20110810Supplement to 2010 Affiliated Interest Report.pdf

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~~~t~OUNTAIN RECElvi:¡ìj;... .J...: .\¡ 1...,.".-201 South Main, Suite 2300
Salt Lake City, Utah 84111
ioii AUG i 0 AM 10: 21
August 10, 2011
Jt OVERNGHT DELIVERY
Idaho Public Utilities Commission
472 West Washington Street
Boise, ID 83720-5983
Att: Jean Jewell
Commission Secreta
RE: Supplement to PacifiCorp's 2010 Atilated Interest Report
PacifiCorp d.b.a. Rocky Mountan Power (PacifiCorp or Company) hereby submits an original
and three (3) copies of this supplemental fiing to its Affliated Interest Report for calendar year
2010 (2010 AI Report). On May 31, 2011, pursuat to MidAerican Energy Holdings
Company Transaction Commitment #8, approved in Case No. P AC-E-05-08, PacifiCorp fied the
2010 AI Report. The 2010 AI Report included unaudited fiancial statements for Trapper
Minng Inc. The audited fiancial statements are now available. Included with ths
supplementa fiing is the audited income statement and balance sheet for Trapper Ming Inc.
It is respectfuly requested that all formal correspondence and Staff requests regarding this fiing
be addressed to the following:
Bye-mail (preferred):dataequest§pacificorp.com
ted. weston§pacificorp.com
By reguar mail:Data Request Response Center
PacifiCorp
825 NE Multnomah Street, Suite 2000
Portland, OR 97232
Inormal inquires may be directed to Ted Weston, Reguatory Manager, at [phone].
m;ir~i~Laen ~
Vice President, Regulation
Enclosures
cc: w/o enclosure: Service List in Case No. PAC-E-05-08
I hereby certfy that on this 10th day of August, 2011, I caused to be served, via E-
mail, if address available or U.S mail, a tre and correct copy ofPacifiCorp's cover letter
accompanying the Compliance Filng, Supplement to the Afliated Interest Report for
Calendar Year 2010 (Commtment #8) in Case No. PAC-E-05-8.
Andrea L. Kelly R. Scott Pasley
Vice President, Reguation Assistat General Counsel
PacifiCorp J.R. Simplot Company
825 NE Multnomah, Suite 2000 P.O. Box 27
Portland, OR 97232 Boise, ID 83702
E-Mail: andrea.kelly§pacificorp.com E-Mail: spasley§simplot.com
Douglas L. Anderson Mark C. Moench
Senior Vice President & General Counel Senior Vice President - General Counel
MidAerican Energy Holdings Company Rocky Mounta Power
666 Grad A venue, Suite 500 201 S. Mai, Suite 2400
Des Moines, IA 50309-2580 Salt Lake City, UT 84111
E-Mail: danderson§midamerican.com E-Mail: mark.moench§pacificorp.com
Eric L. Olsen Anthony Yane i
Raine, Olson, Nye, Budge & Bailey,29814 Lake Road
Chaered Bay Vilage, OH 44140
201 E. Center E-Mail: tony§yanel.net
P.O. Box 1391
Pocatello, il 83204-1391
E-Mail: elo§racinelaw.net
Lisa Nordstrom David Hawk
Gregory Said Director, Energy Natual Resources
Idaho Power Company J.R. Simplot Company
P.O. Box 70 P.O. Box 27
Boise,ID 83707 Boise,ID 83702
E-Mail: lnordstrom§idahopower.com E-Mail: dhawk§simplot.com
gsaid§idahopower.com
Brad M. Purdy Arur F. Sandack, Esq.
Attorney at Law 8 E. Broadway, Suite 510
2019 N. 17th Street Salt Lake City, UT 84111
Boise, ID 83702 E-Mail: asandack§msn.com
E-Mail: bmpurdy§hotmail.com
Alan Herzeld Terr Carlock
Herzfeld & Piotrowski LLP Accounting Supervisor
713 W. Franin Idaho Public Utilties Commssion
P.O. Box 2864 472 W. Washigton
Boise,ID 83701 P.O. Box 83720
E-Mail: aherzfeld§hpllp.net Boise, il 83720-0074
E-Mail: terr.carlock§puc.idaho.gov
Radall C. Budge James R. Smith
Racine, Olson, Nye, Budge & Bailey,Monsanto Company
Charered Highway 34 North
201 E. Center P.O. Box 816
P.O. Box 1391 Soda Sprigs, ID 83726
Pocatello,ID 83204-1391 E-Mail: jim.r.smith§monsanto.com
E-Mail: rcb§racinelaw.net
Katie Iverson
Brubaker & Associates
17244 W. Cordova Cour
Surrise, ~ 85387
E-Mail: kiverson(ßconsultbai.com
Care Meyer
Coordiator, Admstrative Services
Trapper Mining Inc.
and Subsidiaries
Consolidated Financial Statements as of and for the
YearsEnded December 31,2010 and 2009, and
Independent Auditors' Report
TRAPPER MINING INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009:
Balance Sheets 2-3
Statements of Income 4
Statements of Members' Equity 5
Statements of Cash Flows 6
Notes to Financial Statements 7-15
Deloitte~Deloitte & Touche LLP
Suite 3600
555 Seventeenth Street
Denver, CO 80202-3942
USA
Tel: [phone]
Fax: [phone]
ww.deloitte.com
INDEPENDENT AUDITORS' REPORT
To the Members of
Trapper Mining InC.:
We have audited the accompanying consolidated balance sheets of Trapper Minng Inc. and subsidiaries
(the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of income,
members' equity, and cash flows for the years then ended. These financial statements are the
responsibilty of the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit also includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordigly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements,
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall fmancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated fmancial statements present fairly, in all material respects, the fmancial
position of the Company as of December 31,2010 and 2009, and the results of its operations and cash
flows for the years then ended in conformity with accounting principles generally accepted in the United
States of America.
June 13, 2011
Member of
Deloille Touche T ohmatsu Limited
TRAPPER MINING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2010 AND 2009
2010 2009
ASSETS
CURRNT ASSETS:
Cash and cash equivalents $13,448,198 $7,911,084
Accounts receivable 5,707,336 7,158,916
Supplies 6,172,597 5,798,271
Prepaid and other curent assets 412,462 1,310,947
Curent reclamation receivable from buyers 2,476,585 688,820
Curent deferred income ta asset 60,000
Total curent assets 28,217,178 22,928,038
PROPERTY, EQUIPMENT, AN FACILITIES:
Surface land and coal leaseholds 24,974,645 20,984,578
Development costs 2,834,815 2,834,815
Equipment and facilities 116,787,943 108,817,157
Total propert, equipment, and facilities 144,597,403 132,636,550
Less accumulated depreciation and amortization (94,715,290)(87,506,110)
Propert, equipment, and facilties- net 49,882,113 45,130,440
RECLAM nON RECEIVABLE FROM BUYERS .11,516,181 10,913,070
ACQUIRD GE ROYALTY - Net 5,454,546 6,818,182
DEFERRD INCOME TAX ASSET 1,079,000
RESTRICTED FUNDS 500,000 500,000
DEFERRD LOAN FEES - Net 144,366 174,872
TOTAL $95,714,384 $87,543,602
(Continued)
- 2 -
TRAPPER MINING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2010 AND 2009
2010
LIABILITIES AND MEMBERS' EQUITY
CURNT LIABILITIES:
AccOUIts payable
Accrued payroll expenses
Accrued production taxes
Accrued royalties
Deferred reclamation revenue
Curent asset retirement liability
Curent portion of long-term debt
$ 3,229,302
2,616,967
1,817,123
440,179
36,868
2,476,585
5,009,714
Total curent liabilties 15,626,738
16,470,959
19,377,343
LONG- TERM DEBT
ASSET RETIREMENT LIABILITY
DEFERRD INCOME TAX LIABILITY
BLACK LUNG LIABILITY 272,237
Total liabilties 51,747,277
COMMITMENTS AND CONTIGENCIES (Note 9)
MEMBERS' EQUITY 43,967,107
TOTAL $ 95,714,384
See notes to consolidated financial statements.
- 3 -
2009
$1,993,196
2,578,102
1,323,650
241,943
765,355
4,084,859
10,987,105
15,824,119
17,958,177
1,210,000
277,953
46,257,354
41,286,248
$ 87,543,602
(Concluded)
TRAPPER MINING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,2010 AND 2009
2010 2009
TONS OF COAL SOLD:
Fuel agreement $1,477,267 $1,468,850
Other sales 714,302 652,356
Total tons of coal sold 2,191,569 2,121,206
OPERATIG REVENUS:
Coal sales 59,016,716 58,511,343
Reclamation, mine health, and safety 5,812,724 5,810,178
Ash disposal 1,769,525 1,709,710
Grvel sales 88,440
Total operating revenues 66,598,965 66,119,671
OPERATIG COSTS AN EXPENSES:
Striping 31,456,902 26,230,727
Mining 8,588,729 8,374,414
Production and other taes 4,084,051 3,446,797
Royalties 6,954,156 5,363,477
Reclamation, mine health, and safety 7,449,608 8,653,807
Ash disposal 1,748,389 1,444,656
General and administrtive 2,555,139 2,703,868
Exploration 36,986
Gravel 3,220 144,159
Total operating costs and expenses 62,877,180 56,361,905
INCOME FROM OPERATIONS 3,721,785 9,757,766
OTHR (EXPENSE) INCOME:
Interest income 153,958 148,843
Interest expense (1,242,895)(457,908)Other expense (158)
Total other expense (1,089,095)(309,065)
NET INCOME BEFORE TAXS 2,632,690 9,448,701
INCOME TAX (BENEFI1) PROVISION:
Current 22,831 (6,211)Deferred (71,000)71,000
Total income ta (benefit) provision (48,169)64,789
NET INCOME $ 2,680,859 $ 9,383,912
NET INCOME:
From member activity $ 2,428,611 $ 8,383,827
From nonmember activity 252,248 1,000,085
TOTAL NET INCOME $ 2,680,859 $ 9,383,912
See notes to consolidated fiancial statements.
- 4 -
TRAPPER MINING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
FOR THE YËARS ENDED DECEMBER 31, 2010 AND 2009
Capital Paid-In Members'
Patronage Reserve Capital Equity
BALANCE - Janua 1, 2009 $11,407,879 $940,301 $ 20,324,925 $ 32,673,105
Net income 8,383,827 1,000,085 9,383,912
Patronage distrbutions (770,769)(770,769)
BALANCE - December 31,2009 19,020,937 1,940,386 20,324,925 41,286,248
Net income 2,428,611 252,248 2,680,859
BALANCE - December 31,2010 $21,449,548 $2,192,634 $ 20,324,925 $43,967,107
See notes to consolidated financial statements.
- 5 -
TRAPPER MINING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,2010 AND 2009
- 6-
TRAPPER MINING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OFAND FOR THE YEARS ENDED DECEMBER 31,2010 AND 2009
1. ORGANIZATION AND OPERATION OF THE COMPANY
Trapper Mining Inc., a Delaware corporation, was formed in December 1997 as a cooperative. Wiliams
Fork Company (WFC) and its wholly owned operating subsidiary, Trapper Mining, Inc., a Colorado
Corporation, were merged into Trapper Mining Inc. on Januar 1, 1998. Wiliams Fork Mining
Company (WMC), another subsidiary ofWFC was not merged and is now a wholly owned subsidiar
of Trapper Mining Inc. WFMC is engaged in the business of gravel excavation. Wiliams Fork Land
Company (WLC), a Colorado Corporation and wholly owned subsidiary of Trapper Mining Inc., was
formed January 21, 2010. WFLC purchases, holds, and manages any lands outside of Trapper's curent
permt boundary that may be of strategic or other interest. In addition, activities related to the evaluation
and permtting of tracts outside of Trapper's current permt boundary wil be conducted by WFLC.
Trapper Mining Inc., WFMC and WFLC are collectively referred to herein as ("Trapper" or the
"Company"). Trapper is engaged in the business of mining, selling and delivering coal from the Trapper
Mine located near Craig, Colorado to its members under two agreements with the Craig Power Station
("Fuel Agreement" and "Coal Supply Agreement"), located adjacent to the Trapper Mine.
Cooperative member interests in Trapper are as follows:
Salt River Project Agricultual Improvement and Power Distrct
Tri-State Generation and Transmission Association, Inc.
PacifiCorp Energy
Platte River Power Authority
32.10 %
26.57
21.40
19.93
100.00 %
These four entities, together with Xcel Energy, Inc. (collectively, the "Buyers") own and operate the
Craig Power Station.
2. SUMMRY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation ~ The accompanying consolidated financial statements include the
accounts of Trapper Mining Inc. and its wholly owned subsidiaries, WFMC and WFLC. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with accounting priciples
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilties and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
durg the reporting period. Actul results could differ from those estimates.
Concentrations - The Company is potentially subject to concentration of credit risk related to cash
and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with
high quality financial institutions. As of December 31,2010 and December 31,2009, excess operating
fuds of approximately $13,152,000 and $7,191,000, respectively, were match fuded by the
institution's capital in federally backed mortgage securities and the remainig balance falls within the
- 7 -
unlimited FDIC coverage offered by the institution for non-interest bearg transactions accounts. The
Craig Power Station represented 99.2% and 98.7% of accounts receivable at December 31, 2010 and
2009, respectively. The Company believes the credit wortiness of this customer miimizes the
Company's credit risk.
Members' Equity - Patronage represents the cumulative net gain from member activity. Member
activity represents coal sales to members pursuant to the Craig Station Fuel Agreement, Coal Supply
Agreement, qualifying spot sales, and a portion of the treasur fuction less direct and allocated costs.
Capital reserve represents the cumulative net gain from non-member activity. Non-member activity
represents that portion of contract sales applicable to Xcel Energy, Inc. ("Xcel"), nonqualifying spot
sales, ash disposal, and a portion of the treasur fuction less diect and allocated costs. Allocated costs
are generally determned based on the percentage of revenue generated.
Cash and Cash Equivalents - For puroses of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity ofthree moiiths or less to be cash
equivalents.
Restricted Funds - The Company accounts for its investments in accordance with ASC 320-10,
Accounting/or Certain Investments in Debt and Equity Securities. At December 31, 2010, Trapper held
three certificates of deposit (CDs) with a total cost of $500,000. These CDs were purchased August
2010 and $10,000 is scheduled to matue in 2014 and $490,000 is scheduled to matue in 2015. At
December 31, 2009, Trapper held a held-to-maturity securty with a fair market value of approximately
$494,000 and an amortized cost of $500,000. The bond, scheduled to matue in 2014, was purchased in
December 2009 and called by the issuer in June 2010. The certificates of deposit and securty bond are
designated for payment under the Black Lung Liabilty (see Note 4). Trapper had no available-for-sale
or trading securties as of December 31, 2010 and 2009.
Supplies - Supplies are stated at the lower of weighted average cost or market. The supplies inventory
is made up of spare materials to maintain the Company's propert, equipment and facilities.
Property, Equipment, and Facilties - Equipment and facilities costs are depreciated over the
estimated useful lives of the assets using the straight-line or units-of-production methods. Useful lives
range from 3 years to 40 years. The Company recorded depreciation expense of approximately
$6,120,000 and $4,083,000 for the years ended December 31, 2010 and 2009, respectively.
Development costs and coal leaseholds are being amortized over estimated recoverable quantities of coal
using the units-of-production method. Equipmentunder capital lease is stated at the net present value of
minimum lease payments at the inception of the lease and depreciated over their estimated useful lives.
Revenue Recognition - Revenue is recognized when coal shipments are made and title transfers.
Substantially all of the Company's sales are to entities that are exempt from sales taxes.
Income Taxes - The Company is a non-exempt cooperative and is taed only on income from
non-member activity and any patronage income not allocated to members. Patronage income allocated
or distrbuted as patronage refuds is deductible in determning taxable income. At December 31,2010,
the Company had a net curent deferred tax asset of approximately $61,000 and a net long-term deferred
tax liabilty of approximately $4,000. The Company has fully allowed for these net deferred assets. At
December 31,2009, the Company had a net curent deferred tax asset of approximately $60,000 and a
net long-term deferred tax liabilty of approximately $131,000. A priary component of the deferred tax
liabilities represent accelerated depreciation for tax puroses, which includes 50% and 100% bonus ta
depreciation, while a significant deferred tax asset results from Alternative Minimum Tax
carrforwards.
- 8 -
Deferred Financing Costs - Fees paid to lenders and related expenses have been deferred and are
being amortized to interest expense over the life of the related debt on a straight-line basis, which
approximates the effective interest rate method.
Impairment of Long-Lived Assets - ASC 360-10, Accounting/or the Impaírment or Dísposal 0/
Long~Líved Assets, requires that long-lived assets be measured at the lower of carring amount or fair
value less costs to sell. Management does not believe curent events or circumstances indicate that its
long-lived assets are impaired for the years ended December 31,2010 and December 31,2009.
Fair Value of Financial Instruments - The following disclosure regarding the estimated fair value of
the Company's financial instrents is made in accordance with accounting standards governg fair
value measurements. Exit prices are used to meaSure financial assets and liabilities that fall within the
scope of the fair value measurements guidance. Under ths gudance, we are required to classify certain
assets and liabilities based on the following fair value hierarchy:
Levell - Quoted prices in active markets that are unadjusted and accessible at the measurement date
for identical, unestrcted assets or liabilties;
Level 2 - Quoted prices for i.dentical assets and liabilities in markets that are not active, quoted prices
for similar assets and liabilties in active markets or financial instrents for which signficant inputs are
observable, either directly or indirectly; and
Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement
and unobservable.
This guidance requires the use of observable market data if such data is available without undue cost and
effort. However, considerable judgment is required to interpret market data in order to develop the
estimates of fair value. Accordingly, the estimates herein are not necessarily indicative of the amounts
the Company could realize in a curent market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair value amounts. For
cash and cash equivalents, accounts receivable, restrcted fuds, and accounts payable, the carring
values are considered to be equivalent to fair value due to the short-term matuties. The fair value of the
Company's fixed rate, long-term debt as of December 31, 2010 approximat~s the carring amount, as
the applicable interest rates approximate market and are designated as Level 2 within the valuation
hierarchy.
Reclamation - The Company is obligated under terms of its mining permit to reclaim all land
impacted by mining operations. The Company recognizes reclamation expenses in accordance with
ASC 410-20, Accounting/or Asset Retírement Oblígations. The Company's long-term contracts with the
Buyers (see Note 5) provides for the reimbursement of curent reclamation costs related to coal sales
under the long-term contracts. The Company is reimbursed monthly based upon an estimate of that
calendar year's actual cost of reclamation.
The Company's miing permit requires the Company to maintain a pedormance bond ($30.2 milion at
December 31, 2010, and $30.1 million at December 31, 2009) to cover the estimated final reclamation
costs that may be required following the termination of mining operations. The Fuel Agreement contract
with the Buyers was amended in April 1992 to include a provision requiring payment by the Buyers of
these mine closing costs beyond 2014.
- 9 -
PostemploymentBenefits - All hourly employees are entitled to one year of postemployment
disability benefits if, after the employees' vacation and sick pay have been exhausted, they are still
disabled. The Company recognizes expense on the pay-as-you-go method. As of December 31, 2010 and
2009, there were no employees utilizing this benefit.
Acquired G.E. Royalty ~ On March 5, 2004, the Company purchased a royalty agreement between
Trapper and General Electric Holdings Inc. ("G.B.") whereby Trapper was required to pay royalties to
G.E. on all coal mied at Trapper Mine. The purchase was effective January 1,2004. This asset is
amortized using the straight -line method over the course of the original estiated remaining life of the
mine (2014).
3. ROYALTIES
As of December 31, 2010 and 2009, the Company had the following recorded for the Acquired G .E.
Royalty:
December 31,2010
Gross Carrying Accumulated Net CarringAmount Amortization Value
December 31,2009
Gross Carryng Accumulated Net Carrng
Amount Amortization Value
GERoyalty $15,000,000 $9,545,454 $5,454,546 $15,000,000 $ 8,181,818 $ 6,818,182
The Company recorded amortization expense of$1,363,636 related to its intangible assets durng the
years ended December 31, 2010 and 2009. As of December 31,2010, amortization expense on
intangible assets for future years is as follows:
Years Ending
December 31
2011
2012
2013
2014
$1,363,636
1,363,636
1,363,637
1,363,637
The Company is pbligated for other royalties on its various coal leases, which range from $0.134 per ton
to 12.5% of sales price. Effective January 1, 1998, Trapper and the United States Deparent of the
Interioradjusted the method by which royalties under its federal leases are calculated. Royalties under
the federal leases for member coal deliveries are calculated as 12.5% of mining costs, retu and tax
savings, while coal deliveries to Xcel remained at 12.5% of sales price. In June 2009, the United States
Departent of the Interior granted Trapper Mine a royalty rate reduction from 12.5% to 8% of the value
of the coal for all sudace mineable seams, for a period of 8 years or the production of 22,000,000 tons,
whichever comes first, effective May 1,2007. The 2009 royalty expense was reduced by $1,785,459
related to 2007 and 2008 rate reductions. The 2009 coal sales revenue was also reduced by $1,201,773
for 2007 and 2008 royalty price component reductions. The royalties are a fixed obligation and,
accordingly, are bilable for tons sold. Therefore, the Company includes the applicable amounts in
operating costs and expenses and operating revenues, respectively, in the accompanying consolidated
statements of income.
- 10-
4. BLACK LUNG LIABILITY
The Company has an obligation to provide black lung disabilty benefits under the Federal Coal Mine
Health and Safety Act to all coal miers presently employed, as well as retired miners hired subsequent
to January 1, 1970.
The Company is self-insured for its black lung liabilty. As of December 31, 2010 and 2009, the
Company has accrued approximately $272,000 and $278,000, respectively, for this liability and
recorded income of approximately $5,700 due to an actuarial study conducted in the curent year and
expense of $8,100, respectively, for the years then ended. The Company maintains separate investment
accounts designated for the Black Lung Insurance Fund (see Note 2).
5. RELATED-PARTY TRASACTIONS
Coal Sales - The Company has a long-term coal sales contrct ("Fuel Agreement") with the Buyers
which accounted for 67.4% of 20 1 0 and 69.2% of 2009 coal sales. The contract provides for a maximum
amount of fuel containing 1,830 trllion BTU (approximately 65 milion tons) to be delivered to the
Buyers through approximately the year 2014. The contract provides for periodic escalations to the sales
price based on changes in certain cost indices (labor, royalties, etc.), and for periodic audits by the
Buyers.
Percentage interests in the long-term coal sales contract held by the Buyers are as follows:
Percentage of
Coal Sales
Contract
Salt River Project Agricultual Improvement and Power District
Tri-State Generation and Transmission Association, Inc.
PacifiCorp Energy
Platte River Power Authority
Xcel Energy, Inc.
29.00 %
24.00
19.28
18.00
9.72
100.00 %
On September 18,2009, the Company entered into a Craig Station Long-Term Coal Supply Agreement
with the cooperative members (see Note 1). The term of this Agreement shall be a period commencing
on Januar 1, 2010 and ending on December 31, 2020 with a maximum amount of fuel containng
385.3 trllon BTU (approximately 19.7 milion tons) delivered to the members. This contract accounted
for 32.6% of2010 coal sales.
Based on coal reserve estimates prepared by the Company's engineers, it is the opinion of the
Company's management that adequate coal reserves exist to fulfill these long-term contracts.
Ash Disposal - Trapper has contracted with the Buyers to dispose of the coal ash produced by the
Buyers' power station adjacent to Trapper Mine. Trapper is paid on a negotiated per trck load basis and
this activity is reflected as ash disposal revenue and expense in the accompanying consolidated
statements of income.
- 11 -
6. BENEFIT PLANS
Trapper's workforce is comprised of 79% unon employees. They are represented by International
Union of Operating Engineers Local NO.9. The curent union contract expires November 30, 2015.
The Company has a salary deferral401(k) plan for all salaried employees. Employer contrbutions to the
Employer Basic Account generally equal 1 0.05% of employees' compensation and vest over a five-year
period. Employer contributions to the Supplemental Account generally equal 2.5% of employees'
compensation and are 100% vested when contrbuted. Employee contrbutions are 100% vested when
contrbuted. Contributions to the plans are accrued and expensed in the period in which salares and
wages are eared.
The Company also has a 401(k) plan for union employees. The union plan is administered by the
Company and full time union employees are eligible after 30 days of service. No employer contrbution
to the plan is required and employees may contribute up to 50% of their compensation. Such
contrbutions are 100% vested when contrbuted.
Under the terms of the union contract, the Company is obligated monthly to pay into the Central Pension
Fund of the International Union of Operating Engineers and Participating Employers. This
multi-employer pension plan defmes set rates, eligible hours worked, eligible employees and is separate
from the 401(k) plans.
Total expense under the plans was approximately $1,368,000 and $1,323,000 for the years endèd
December 31, 2010 and 2009, respectively.
7. ASSET RETIREMENT OBLIGATIONS
ASC 410-20 addresses financial accounting and reporting for obligations associated with the retirement
of tangible long-lived assets and the associated asset retirement costs. The Company's asset retirement
obligation (ARO) liabilties primarily consist of spending estimates related to reclaiming surace land
and support facilities at both surface and underground mines in accordance with federal and state
reclamation laws as defmed by each mine permit.
The Company estimates its ARO liabilties for fmal reclamation and mine closure based upon detailed
engineering calculations of the amount and timng of the futue cash spending for a third part to
perform the required work. Spending estimates are escalated for inflation, then discounted at the credit
adjusted risk-free rate. Asset retirement obligations are initially recorded as a liabilty based on fair
value, which is calculated as the present value of the estimated futue cash flows, in the period in which
it is incured. The Company records an ARO asset associated with the discounted liability for fmal
reclamation and mine closure. The corresponding asset is recorded at fair value in the period in which
the liabilty is incured. The ARO asset is amortized on the straight-line method over its expected life
and the ARO liabilty is accreted to the projected spending date. As changes in estimates occur (such as
mine plan revisions, changes in estimated costs, or changes in timing of the performance of reclamation
activities), the revisions to the obligation and asset are recognized at the appropriate credit-adjusted risk-
free rate.
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A reconciliation of the Company's liability for asset retirement obligations for the years ended
December 31,2010 and 2009, is as follows:
2010 2009
Balance - January 1 $18,723,532 $16,371,595
Liabilties incured 3,810,887 1,595,918
Liabilities settled (623,818)(1,297,243)
Change in estimate (1,219,512)1,056,990
Accretion expense 1,162,839 996,272
Balance - December 31 21,853,928 18,723,532
Less curent portion of asset retirement liability (2,476,585)(765,355)
Total non-curent asset retirement liability $19,377,343 $17,958,177
Trapper has an agreement with its Buyers where the Buyers wil reimburse Trapper for reclamation
activities after the mine closes, which is anticipated to occur in 2020 (see Note 5). As of December 31,
2010 and 2009, the Company had recorded a curent receivable of approximately $2,477,000 and
$689,000 and a long-term receivable of approximately $11,516,000 and $10,913,000, respectively.
These reimbursements increase the revenue that Trapper recognzes for its reclamation activities. As of
December 31,2010 and 2009, the Company has recorded a net ARO asset within propert, equipment,
and facilities - net, of approximately $7,861,000 and $6,511,000, respectively.
8. DEBT
Debt as of December 31,2010 and 2009, is as follows:
Total debt
2010 2009
$5,561,898 $6,969,547
612,996 745,518
5,656,832
9,648,947 12,193,913
21,480,673 19,908,978
(5,009,714)(4,084,859)
$16,470,959 $15,824,119
Long-term ban loan - LeToureau loader
Long-term bank loan - Grader
Long-term ban loan - Constrction loan
Capital finance leases
Less curent porton of debt
Total non-curent debt
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As of December 31, 2010, the futue payments on long-term debt are as follows:
Capital
Years Ended Long Term Finance
December 31 Bank Loans Leases Total
2011 $2,310,735 $3,195,214 $5,505,949
2012 2,436,061 3,195,213 5,631,274
2013 2,573,064 3,195,213 5,768,277
2014 1,824,517 1,065,071 2,889,588
2015 848,071 848,071
Thereafter 1,839,278 1,839,278
Total payments 11,831,726 10,650,711 22,482,437
Less amounts representing interest 1,001,764 1,001,764
Total debt $11,831,726 $9,648,947 $21,480,673
The Company has two long-term bank loans with Bank of Colorado dated June 15,2009 and
December 1,2009, in the amounts of $7,650,000 and $745,518 for the purchase of a LeToureau loader
and a Caterpilar grader, respectively. The re-payments schedules are based on 20 quarerly installments
begining September 15,2009 and March 15,2010, and continuing each 15th day of each consecutive
third month thereafter, respectively, with an interest rate of 5.35% calculated on the unpaid balances.
These long-term loans are collateralized by substantially all the assets of the Company as well as
proceeds from the Craig Station Fuel Agreement and excluding four Komatsu haul trcks. The long-
term loans are subject to compliance with financial covenants relating to the curent ratio and tangible
net worth. The Company was in compliance with these covenants at December 31, 2010 and
December 31,2009.
The Company has four capital finance leases with Wells Fargo Equipment Finance, Inc. dated
August 27, 2009, in the amounts of$3,575,828, $3,233,328, $3,233,328, $3,233,328, respectively for
the purchase of four Komatsu haul trcks. The re-payment schedules are based on 57 monthly payments
in advance beginning September 15, 2009 and continuing on the 15th day of each month with an interest
rate of 5.89% calculated on the unpaid principal balances.
At December 31, 2010 and 2009, the gross book value of equipment under capital leases was
$13,201,341 with a net carring value of$11,454,701 and $12,843,042, respectively. Amortization of
assets recorded under capital leases are recorded as depreciation expense.
Trapper had a long-term bank loan with First National Bank of the Rockies dated March 5,2004
requirg: 19. quarterly interest payments with payments occurrg on the last day of each quarer
starting March 31, 2004, with interest calculated on the outstanding principal balance based on the Wall
Street Joural Prime Rate (3.25% at June 15,2009), and 15 quarterly pricipal payments of $750,000
each with payments occurng on the last day of each quarter staring March 31, 2005 until
December 31,2008, when a final payment of $3,750,000 was due. The remaining balance of $3,000,000
at December 31,2008, had been extended with the following payment schedule: 4 quarterly interest
payments with payments occurng on the last day of each quarer starting March 31, 2009, with interest
calculated on the outstading principal balance based on the Wall Street Journal Prime Rate (3.25% at
December 31, 2008), and 4 quarerly principal payments of $750,000 each with payments occuring on
the last day of each quarter starting March 31, 2009 until December 31, 2009. This long-term loan was
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paid off early without penalty on June 15, 2009, and was used to fud the G .E. Royalty Buyout and was
collateralized by substatially all the assets of the Company as well as proceeds from the Craig Station
Fuel Agreement.
The Company had a capital finance lease with Caterpilar Financial Services Corporation dated
March 30, 2006, in the amount of$1,596,516. The re-payment schedule was based on 36 equal monthy
installments with an interest rate of 5.85% on the unpaid balance. This lease was paid off durng the year
ended December 31,2009.
On December 18,2009, the Company entered into a Constrction and Term Loan Agreement with Ban
of Colorado to fud the constrction of a new maintenance shop buildig. Disbursements were made by
monthly draw requests ($5,656,832 and $0 at December 15, 2010 and December 31, 2009,respectively)
submitted by the Company. The re-payment schedule is based on 4 quarterly interest only payments
begining March 15,2010 and continuing on the 15th day of each consecutive third month thereafter of
that year, with an interest rate of 5.35% calculated on the unpaid pricipal balance. On December 15,
2010, the loan converted from a constrction loan to an amortized term loan in the amount of
$5,656,832 andremains outstading as of December 31,2010. The re-payment schedule is based on 20
quarterly payments beginning March 15,2011 and continuing on the 15th day of each consecutive third
month thereafter, with an interest rate of5.35% calculated on the unpaid balance. Begining March 15,
2016 the re-payment schedule is based on 8 quarerly payments and continues on the 15th day of each
consecutive third month thereafter, with a variable interest rate equal to the FHLB rate plus 2.5
percentage points, adjusted annually, calculated on the unpaid principal balance. In no event wil the
variable interest rate be less than 5% nor more than 7%. Collateral consists of substatially all assets of
the Company as well as proceeds from the Craig Station Fuel Agreement and excludig four Komatsu
haul trcks. The loan is subject to compliance with financial covenants relatig to the curent ratio and
tangible net worth. The Company was in compliance with these covenants at December 31, 2010.
9. COMMITMENTS AND CONTINGENCIES
In accordance with the Fuel Agreement (see Note 1), cost savings that arise from increased productivity
at the Trapper Mine are shared with the Buyers. Trapper passes these savings on to the Buyers via
credits on sales invoices. To ensure the credits are appropriately passed on to the Buyers an audit of
Trapper sales invoices is performed annually.
10. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through June 13,2011, which is the date the fmancial
statements were issued.
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