3. ACQUISITIONS

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 (“SJTC” and such transaction, the “San Juan Acquisition”) for a total cash purchase price of $121.0 million after post-closing and working capital 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.

WSJ financed the San Juan Acquisition principally with a $125.0 million loan from NM Capital Utility Corporation (the “San Juan Loan”), an affiliate of Public Service Company of New Mexico (one of the owners of SJGS). The loan is structured as a senior secured term loan (the “San Juan Loan”) maturing February 1, 2021 and 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 with a final Margin Rate of 14.25% in the final year of the 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 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) the San Juan Entities ((i), (ii) and (iii) 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 San Juan Loan payment and prepayment.

In connection with certain mining permits relating to the operation of the San Juan mine, WSJ is required to post reclamation bonds of $125.2 million with the New Mexico Mining and Minerals Division.

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. Purchase price accounting was considered final as of December 31, 2016. The allocation of the purchase consideration follows (in millions):



	Final as of December 31, 2016
Purchase price:
Cash paid	$	121.0

Allocation of purchase price:
Assets:
Inventories	8.8
Total current assets	8.8
Land and mineral rights	143.9
Plant and equipment	74.6
Other assets	1.3
Total assets	228.6
Liabilities:
Trade payables and other accrued liabilities	13.4
Production taxes	2.0
Asset retirement obligations	0.7
Total current liabilities	16.1
Asset retirement obligations, less current portion	43.5
Postretirement medical benefits	1.9
Deferred income taxes	46.1
Total liabilities	107.6
Net fair value	$	121.0

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.



	Year ended December 31,
	2016			2015
	(In thousands, except per share data)
Total revenues				Restated
As reported	$	1,477,960		$	1,419,518
Pro forma (unaudited)	1,504,235			1,714,043

Operating income (loss)
As reported	$	38,130		$	(145,696	)
Pro forma (unaudited)	39,225			(106,606		)

Net loss applicable to common shareholders
As reported	$	(27,101	)	$	(213,645	)
Pro forma (unaudited)	(26,676		)	(187,139		)

Net loss per share applicable to common shareholders, basic & diluted
As reported	$	(1.47	)	$	(11.93	)
Pro forma (unaudited)	(1.44		)	(10.45		)

Acquisition of Buckingham Coal Company, LLC

On January 1, 2015, Westmoreland completed the acquisition of Buckingham Coal Company, LLC, an Ohio-based coal supplier (“Buckingham”), pursuant to an agreement dated January 1, 2015 among WCC Land Holding Company, Inc., an affiliate of the Company, for a total cash purchase price of $32.5 million (the “Buckingham Acquisition”). The Buckingham 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. Of the total purchase price, $26.8 million was allocated to property plant and equipment, $12.1 million to land and mineral reserves and $6.4 million to net liabilities assumed. The Buckingham operations are included in the Company’s Coal - U.S. segment. Purchase price accounting was considered final as of December 31, 2015.

Acquisition of General Partner of Westmoreland Resource Partners, LP

On December 31, 2014, the Company completed the acquisition of Oxford Resources GP, LLC, the general partner of Oxford Resource Partners, LP, for $33.5 million in cash consideration (the “GP Acquisition”). Also on December 31, 2014 the Company completed a contribution of certain royalty-bearing coal reserves in return for 4,512,500 common units of Oxford Resource Partners, LP (the “Contribution”). In connection with these transactions, Oxford Resources GP, LLC was renamed to Westmoreland Resources GP, LLC, and Oxford Resource Partners, LP was renamed to Westmoreland Resource Partners, LP (“WMLP”). WMLP will continue to operate as a standalone, publicly traded master limited partnership, with common units trading on the NYSE under the symbol “WMLP.”

The completion of the GP Acquisition and the Contribution provide Westmoreland with a platform to implement a value-creating drop-down strategy, pursuant to which it intends to periodically contribute certain U.S. and Canadian coal assets to WMLP in exchange for a combination of cash and additional limited partner interests. After completion of the GP Acquisition and the Contribution, the Company owned approximately 79% of the fully diluted limited partner interests as of December 31, 2014 which increased by December 31, 2015 to 93.8% as a result of the Kemmerer Drop, described below. WMLP resumed quarterly distributions of $0.20 per unit beginning in April 2015. In addition to receiving our proportionate share of these distributions, as WMLP’s general partner, the Company is entitled to incentive distribution rights.

Acquisition related costs of $0.3 million and $4.5 million have been expensed for the years ended December 31, 2015 and 2014 which are included in Selling and administrative costs.

No goodwill was recorded in the acquisition and a $31.0 million intangible asset related to a favorable terminal lease at a dock in Ohio will be amortized over a fifteen-year period. The favorable lease was valued based on the difference between contracted prices and market prices.

Kemmerer Drop

On August 1, 2015, we contributed 100% of the outstanding equity interests in Westmoreland Kemmerer, LLC (“Kemmerer”) to WMLP in exchange for $230 million in aggregate consideration, comprised of $115 million in cash and $115 million in newly issued WMLP Series A Convertible Units (the “Series A Units” and such transaction, the “Kemmerer Drop”). In connection with the Kemmerer Drop, all employees of Kemmerer and related employee liabilities, including but not limited to post-retirement pension obligations and post-retirement health benefits, were transferred to the parent Company. The Series A Units are convertible into common units representing limited partner interests of WMLP (“Common Units”), on a one-for-one basis, upon the earlier of (i) the date on which WMLP first makes a regular quarterly cash distribution to holders of Common Units in an amount equal to at least $0.22 per Common Unit, or (ii) a change of control of WMLP. Following the Kemmerer Drop, at December 31, 2016 we hold an approximately 93.9% controlling interest in WMLP (on a fully diluted basis). The Kemmerer Drop represents a reorganization of entities under common control. Accordingly, the net assets transferred are deemed to have transferred at the $102.6 million carrying value as of the date of transfer. No gain or loss was recognized.

Canadian Acquisition

On April 28, 2014, the Company acquired Sherritt International Corporation’s coal mining operations (the “Canadian Acquisition”) which include six producing thermal coal mines in the Canadian provinces of Alberta and Saskatchewan, a char production facility, and a 50% interest in an activated carbon plant. The purchase consideration included a $282.8 million initial cash payment made on April 28, 2014, a cash payment for a working capital adjustment of $39.8 million made on June 25, 2014, and assumed liabilities of $421.3 million.

Acquisition related costs of $33.6 million have been expensed for the year ended December 31, 2014 which included a $14.2 million charge to Cost of sales related to the post-close sale of inventory written up to fair value in the acquisition, $8.3 million of expenses included in Selling and administrative costs, $6.2 million of loss on foreign exchange and $4.9 million included in Interest expense related to a bridge facility commitment fee.

The $26.2 million of cash and cash equivalents above includes $18.1 million which was used for immediate payment of an assumed liability on the acquisition date, leaving $8.1 million of net cash received upon the acquisition.

During the third quarter of 2014, the Company transferred to an unrelated third party the contract related to a $37.0 million intangible asset. Proceeds of $37.0 million were received from the unrelated third party, with no gain or loss recognized on the transaction.

As part of the Canadian Acquisition the Company became responsible for remediation work for a breach on a containment pond at a currently inactive mine that occurred on October 31, 2013. Sherritt has indemnified Westmoreland against past and future liability stemming from the incident. Accordingly, an indemnification asset of $27.9 million and a corresponding liability was recorded at April 28, 2014.

The results of the acquired operations subsequent to April 28, 2014 have been included in the Company’s consolidated results of operations.

Unaudited Pro Forma Information

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition of the GP and the Canadian Acquisition occurred on January 1, 2014. 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 January 1, 2014, or of future results of operations. Unaudited pro forma information for 2015 and 2016 is not presented as a result of the Canadian and WMLP acquired entities being consolidated for the entire year.



	Year Ended December 31,
	2014
	(In thousands, except per share data)
Total revenues	Restated
As reported	$	1,131,000
Pro forma (unaudited)	1,659,482

Operating loss
As reported	$	(48,664	)
Pro forma (unaudited)	(44,516		)

Net loss applicable to common shareholders
As reported	$	(176,684	)
Pro forma (unaudited)	(139,213		)

Net loss per share applicable to common shareholders, basic & diluted
As reported	$	(11.08	)
Pro forma (unaudited)	(8.73		)