranteed by Westmoreland Canada LLC or any of its subsidiaries, Westmoreland San Juan, LLC or any of its subsidiaries, nor are they guaranteed by Westmoreland Resources GP, LLC or WMLP, referred to as the “Non-guarantors.”
WCC Term Loan Facility
The WCC Term Loan Facility, due in 2020 (the “WCC Term Loan Facility”), is a primary obligation of the Parent and is guaranteed by Westmoreland Energy LLC, Westmoreland Mining LLC, Westmoreland Resources, Inc. and certain other direct and indirect subsidiaries of the Company (other than Absaloka Coal, LLC, Westmoreland Risk Management, Inc., certain other immaterial subsidiaries, and the Non-guarantors).
San Juan Loan
The San Juan Loan, due February 2, 2021, (the “San Juan Loan”) is a senior secured term loan and is a primary obligation of Westmoreland San Juan, LLC. The San Juan Loan is guaranteed by SJCC, and is secured by substantially all of SJCC’s assets. The San Juan Loan is expected to bear interest at a (i) 7.25% rate (the “Margin Rate”) plus (ii) (A) the London Interbank Offered Rate for a three month period plus (B) a statutory reserve rate, which such Margin Rate increases incrementally during each year of the San Juan Loan term. The San Juan Loan has no prepayment penalties. The agreements governing the San Juan Loan include representations and warranties and covenants regarding the ownership and operation of SJCC and the properties acquired in the San Juan Acquisition and standard special purpose bankruptcy remote entity covenants designed to preserve the separateness from Westmoreland of each of (i) WSJ, (ii) its direct parent company, Westmoreland San Juan Holdings, Inc., and (iii) SJCC (collectively, the “Westmoreland San Juan Entities”). Obligations under the San Juan Loan are recourse only to the Westmoreland San Juan Entities and their assets and neither Westmoreland nor its subsidiaries (other than the Westmoreland San Juan Entities) is an obligor under the San Juan Loan in any respect. The agreement governing the San Juan Loan requires that all revenues of the San Juan Entities, aside from payments on certain leases, are deposited into a cash management collection account swept monthly for operating expenses, capital expenditures, and Loan payment and prepayment. The assets and credit of SJCC are not available to satisfy the debts and other obligations of any of the Company other than the Westmoreland San Juan Entities.
WMLP Term Loan Facility
The WMLP Term Loan Facility (the “WMLP Term Loan Facility”), due in 2018, is a primary obligation of Oxford Mining Company, LLC, a wholly owned subsidiary of WMLP, is guaranteed by WMLP and its subsidiaries, and is secured by substantially all of WMLP's and its subsidiaries' assets.
WMLP Revolving Credit Facility
On October 23, 2015, WMLP and its subsidiaries entered into a loan and security agreement with the lenders party thereto and The PrivateBank and Trust Company, as administrative agent, which permits borrowings up to the aggregate principal amount of $15.0 million and letters of credit in an aggregate outstanding amount of up to $10.0 million, which reduces availability under the WMLP revolving credit facility on a dollar-for-dollar basis. At March 31, 2016, availability under the WMLP revolving credit facility was $15.0 million.

14

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

Capital Lease Obligations
During the three months ended March 31, 2016, the Company did not enter into any new capital leases.
Revolving Credit Facility
Under the Company’s revolving credit facility with the lenders party thereto and The PrivateBank and Trust Company, as administrative agent (the “Revolving Credit Facility”), the Company has a total aggregate borrowing capacity of $75.0 million between June 15th and August 15th of each year, with an aggregate borrowing capacity of $50.0 million outside of these periods. As of March 31, 2016, the Company had no borrowings under the Revolving Credit Facility and had outstanding letters of credit against its aggregate borrowing capacity in the amount of $13.7 million.
Deferred Financing Costs
Due to the adoption of ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, debt issuance costs related to the Company’s debt liabilities are now reported in the balance sheet as a direct deduction from the face amount of the notes. The adoption of this standard resulted in the reclassification of $25.8 million of unamortized debt issuance costs from the non-current asset, Other assets, to a reduction of Long-term debt, less current portion on the consolidated balance sheet as of December 31, 2015.

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 March 31,
2016
 
2015
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
Service cost
$
935

 
$
1,054

Interest cost
3,111

 
2,907

Amortization of deferred items
200

 
327

Total net periodic benefit cost
$
4,246

 
$
4,288

The following table shows the net periodic postretirement medical benefit costs that relate to current and former mining operations: 
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Former mining operations
$
2,135

 
$
2,034

Current operations
2,111

 
2,254

Total net periodic benefit cost
$
4,246

 
$
4,288

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.

15

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

The Company incurred net periodic benefit costs of providing these pension benefits as follows:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
Service cost
$
608

 
$
506

Interest cost
2,287

 
1,985

Expected return on plan assets
(3,231
)
 
(2,639
)
Amortization of deferred items
1,039

 
1,110

Total net periodic pension cost
$
703

 
$
962


These costs are included in Cost of sales and Selling and administrative expenses. The Company made $0.2 million of contributions to its pension plans in the three months ended March 31, 2016. The Company expects to make $0.2 million of contributions to its pension plans during the remainder of 2016.

8. DERIVATIVE INSTRUMENTS
The Company has power purchase contracts at its Roanoke Valley Power Facility (“ROVA”) to manage exposure to power price fluctuations. These contracts cover the period from April 2014 to March 2019 and contracted power prices range from $41.05 to $55.20 per megawatt hour, with a weighted average contract price of $43.51 over the remaining contract lives. The contracts are not designated as hedging instruments, and accordingly their fair value is recognized on the Consolidated Balance Sheets, with changes in fair value recognized in the Consolidated Statement of Operations. Fair value is based on a comparison of contracted prices to projected future prices.
The fair value of outstanding derivative instruments not designated as hedging instruments on the accompanying unaudited Consolidated Balance Sheets was as follows (in thousands): 
Derivative Instruments
 
Balance Sheet Location
 
March 31, 2016
 
December 31, 2015
Contracts to purchase power
 
Other current liabilities
 
$
15,934

 
$
13,679

Contracts to purchase power
 
Other liabilities
 
23,834

 
23,656

The effect of derivative instruments not designated as hedging instruments on the accompanying unaudited Consolidated Statements of Operations was as follows (in thousands): 
 
 
 
 
Three Months Ended March 31,
Derivative Instruments
 
Statement of
Operations Location
 
2016
 
2015
Contracts to purchase power
 
Derivative gain (loss)
 
$
(2,600
)
 
$
5,276


9. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 5 - Restricted Investments and Note 8 - Derivative Instruments for additional disclosures related to fair value measurements.
The 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.

16

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

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The table below sets forth, by level, the Company’s financial assets and liabilities that are accounted for at fair value at March 31, 2016:
 
Fair
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Value
 
Level 1
 
Level 2
(In thousands)
Assets:
 
 
 
 
 
Available-for-sale investments included in Restricted investments
$
54,942

 
$
54,942

 
$

Available-for-sale investments included in Reclamation deposits
48,253

 
48,253

 

Total assets
$
103,195

 
$
103,195

 
$

Liabilities:
 
 
 
 
 
Contracts to purchase power included in Other current liabilities and Other liabilities
$
(39,767
)
 
$

 
$
(39,767
)
Warrants issued by WMLP included in Other liabilities
(557
)
 
(557
)
 

Total liabilities
$
(40,324
)
 
$
(557
)
 
$
(39,767
)
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 (Level 3). As of March 31, 2016, the Company had no long-term debt with Level 3 fair values. The estimated fair values of the Company’s debt with fixed and variable interest rates are as follows:
 
Fixed Interest Rate
 
Variable Interest Rate
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
(In thousands)
 
(In thousands)
March 31, 2016
$
346,114

 
$
204,750

 
$
737,997

 
$
440,250

December 31, 2015
$
345,984

 
$
213,500

 
$
619,341

 
$
388,380


10. INCOME TAX

For interim income tax reporting the Company estimates its annual effective tax rate and applies this effective tax rate to its year to date pre-tax (loss) income. For the three months ended March 31, 2015, the effective tax rate differed from the statutory rate primarily as a result of the U.S. and Canadian valuation allowances and the impact of the statutory rate change in Alberta, Canada. For the three months ended March 31, 2016, the effective tax rate differed from the statutory rate primarily due to the U.S. and Canadian valuation allowances, and for the recognition of changes in the Company’s net deferred tax assets due to the acquisition of SJCC.

As part of the San Juan acquisition, the Company acquired $48.0 million in deferred tax liabilities. Changes in the acquiring company’s deferred tax assets or liabilities subsequent to a business combination are required to be recorded currently in income during the quarter in which the transaction occurs. Accordingly, the $48.0 million decrease in the Company’s net deferred tax assets resulted in the release of a corresponding $48.0 million valuation allowance and recognition of a tax benefit in the three months ended March 31, 2016.


17

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

11. STOCKHOLDERS’ DEFICIT AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in Accumulated Other Comprehensive Income (Loss)
The following table reflects the changes in accumulated other comprehensive income (loss) by component:
 
Pension
 
Postretirement
medical benefits
 
Unrealized gains and losses on available-for-sale
securities, net
 
Foreign currency translation adjustment
 
Tax effect of
other
comprehensive
income gains
 
Accumulated
other
comprehensive
income (loss)
 
(In thousands)
Balance at December 31, 2015
$
(34,558
)
 
$
(31,086
)
 
$
(1,325
)
 
$
(69,901
)
 
$
(34,430
)
 
$
(171,300
)
Other comprehensive income (loss) before reclassifications
172

 
(688
)
 
(281
)
 
19,239

 
(57
)
 
18,385

Amounts reclassified from accumulated other comprehensive income (loss)
818

 
200

 

 

 

 
1,018

Balance at March 31, 2016
$
(33,568
)
 
$
(31,574
)
 
$
(1,606
)
 
$
(50,662
)
 
$
(34,487
)
 
$
(151,897
)
The following table reflects the reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2016 (in thousands):
Details about accumulated other comprehensive loss components
 
Amount reclassified from accumulated other
comprehensive loss
 
Affected line item
in the statement
where net income (loss) is presented
 
Three Months Ended March 31, 2016
 
Available-for sale securities
 
 
 
 
Realized gains and losses on available-for sale securities
 
$

 
Other income (loss)
 
 
 
 
 
Amortization of defined benefit pension items
 
 
 
 
Prior service costs
 
$
2

 
Cost of sales and Selling and administrative
Actuarial losses
 
816

 
Cost of sales and Selling and administrative
Total
 
$
818

 
 
Amortization of postretirement medical items
 
 
 
 
Prior service costs
 
$
(159
)
 
Cost of sales and Selling and administrative
Actuarial losses
 
359

 
Cost of sales and Selling and administrative
Total
 
$
200

 
 

12. SHARE-BASED COMPENSATION
The Company grants employees and non-employee directors restricted stock units. The Company recognized compensation expense from share-based arrangements shown in the following table:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Recognition of fair value of restricted stock units, stock options and SARs over vesting period; and issuance of stock
$
1,112

 
$
663

Contributions of stock to the Company’s 401(k) plan
1,466

 
859

Total share-based compensation expense
$
2,578

 
$
1,522


18

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

Restricted Stock Units
No restricted stock units were granted, vested, or forfeited during the three months ended March 31, 2016. Unamortized compensation expense is expected to be recognized over the next three years. A summary of outstanding restricted stock units as of March 31, 2016 is as follows: 
 
Units
 
Weighted
Average
Grant-Date
Fair Value
 
Unamortized
Compensation
Expense
(In thousands)
Non-vested at March 31, 2016
354,311

 
$
28.44

 
$
5,516


Stock Options
No stock options granted, vested, or forfeited during the three months ended March 31, 2016. A summary of stock options outstanding as of March 31, 2016 is as follows:
 
Stock Options
 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Life
(In years)
 
Aggregate Intrinsic
Value
(In thousands)
 
Unamortized
Compensation
Expense
(In thousands)
Outstanding at March 31, 2016
109,306

 
$
22.16

 
1.9

 

 

SARs
There were no SARs granted during the three months ended March 31, 2016. A summary of SARs activity for the three months ended March 31, 2016 is as follows:
 
SARs
 
Weighted
Average Exercise Price
 
Weighted
Average
Remaining
Contractual
Life
(In years)
 
Aggregate Intrinsic
Value
(In thousands)
 
Unamortized
Compensation
Expense
(In thousands)
Outstanding at December 31, 2015
16,943

 
$
25.44

 
 
 
 
 
 
Expired
(3,733
)
 
$
23.99

 
 
 
 
 
 
Outstanding and exercisable at March 31, 2016
13,210

 
$
25.85

 
0.2
 
$

 
$


13. EARNINGS PER SHARE
Basic earnings (loss) per share has been computed by dividing the net income (loss) applicable to common shareholders by the weighted average number of shares of common stock outstanding during each period. Net income (loss) applicable to common shareholders includes the adjustment for net income or loss attributable to noncontrolling interest. Diluted earnings (loss) per share is computed by including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding stock options, stock appreciation rights and restricted stock units. No such items were included in the computations of diluted loss per share in the three months ended March 31, 2015 because the Company incurred a net loss applicable to common shareholders in that period and the effect of inclusion would have been anti-dilutive.

19

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

 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Income (loss) for basic earning per share calculation:
 
 
 
Net income (loss) allocated to common shareholders
$
30,584

 
$
(11,732
)
Weighted average shares outstanding:
 
 
 
Basic weighted average shares outstanding
18,262

 
17,621

Effect of restricted stock units
7

 

Diluted weighted average shares outstanding
18,269

 
17,621

The table below shows the number of shares that were excluded from the calculation of diluted income (loss) per share because their inclusion would be anti-dilutive to the calculation:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Restricted stock units, stock options and SARs
470

 
524

14. 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 six reporting segments: Coal - U.S., Coal - Canada, Coal - WMLP, Power, Heritage, and Corporate. On August 1, 2015, the Company contributed 100% of the outstanding equity interests in Westmoreland Kemmerer, LLC (“Kemmerer”) to WMLP (the “Kemmerer Drop”), and, accordingly, to enable comparability, all segment disclosures have been adjusted to remove financial information for Kemmerer from the Coal - U.S. segment and present it in the Coal - WMLP segment for each of the three months ended March 31, 2016 and 2015.
Summarized financial information by segment is as follows:
 
Coal -
U.S.(1)
 
Coal - Canada
 
Coal - WMLP(2)
 
Power(3)
 
Heritage
 
Corporate(2)
 
Consolidated
 
(In thousands)
Three Months Ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
155,179

 
$
93,434

 
$
92,481

 
$
21,995

 
$

 
$
(8,368
)
 
$
354,721

Restructuring charges

 

 

 

 

 

 

Depreciation, depletion, and amortization
14,138

 
5,639

 
15,265

 

 

 
(29
)
 
35,013

Operating income (loss)
11,280

 
12,409

 
809

 
(5,801
)
 
(3,481
)
 
(3,678
)
 
11,538

Total assets
945,328

 
523,876

 
411,656

 
41,717

 
16,379

 
(168,267
)
 
1,770,689

Capital expenditures
2,655

 
1,349

 
1,544

 

 

 

 
5,548

Three Months Ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
154,869

 
$
103,242

 
$
109,090

 
$
20,647

 
$

 
$
(16,365
)
 
$
371,483

Restructuring charges

 

 
553

 

 

 

 
553

Depreciation, depletion, and amortization
9,379

 
11,265

 
14,889

 
2,484

 

 
42

 
38,059

Operating income (loss)
7,118

 
9,865

 
(369
)
 
413

 
(3,349
)
 
(5,223
)
 
8,455

Total assets
576,344

 
583,536

 
453,620

 
172,310

 
16,005

 
13,237

 
1,815,052

Capital expenditures
7,157

 
4,049

 
4,812

 
579

 

 
(3,570
)
 
13,027

____________________

20

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

(1)
The San Juan Acquisition was completed on January 31, 2016. For the three months ended March 31, 2016, revenues for the San Juan Entities were $26.6 million and operating losses were $3.1 million.
(2)
The Coal - WMLP segment recorded revenues of $7.9 million and $16.4 million for intersegment revenues to the Coal - U.S. segment for the three months ended March 31, 2016 and March 31, 2015, respectively. Eliminations for intersegment revenues and cost of sales are presented within the Corporate segment.
(3)
Total assets as of March 31, 2016 reflect a $133.1 million asset impairment in the Power segment that was recorded during the fourth quarter of 2015. No such impairment had been recorded as of March 31, 2015.

15. 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.


21


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 recent acquisitions and their anticipated effects on us, and 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.
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:

The effect of legal and administrative proceedings, settlements, investigations and claims, including any related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage;
Existing and future legislation and regulation affecting both our coal mining operations and our customers’ coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases;
The effect of the Environmental Protection Agency’s and Canadian and provincial governments’ inquiries and regulations on the operations of the power plants to which we provide coal;
Our ability to manage the San Juan Entities following the San Juan Acquisition;
Our substantial level of indebtedness and our ability to adhere to financial covenants related to our borrowing arrangements;
Changes in our post-retirement medical benefit and pension obligations and the impact of the recently enacted healthcare legislation on our employee health benefit costs;
Inaccuracies in our estimates of our coal reserves;
Our potential inability to expand or continue current coal operations due to limitations in obtaining bonding capacity for new mining permits, and/or increases in our mining costs as a result of increased bonding expenses;
The effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers;
The inability to control costs, recognize favorable tax credits and/or receive adequate train traffic at our open market mine operations;
Our ability to realize growth opportunities and cost synergies as a result of the acquisition of our Canadian mines;
The ability or inability of our hedging arrangement with respect to our ROVA facility to generate cash flow due to the fully hedged position through March 2019;
Competition within our industry and with producers of competing energy sources;
Our relationships with, and other conditions affecting, our customers;
The availability and costs of key supplies or commodities, such as diesel fuel, steel and explosives;
Potential title defects or loss of leasehold interests in our properties, which could result in unanticipated costs or an inability to mine the properties; and
Other factors that are described under the heading “Risk Factors” found in our reports filed with the Securities and Exchange Commission, including our 2015 Form 10-K.
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 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.

22

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

Overview
Westmoreland Coal Company is the oldest independent coal company in the United States. Our coal operations include surface coal mines in the United States and Canada, underground coal mines in Ohio and New Mexico, a char production facility, and a 50% interest in an activated carbon plant. We also own the general partner of, and a majority of the equity interests in, WMLP, a publicly-traded coal master limited partnership. Our power operations include two coal-fired power generation units in North Carolina. We classify our business into four operating segments (Coal - U.S., Coal - Canada, Coal - WMLP and Power) and two non-operating segments (Heritage and Corporate). Our Heritage segment primarily includes the costs of benefits we provide to former mining operation employees and our Corporate segment consists primarily of corporate administrative and business development expenses.
We are a holding company and conduct our operations through subsidiaries. We have significant cash requirements to fund our ongoing debt obligations, pension contributions, heritage health benefit costs, and corporate overhead costs. The principal sources of cash flow to us are distributions from our operating subsidiaries.
San Juan Acquistion and related financing
On January 31, 2016, WSJ, a special purpose subsidiary of Westmoreland, acquired SJCC, which operates the San Juan mine in Farmington, New Mexico, and San Juan Transportation Company for a total cash purchase price of approximately $126.9 million, subject to post-closing adjustments. The San Juan mine is the exclusive supplier of coal to the adjacent SJGS under a coal supply agreement through 2022.
WSJ financed the San Juan Acquisition with a $125.0 million loan from NM Capital Utility Corporation, an affiliate of Public Service Company of New Mexico (one of the owners of SJGS), and with available cash on hand. The San Juan Loan matures February 1, 2021 and is expected to bear interest at (i) the Margin Rate plus (ii) (A) the London Interbank Offered Rate for a three month period plus (B) a statutory reserve rate, which such Margin Rate increases incrementally during each year of the San Juan Loan term. The San Juan Loan has no prepayment penalties. The agreements governing the San Juan Loan include representations and warranties and covenants regarding the ownership and operation of SJCC and the properties acquired in the San Juan Acquisition and standard special purpose bankruptcy remote entity covenants designed to preserve the separateness from Westmoreland of each of the Westmoreland San Juan Entities. Obligations under the San Juan Loan are recourse only to the Westmoreland San Juan Entities and their assets and neither Westmoreland nor its subsidiaries (other than the Westmoreland San Juan Entities) is an obligor under the San Juan Loan in any respect. The agreement governing the San Juan Loan requires that all revenues of the San Juan Entities, aside from payments on certain leases, are deposited into a cash management collection account swept monthly for operating expenses, capital expenditures, and loan payment and prepayment.
Results of Operations
Three Months Ended March 31, 2016 Compared to March 31, 2015
Consolidated Results of Operations
The following table shows the comparative consolidated results and changes between periods:
 
Three Months Ended March 31,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands)
Revenues
$
354,721

 
$
371,483

 
$
(16,762
)
 
(4.5
)%
Net income (loss) applicable to common shareholders
30,584

 
(11,732
)
 
42,316

 
360.7
 %
Adjusted EBITDA(1)
62,957

 
56,027

 
6,930

 
12.4
 %
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.
Our first quarter 2016 revenues decreased $16.8 million. The San Juan Acquisition added $26.6 million in revenue, however our other mining operations revenue decreased $43.3 million as a result of soft demand due to weather, lower export market prices, and the impact of a weaker Canadian dollar. Our net income increased $42.3 million mainly due to a $47.9

23

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

million tax benefit due to the release of our valuation allowance on our net operating loss deferred tax assets. Adjusted EBITDA increased $6.9 million due to the San Juan Acquisition which contributed $7.7 million.
Coal - U.S. Segment Operating Results
As a result of the Kemmerer Drop, results for all periods presented reflect Kemmerer as part of the Coal - WMLP segment and not part of the Coal - U.S. segment: 
 
Three Months Ended March 31,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands, except ton data)
Revenues
$
155,179

 
$
154,869

 
$
310

 
0.2
%
Operating income
11,280

 
7,118

 
4,162

 
58.5
%
Adjusted EBITDA(1)
29,540

 
20,263

 
9,277

 
45.8
%
Tons sold—millions of equivalent tons
6.0


5.8

 
0.2

 
3.4
%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to Net income (loss) at the end of this “Results of Operations” section.
Our first quarter 2016 U.S. coal segment revenues, operating income, adjusted EBITDA and tons increased due to the San Juan Acquisition. These increases were offset by reduced tons sold by our other mines due to softer demand due to weather.
Coal - Canada Segment Operating Results
 
Three Months Ended March 31,
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands, except ton data)
Revenues
$
93,434

 
$
103,242

 
$
(9,808
)
 
(9.5
)%
Operating income
12,409

 
9,865

 
2,544

 
25.8
 %
Adjusted EBITDA(1)
23,441

 
24,922

 
(1,481
)
 
(5.9
)%
Tons sold—millions of equivalent tons
5.8

 
5.5

 
0.3

 
5.5
 %
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.
Our first quarter 2016 Coal - Canada segment revenues were affected by a weaker Canadian dollar during the first three months of 2016 compared to the first three months of 2015. As a result, revenues decreased $9.8 million on a slight increase in tons sold. Operating income improved as a result of operational improvements in the business.
Coal - WMLP Segment Operating Results
As a result of the Kemmerer Drop, results for all periods presented reflect Kemmerer as part of the Coal - WMLP segment and not part of the Coal - U.S. segment: 
 
Three Months Ended March 31,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands, except ton data)
Revenues
$
92,481

 
$
109,090

 
$
(16,609
)
 
(15.2
)%
Operating income (loss)
809

 
(369
)
 
1,178

 
319.2
 %
Adjusted EBITDA(1)
19,280

 
19,005

 
275

 
1.4
 %
Tons sold—millions of equivalent tons
2.0

 
2.2

 
(0.2
)
 
(9.1
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

24

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

Our first quarter 2016 Coal - WMLP segment revenues and tons decreased due to lower demand due to weather. In addition revenues decreased due to lower average pricing and lower non-coal related revenue in the first quarter of 2016 compared to the first quarter of 2015. Operating income and adjusted EBITDA increased due to better margins on coal sales.
Power Segment Operating Results
 
Three Months Ended March 31,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands)
Revenues
$
21,995

 
$
20,647

 
$
1,348

 
6.5
 %
Operating income (loss)
(5,801
)
 
413

 
(6,214
)
 
*

Adjusted EBITDA(1)
(3,348
)
 
(2,613
)
 
(735
)
 
(28.1
)%
____________________
(1)
Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.
*
Not meaningful

Operating income decreased due a loss on our power derivative of $2.6 million during the the first quarter of 2016 compared to a gain on our power derivative of $5.3 million during the first quarter of 2015, offset by $2.4 million lower depreciation expense in 2016 as a result of the fourth quarter 2015 impairment charge.
Non-operating Segment Results
 
Three Months Ended March 31,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In thousands)
Heritage segment operating expenses
$
3,481

 
$
3,349

 
$
132

 
3.9
%
Corporate segment operating expenses
$
3,678

 
$
2,904

 
$
774

 
26.7
%

Our first quarter 2016 non-operating segment operating expenses were consistent with the prior period.
Reconciliation of Net Income (Loss) to Adjusted EBITDA
The discussion in “Results of Operations” includes references to our Adjusted EBITDA results. EBITDA is defined as earnings before interest expense, interest income, income taxes, depreciation, depletion, amortization and accretion expense. EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by or presented in accordance with generally accepted accounting principles (“GAAP”). EBITDA and Adjusted EBITDA are key metrics used by us to assess our operating performance and as a basis for strategic planning and forecasting 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;
are used by rating agencies, lenders and other parties to evaluate our creditworthiness; 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;

25

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

do not reflect changes in, or cash requirements for, our working capital needs; and
do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on certain of our debt obligations.
In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. Other companies in our industry and in other industries may calculate EBITDA and Adjusted EBITDA differently from the way that we do, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only as supplemental data.
The tables below show how we calculated EBITDA and Adjusted EBITDA, including a breakdown by segment, and reconciles Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Reconciliation of Net Income (Loss) to Adjusted EBITDA
 
 
 
Net income (loss)
$
30,086

 
$
(13,878
)
 
 
 
 
Income tax expense (benefit)
(47,935
)
 
2,040

Interest income
(1,791
)
 
(2,140
)
Interest expense
29,669

 
24,735

Depreciation, depletion and amortization
35,013

 
38,059

Accretion of ARO and receivable
7,007

 
7,031

Amortization of intangible assets and liabilities
(167
)
 
(253
)
EBITDA
51,882

 
55,594

 
 
 
 
Restructuring charges

 
553

Loss (gain) on foreign exchange
1,387

 
(2,109
)
Acquisition related costs (1)
435

 
1,400

Customer payments received under loan and lease receivables (2)
2,660

 
4,103

Derivative loss (gain)
2,600

 
(5,276
)
Loss (gain) on sale/disposal of assets and other adjustments
1,413

 
240

Share-based compensation
2,580

 
1,522

Adjusted EBITDA
$
62,957

 
$
56,027

____________________
(1)
Includes the impact of cost of sales related to the sale of inventory written up to fair value in the acquisition of Westmoreland Resources GP, LLC, the general partner of WMLP.
(2)
Represents a return of and on capital. These amounts are not included in operating income or operating cash flows, as the capital outlays are treated as loan and lease receivables, but are included within Adjusted EBITDA so that the cash received by the Company is treated consistently with all other contracts within the Company that do not result in loan and lease receivable accounting.

26

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

 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Adjusted EBITDA by Segment
 
 
 
Coal - U.S.
$
29,540

 
$
20,263

Coal - Canada
23,441

 
24,922

Coal - WMLP
19,280

 
19,005

Power
(3,348
)
 
(2,613
)
Heritage
(3,481
)
 
(3,348
)
Corporate
(2,475
)
 
(2,202
)
Total
$
62,957

 
$
56,027


Liquidity and Capital Resources
We had the following liquidity at March 31, 2016 and December 31, 2015: 
 
March 31,
 
December 31,
 
2016
 
2015
 
(In millions)
Cash and cash equivalents
$
17.8

 
$
22.9

Revolving Credit Facility
36.3

 
28.2

Total
$
54.1

 
$
51.1

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 conduct our operations through subsidiaries. We have 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 operating subsidiaries. The cash at all of our subsidiaries is immediately available, except Westmoreland Risk Management, Inc. (“WRMI”), the Westmoreland San Juan Entities, and WMLP. The cash at our captive insurance entity, WRMI, is available to us through dividends and is subject to maintaining a statutory minimum level of capital, which is $0.25 million. The cash at the Westmoreland San Juan Entities is governed as described below in the San Juan Term Loan section. The cash at WMLP is available to us through quarterly distributions.
Debt Obligations
8.75% Notes
The 8.75% Notes were outstanding in the principal amount of $350.0 million at March 31, 2016. The 8.75% Notes bear a fixed interest rate of 8.75% payable semiannually, on January 1 and July 1 of each year. The 8.75% Notes mature on January 1, 2022. As of March 31, 2016, we were in compliance with all covenants for the 8.75% Notes.
Restricted Group and Unrestricted Group Results
Under the indenture governing the 8.75% Notes (the “Indenture”), the WCC Term Loan Facility and the Revolving Credit Facility, Westmoreland Resources GP, LLC, WMLP and all of WMLP’s subsidiaries are designated as “unrestricted subsidiaries” (the “Unrestricted Group”). All of our other subsidiaries are restricted subsidiaries (the “Restricted Group”).

27

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

The Indenture requires summary information for the Restricted Group and Unrestricted Group which is provided as follows:
 
Restricted Group
 
Unrestricted Group
 
Total
 
(In thousands)
Balance sheet information as of March 31, 2016:
 
 
 
 
 
Cash and cash equivalents
$
4,742

 
$
13,012

 
$
17,754

Total current assets
256,954

 
111,771

 
368,725

Total assets
932,050

 
838,639

 
1,770,689

Total current liabilities
244,464

 
156,472

 
400,936

Total debt
711,389

 
417,660

 
1,129,049

Total liabilities
1,621,070

 
699,700

 
2,320,770

 
 
 
 
 
 
Statement of operations information for the three months ended March 31, 2016:
 
 
 
 
 
Revenues
$
235,677

 
$
119,044

 
$
354,721

Operating costs and expenses
228,096

 
115,087

 
343,183

Operating income
7,581

 
3,957

 
11,538

Other income and expenses
(16,695
)
 
(12,692
)
 
(29,387
)
Loss before income taxes
(9,114
)
 
(8,735
)
 
(17,849
)
Income tax expense
(47,935
)
 

 
(47,935
)
Net income (loss)
38,821

 
(8,735
)
 
30,086

Less net loss attributable to noncontrolling interest

 
(498
)
 
(498
)
Net income (loss) attributable to the Parent company
$
38,821

 
$
(8,237
)
 
$
30,584

For the three months ended March 31, 2016, Adjusted EBITDA associated with the Restricted Group and Unrestricted Group was $36.0 million and $27.0 million, respectively.
Non-guarantor Restricted Subsidiaries Results
The Indenture requires summary information for non-guarantor subsidiaries (as defined in the Indenture) which is provided as follows:

Absaloka Coal, LLC, Westmoreland Canada LLC, WRMI, the Canadian Subsidiaries and our Netherlands subsidiary (collectively, the “non-guarantor Restricted Subsidiaries”) had $1,209.1 million in total assets as of March 31, 2016, representing approximately 68.3% of our consolidated total assets, and generated $120.0 million in revenue for the three months ended March 31, 2015 representing approximately 33.8% of our consolidated revenue, and generated Adjusted EBITDA of $31.3 million representing approximately 49.7% of our consolidated Adjusted EBITDA. As of March 31, 2016, our non-guarantor Restricted Subsidiaries had $161.1 million of total indebtedness and $708.3 million of total liabilities, and our non-guarantor Canadian Subsidiaries had availability of up to $20.0 million under the Canadian tranche of the Revolving Credit Facility.
WCC Term Loan Facility
    
The WCC Term Loan Facility had an outstanding principal amount of $326.3 million at March 31, 2016. The WCC Term Loan Facility matures on December 16, 2020. We may elect to have borrowings under the WCC Term Loan Facility bear interest at a per annum rate of (i) one-, two-, three- or six-month LIBOR plus 6.50% or (ii) a base rate (determined with reference to the highest of the prime rate, the Federal Funds Rate plus 0.05%, and one-month LIBOR plus 1.00%) plus 5.50%. The interest rate at March 31, 2016 was 7.50%. As of March 31, 2016, we were in compliance with all covenants of the WCC Term Loan Facility. Under the WCC Term Loan Facility, we are required to pay a portion of our Excess Cash Flow (as defined by the credit agreement) for each fiscal year, beginning with the fiscal year ending December 31, 2015.

28

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

San Juan Term Loan
WSJ financed the San Juan Acquisition with a $125.0 million loan from NM Capital Utility Corporation, an affiliate of Public Service Company of New Mexico (one of the owners of SJGS), and with available cash on hand. The San Juan Loan matures February 1, 2021 and is expected to bear interest at (i) the Margin Rate plus (ii) (A) the London Interbank Offered Rate for a three month period plus (B) a statutory reserve rate, which such Margin Rate increases incrementally during each year of the San Juan Loan term. The San Juan Loan has no prepayment penalties. The agreements governing the San Juan Loan include representations and warranties and covenants regarding the ownership and operation of SJCC and the properties acquired in the San Juan Acquisition and standard special purpose bankruptcy remote entity covenants designed to preserve the separateness from Westmoreland of each of the Westmoreland San Juan Entities. Obligations under the San Juan Loan are recourse only to the Westmoreland San Juan Entities and their assets and neither Westmoreland nor its subsidiaries (other than the Westmoreland San Juan Entities) is an obligor under the San Juan Loan in any respect. The agreement governing the San Juan Loan requires that all revenues of the San Juan Entities, aside from payments on certain leases, are deposited into a cash management collection account swept monthly for operating expenses, capital expenditures, and loan payment and prepayment.
Revolving Credit Facility
The Revolving Credit Facility has a maximum borrowing amount of $50.0 million in the aggregate, with an additional seasonal increase to the maximum borrowing amount between June 15th and August 15th of each year, consisting of a $30.0 million sub-facility ($55.0 million with the seasonal increase) available to our U.S. borrowers and $20.0 million sub-facility available to our Canadian borrowers. The facility may support an equal amount of letters of credit, which would reduce the balance available under the facility. At March 31, 2016, availability on the Revolving Credit Facility was $36.3 million with $13.7 million supporting letters of credit. The Revolving Credit Facility has a maturity date of December 31, 2018. We were in compliance with all covenant requirements of the Revolving Credit Facility as of March 31, 2016.
WMLP Term Loan Facility
As of March 31, 2016, the outstanding balance on the WMLP Term Loan Facility was $301.2 million, which matures in December 2018. This amount represents the principal balance of $298.9 million, plus paid-in-kind interest of $2.3 million. At March 31, 2016, the WMLP Term Loan Facility had a cash interest rate of 9.25%. As of March 31, 2016, WMLP was in compliance with all covenants under the terms of the WMLP Term Loan Facility.
WMLP Revolving Credit Facility
On October 23, 2015, WMLP and its subsidiaries entered into a loan and security agreement with the lenders party thereto and The PrivateBank and Trust Company, as administrative agent, which permits borrowings up to the aggregate principal amount of $15.0 million and letters of credit in an aggregate outstanding amount of up to $10.0 million, which reduces availability under the WMLP revolving credit facility on a dollar-for-dollar basis. At March 31, 2016, availability under the WMLP revolving credit facility was $15.0 million.
Capital Leases
During the three months ended March 31, 2016, we did not enter into new capital leases.
Heritage Health Costs and Pension Contributions
Our liquidity continues to be affected by payments of our heritage health and pension obligations as follows: 
 
Three Months Ended March 31,
 
2016 Remaining
Expected
Amounts
 
2016
 
2015
 
 
(In millions)
Postretirement medical benefits
$
3.2

 
$
3.3

 
$
9.3

Combined Benefit Fund premiums
0.4

 
0.5

 
1.5

Workers’ compensation benefits
0.1

 
0.1

 
0.3

Total heritage health payments
$
3.7

 
$
3.9

 
$
11.1

 
 
 
 
 
 
Pension contributions
$
0.2

 
$

 
$
0.2


29

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

Historical Sources and Uses of Cash
The following table summarizes net cash provided by (used in) operating activities, investing activities, and financing activities for the three months ended March 31, 2016 and March 31, 2015: 
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Cash provided by (used in):
 
 
 
Operating activities
$
18,241

 
$
1,640

Investing activities
(131,121
)
 
(10,650
)
Financing activities
107,018

 
49,915

Cash from operations increased by $16.6 million as a result of favorable changes in working capital. Cash used in investing activities increased by $120.5 million for the three months ended March 31, 2016 due to the San Juan acquisition. Cash provided by financing activities increased from $49.9 million for the three months ended March 31, 2015 to $107.0 million for the three months ended March 31, 2016 primarily due to the San Juan Acquisition debt.
Asset Retirement Obligations, Contractual Third-party Reclamation Receivables, Reclamation Deposits and Reclamation Bond Collateral
The asset retirement obligations, contractual third-party reclamation receivables, reclamation deposits and reclamation bond collateral for each of the Company’s operating segments at March 31, 2016 are summarized below:
 
Asset
Retirement
Obligations
 
Contractual
Third-Party
Reclamation
Receivables
 
Reclamation
Deposits
 
Reclamation Bond Collateral
 
(In thousands)
Coal - U.S.
$
321,667

 
$
161,811

 
$
77,807

 
$
16,224

Coal - Canada
118,810

 
5,569

 

 
52,136

Coal - WMLP
58,335

 

 

 
37,015

Power
1,055

 

 

 

Total
$
499,867

 
$
167,380

 
$
77,807

 
$
105,375


Reclamation spend, net of customer receipts for reclamation, was $8.6 million for the three months ended March 31, 2016.

Critical Accounting Policies and Estimates
Please refer to the corresponding section in Part II, Item 7 of our 2015 Form 10-K for a discussion of our accounting policies and estimates.
Recent Accounting Pronouncements
See Note 1 - Basis Of Presentation of the Notes to the Unaudited Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements.”

30


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 2015 Form 10-K.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Other than the changes below, there have been no material changes in our market risk since December 31, 2015. For additional information, refer to the “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of our 2015 Form 10-K.
Commodity Price Risk
We are exposed to commodity price risk on sales of power at our ROVA facility. We have entered into derivative contracts to purchase power in the future at fixed prices. Such derivative contracts are structured to manage our exposure to changing power prices and not for trading. For the three months ended March 31, 2016 and 2015, we incurred a loss of $2.6 million and a gain $5.3 million, respectively, from these derivative contracts. Since any resales which we may make in the open market under these derivative contracts would be made at prevailing market prices, we may be subject to further losses under these hedging arrangements in the event that the market price for power falls below the level of our hedged position. Based on current market pricing trends, we may experience further losses under these hedging arrangements before the market price for power regains a level which is commensurate with our hedged position. If these trends continue, these losses could continue to adversely impact our results of operations and cash flows, and anticipated future cash losses are likely to be material.

Foreign Currency Exchange Rates
We are exposed to the effects of changes in exchange rates primarily from the Canadian dollar at our Canadian operations. We may enter into derivative contracts to manage exposure to fluctuations in foreign currency exchange rates. All decisions on derivative contracts are authorized and executed pursuant to our policies and procedures, which do not allow the use of financial instruments for trading purposes. There were no foreign currency derivative contracts outstanding as of March 31, 2016.
A description of our accounting policies for derivative financial instruments is included in Note 1 - Basis Of Presentation and Note 8 - Derivative Instruments to the consolidated financial statements.
ITEM 4
CONTROLS AND PROCEDURES.
As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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 March 31, 2016. 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.
On January 31, 2016, we closed on the San Juan Acquisition. As a result of this acquisition, we are in the process of reviewing the internal controls of the San Juan mine operations and, if necessary, will make appropriate changes as we incorporate our controls and procedures into the acquired operations. Except for the San Juan Acquisition, there have been no changes in internal control over financial reporting that occurred during the three months ended March 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


31


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 2015 Form 10-K, the risk factors that we believe materially affect our business, financial condition or results of operations. For the three months ended March 31, 2016, there have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in the 2015 Form 10-K and the other information set forth elsewhere in this 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.

ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The Company’s purchases of its common stock during the three months ended March 31, 2016 were as follows:
Period
Total Number
of Shares
Purchased (1)
 
Average Price
Paid per Share
February 16, 2016
599

 
$
5.88

____________________
(1)
Shares purchased as indicated in this table represent the withholding of a portion of restricted shares to cover taxes on vested restricted shares and were not made pursuant to a publicly announced share repurchase plan or program.

ITEM 4 MINE SAFETY DISCLOSURES
On July 21, 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). Section 1503(a) of the Dodd-Frank Act contains reporting requirements regarding mine safety. Mine safety violations or other regulatory matters, as required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K, are included as Exhibit 95.1 to this report on Form 10-Q.

32


ITEM 6
EXHIBITS.

See Exhibit Index at the end of this report.

33


SIGNATURES
Pursuant to the requirements 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:
May 10, 2016
/s/ Jason W. Veenstra
 
 
Jason W. Veenstra
 
 
Chief Financial Officer
(Principal Financial Officer and A Duly Authorized Officer)
 
 
 
Date:
May 10, 2016
/s/ Nathan M. Troup
 
 
Nathan M. Troup
 
 
Chief Accounting Officer and Corporate Controller
(Principal Accounting Officer and A Duly Authorized Officer)


34


WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED BALANCE SHEETS
(Parent Company Information — See Notes to Consolidated Financial Statements)

 
March 31,
2016
 
December 31,
2015
 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,704

 
$
14,245

Receivables:
 
 
 
Intercompany receivable
29,906

 
27,732

Other
1,284

 
3,053

 
31,190

 
30,785

Deferred income taxes

 

Other current assets
1,541

 
1,048

Total current assets
36,435

 
46,078

Property, plant and equipment:
 
 
 
Plant and equipment
4,096

 
4,096

Less accumulated depreciation, depletion and amortization
3,192

 
3,101

Net property, plant and equipment
904

 
995

Restricted investments and bond collateral
15,770

 
15,753

Investment in subsidiaries
152,060

 
143,952

Intercompany receivable/payable
248,113

 
200,140

Other assets
1,095

 
1,479

Total Assets
$
454,377

 
$
408,397


35


WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED BALANCE SHEETS
(Parent Company Information — See Notes to Consolidated Financial Statements)
 
March 31,
2016
 
December 31,
2015
 
(In thousands)
Liabilities and Shareholders’ Deficit
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
3,288

 
$
3,288

Revolving lines of credit

 

Accounts payable and accrued expenses:
 
 
 
Trade and other accrued liabilities
13,079

 
10,598

Interest payable
7,745

 
15,398

Workers’ compensation
585

 
590

Postretirement medical benefits
11,985

 
11,985

SERP
368

 
368

Intercompany payable
1,613

 
2,150

Other current liabilities
28

 
131

Total current liabilities
38,691

 
44,508

Long-term debt, less current installments
650,019

 
649,766

Workers’ compensation, less current portion
5,034

 
5,068

Excess of black lung benefit obligation over trust assets
17,423

 
17,220

Postretirement medical benefits, less current portion
239,315

 
239,122

Pension and SERP obligations, less current portion
40,136

 
40,516

Deferred income taxes

 

Other liabilities
466

 
466

Intercompany payable
13,374

 
13,615

Total liabilities
1,004,458

 
1,010,281

Shareholders’ deficit:
 
 
 
Common stock
184

 
182

Other paid-in capital
243,297

 
240,721

Accumulated other comprehensive loss
(151,897
)
 
(171,300
)
Accumulated deficit
(641,635
)
 
(672,219
)
Total shareholders’ deficit
(550,051
)
 
(602,616
)
Noncontrolling interests in consolidated subsidiaries
(30
)
 
732

Total deficit
(550,081
)
 
(601,884
)
Total Liabilities and Deficit
$
454,377

 
$
408,397


36


WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED STATEMENTS OF OPERATIONS
(Parent Company Information — See Notes to Consolidated Financial Statements)

 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands, except per share data)
Revenues
$

 
$

Cost, expenses and other:
 
 
 
Cost of sales
(482
)
 
(506
)
Depreciation, depletion and amortization
91

 
43

Selling and administrative
5,132

 
4,257

Heritage health benefit expenses
2,818

 
2,869

 
7,559

 
6,663

Operating loss
(7,559
)
 
(6,663
)
Other income (expense):
 
 
 
Interest expense
(15,128
)
 
(16,543
)
Interest income
4,332

 
3,935

Gain (loss) on foreign exchange
12

 
(2
)
Other income (expense)
(73
)
 
1

 
(10,857
)
 
(12,609
)
Loss before income taxes and income of consolidated subsidiaries
(18,416
)
 
(19,272
)
Equity in income of subsidiaries
500

 
2,831

Loss before income taxes
(17,916
)
 
(16,441
)
Income tax benefit
(48,002
)
 
(2,563
)
Net income (loss)
30,086

 
(13,878
)
Less net loss attributable to noncontrolling interest
(498
)
 
(2,146
)
Net income (loss) attributable to the Parent company
$
30,584

 
$
(11,732
)


37


WESTMORELAND COAL COMPANY
SCHEDULE I — COMPREHENSIVE LOSS
(Parent Company Information — See Notes to Consolidated Financial Statements)

 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Net income (loss)
$
30,086

 
$
(13,878
)
Other comprehensive income (loss)
 
 
 
Pension and other postretirement plans:
 
 
 
Amortization of accumulated actuarial gains or losses, pension
818

 
1,110

Adjustments to accumulated actuarial losses and transition obligations, pension
172

 
203

Amortization of accumulated actuarial gains or losses, transition obligations, and prior service costs, postretirement medical benefits
200

 
327

Adjustments of accumulated actuarial losses and transition obligations, postretirement medical benefit
(688
)
 

Tax effect of other comprehensive income gains or losses
(57
)
 
(575
)
Change in foreign currency translation adjustment
19,239

 
(27,140
)
Unrealized and realized gains and losses on available-for-sale securities
(281
)
 
325

Other comprehensive income (loss)
19,403

 
(25,750
)
Comprehensive loss attributable to Westmoreland Coal Company
$
49,489

 
$
(39,628
)

38


WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED STATEMENTS OF CASH FLOWS
(Parent Company Information — See Notes to Consolidated Financial Statements)
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
30,086

 
$
(13,878
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
91

 
43

Share-based compensation
1,308

 
682

Amortization of deferred financing costs
1,175

 
1,189

Loss (gain) on foreign exchange
(12
)
 
5

Equity in income of subsidiaries
(500
)
 
(2,831
)
Deferred income tax expense (benefit)
(47,973
)
 
(1,817
)
Distributions received from subsidiaries
921

 

Other
13

 
(575
)
Changes in operating assets and liabilities:
 
 
 
Receivables
1,769

 
1,195

Accounts payable and accrued expenses
(5,172
)
 
(2,237
)
Other assets and liabilities
(277
)
 
(1,901
)
Net cash provided by (used in) operating activities
(18,571
)
 
(20,125
)
Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment

 
(140
)
Change in restricted investments
(893
)
 
394

Cash payments in escrow for future acquisitions

 
17,000

Proceeds from the sale of investments
804

 

Net cash provided by (used in) investing activities
(89
)
 
17,254

Cash flows from financing activities:
 
 
 
Borrowings from long-term debt, net of debt discount

 
75,000

Repayments of long-term debt
(822
)
 
(1,062
)
Borrowings on revolving lines of credit
48,500

 
22,675

Repayments on revolving lines of credit
(48,500
)
 
(32,251
)
Debt issuance costs and other refinancing costs

 
(4,663
)
Transactions with Parent/affiliates
8,941

 
(25,150
)
Other

 
(323
)
Net cash provided by financing activities
8,119


34,226

Net increase (decrease) in cash and cash equivalents
(10,541
)
 
31,355

Cash and cash equivalents, beginning of period
14,245

 
697

Cash and cash equivalents, end of period
$
3,704

 
$
32,052


39

WESTMORELAND COAL COMPANY
SCHEDULE I — NOTES TO FINANCIAL STATEMENTS
(Parent Company Information — See Notes to Consolidated Financial Statements)



1.
LINES OF CREDIT AND LONG-TERM DEBT
The amounts outstanding under the Parent Company’s long-term debt consisted of the following as of the dates indicated: 
 
Total Debt Outstanding
 
March 31, 2016
 
December 31, 2015
 
(In thousands)
8.75% Notes due 2022
$
350,000

 
$
350,000

WCC Term Loan Facility due 2020
326,349

 
327,172

Revolving Credit Facility

 

Other
4,500

 
4,500

Total debt
680,849

 
681,672

Less debt discount and debt issuance costs
(27,542
)
 
(28,618
)
Less current installments
(3,288
)
 
(3,288
)
Total debt outstanding, less current installments
$
650,019

 
$
649,766

The following table presents aggregate contractual debt maturities of all long-term debt for the Parent Company: 
 
March 31,
2016
 
(In thousands)
2016
$
2,466

2017
3,288

2018
7,788

2019
3,288

2020
314,019

Thereafter
350,000

Total
$
680,849


Pursuant to a June 2, 2015 amendment to the Revolving Credit Facility, Westmoreland has a total aggregate borrowing capacity of $75.0 million between June 15th and August 15th of each year, with an aggregate borrowing capacity of $50.0 million outside of these periods. As of March 31, 2016, the Company had no borrowings under the Revolving Credit Facility and had outstanding letters of credit in the amount of $13.7 million.
Due to the adoption of ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, debt issuance costs related to the Company’s debt liabilities are now reported in the balance sheet as a direct deduction from the face amount of the notes. The adoption of this standard resulted in the reclassification of $17.5 million of unamortized debt issuance costs from the non-current asset, Other assets, to a reduction of Long-term debt, less current portion on the consolidated balance sheet as of December 31, 2015.


40


EXHIBIT INDEX
 
 
Incorporated by Reference
 
Exhibit
Number
Exhibit Description
Form
File
Number
Exhibit
Filing
Date
Filed
Herewith
 
 
 
 
 
 
 
10.1
Reclamation Bond Agreement, dated as of January 31, 2016 by and among Westmoreland Coal Company, PNM Resources, Inc., San Juan Coal Company and Zurich American Insurance Company
 
 
 
 
X
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."

41