Walter Energy Announces Second Quarter 2013 Results

Achieved Revenues of $441 Million on 2.4 Million Metric Tons of Met Coal Sales Increased Met Coal Production Volumes 9.2% and Reduced Met Coal Cash Cost of Production per Metric Ton 23.3% Compared to Second Quarter 2012 Company Implementing Further Reductions in Capital Expenditures and SG&A Expenses

Marketwired

BIRMINGHAM, AL--(Marketwired - Aug 1, 2013) - Walter Energy Inc. (NYSE: WLT) (TSX: WLT), a leading, publicly traded "pure-play" producer of metallurgical (met) coal for the global steel industry, today announced results for the second quarter ended June 30, 2013.

"Our mines continue to perform well, as our focus on cost reduction and improving productivity continued in the second quarter, further improving our cost competitiveness," said Walt Scheller, Chief Executive Officer. "In a difficult met coal pricing environment, we continue to pursue measures to reduce operating costs, SG&A expenses and capital spending."

Consolidated Financial Results

Walter Energy reported a net loss of $34.5 million, or $0.55 loss per diluted share, in the second quarter 2013, compared to net income of $31.9 million, or $0.51 per diluted share, in the second quarter of 2012. Second quarter 2013 consolidated revenues totaled $441.5 million, a decrease from $677.6 million in the second quarter of 2012, primarily due to lower met coal prices and lower coal sales volume. Partially offsetting the declines in volume and pricing, consolidated financial results for the second quarter reflect the favorable impact of lower costs, including improved met coal cost performance and continued reductions in selling, general and administrative (SG&A) expenses.

Net income for the second quarter of 2013 includes charges of $3.3 million, net of tax, or $0.05 per diluted share, primarily related to proxy contest expenses and a restructuring and asset impairment net benefit of $3.4 million, net of tax, or $0.05 per diluted share. These charges and adjustments are reconciled in the Company's "Reconciliation of Non-GAAP Financial Measures." The adjusted net loss for the second quarter totaled $34.7 million, or $0.55 loss per diluted share, and second quarter 2013 adjusted EBITDA totaled $36.7 million.

Metallurgical Coal Sales Volume and Pricing

Second quarter of 2013 met coal sales volume, including both hard coking coal (HCC) and low-volatility (low-vol) PCI, was 2.4 million metric tons (MMTs), representing a decrease of 0.4 MMTs from second quarter 2012. HCC sales volume was 2.0 MMTs in the second quarter of 2013, a decrease of 13.8% compared to the second quarter of 2012. Low-vol PCI sales volume declined 15.8% in the second quarter of 2013 compared to the prior-year comparable quarter. Second quarter 2013 shipments were impacted by vessel delays at the Port of Ridley, with over 200,000 metric tons (MTs) of June shipments moved to the third quarter at carryover pricing. Met coal sales tonnage was approximately 89% of total coal sales volume in the second quarter of 2013 compared to 76% for the same period last year.

Met coal sales price per ton averaged $150.41 in the second quarter 2013, down from second quarter 2012 pricing of $193.31 per metric ton (MT), due to weak global met coal market conditions. The average selling price for low-vol PCI was $135.55 per MT as compared to $163.51 per MT in the prior year comparable quarter.

Metallurgical Coal Cash Cost of Sales

Consolidated cash cost of sales for the second quarter 2013 averaged $122.04 per MT, down 9.7% compared to the second quarter of 2012, reflecting a reduction of 5.7% in cash cost of sales per MT in the Company's U.S. operations and a reduction of 10.4% per MT in the Canadian operations. The Company recorded a lower of cost or market (LCM) charge, of which approximately $19.0 million related to the effect of the decline in third quarter 2013 met coal prices on valuing second quarter ending inventory, primarily relating to the Company's Canadian operations.

Metallurgical Coal Production

Met coal production was 2.9 MMTs in the second quarter of 2013, comprised of 2.5 MMTs of HCC and 0.4 MMTs of low-vol PCI. Met coal production increased 9.2% compared to 2.7 MMTs produced in the second quarter of 2012. The strong performance in the current quarter was driven by a production increase of 0.4 MMTs, a 26% improvement, at the Company's premium HCC mines in Alabama as compared to the second quarter in the prior year.

Met coal cash cost of production averaged $78.47 per MT in the second quarter of 2013, down 23.3% compared to the prior-year comparable quarter. Cash cost of production per MT in the Company's Alabama low and mid-vol mines decreased by $5.84 per MT, or 8.2%, in the second quarter of 2013 as compared to the second quarter last year, primarily due to improved productivity. Cash cost of production per MT in the Canadian operations decreased by $50.39 per MT, or 32.9%, as compared to the second quarter of 2012. Strong productivity increases at Brule led to significantly improved cost performance, with cash cost of production totaling $79.82 per MT, compared to $101.68 per MT in the first quarter of 2013. Results for the Wolverine mine were negatively impacted by property development costs along with costs and downtime from unanticipated repairs.

Other Expenses

SG&A expenses totaled $27.1 million in the second quarter 2013, representing a decline from $35.8 million in the second quarter of the prior year. SG&A expenses in the second quarter of 2013 included expenses of $5.4 million, primarily related to the proxy contest. Compared to the prior-year comparable period, second quarter 2013 SG&A expenses reflect the reclassification of $8.1 million from SG&A expenses to cost of sales, comprised of operations-related direct administrative charges.

Interest expense for the second quarter of 2013 totaled $53.1 million compared to $31.1 million in the second quarter of 2012, with the increase primarily driven by an increase in long-term debt and higher interest rates. Also included in interest expense is a non-cash component, primarily made up of amortization of debt expense, which totaled $5.6 million in the second quarter of 2013 and $4.7 million in the prior-year comparable period.

Results for the second quarter 2013 included a restructuring and asset impairment pre-tax net benefit of $9.1 million associated with the amendment of a sales contract eliminating commitments to deliver coal, thus allowing for the accelerated closure of the Company's North River mine in Alabama, partially offset by an asset impairment charge related to the closure. The Company also recorded a pre-tax restructuring charge of $3.3 million related to the previously announced curtailment of operations in April 2013 at Willow Creek.

Capital Expenditures

The Company's capital expenditures totaled $46 million for the second quarter of 2013, representing a decrease of 63% from the second quarter 2012. Capital expenditures for the first six months of 2013 totaled $80 million compared to $246 million in the first six months of 2012.

Liquidity

Available liquidity was $487.5 million at the end of the second quarter of 2013, consisting of cash and cash equivalents of $170.9 million plus $316.6 million of availability under the Company's $375 million revolving credit facility, net of outstanding letters of credit of $58.4 million.

The Company executed an amendment to its credit facility in July 2013, improving its financial flexibility in addressing the current difficult global met coal cycle. The amendment modifies related covenants, suspending interest coverage ratio compliance until March 31, 2015 and senior secured leverage ratio compliance until June 30, 2014. In addition, compliance in both covenants was made less restrictive once reinstated. The Company incurred fees and charges of $18.3 million in July 2013 associated with execution of the amendment, and interest margins on the debt under the credit facility increased by 1% going forward.

Outlook

Strong met coal production performance in the Company's Alabama underground mines has continued in the third quarter; however, volumes for the third quarter are expected to be lower than the second quarter due to a planned longwall move. Production in the Company's Canadian operation is also expected to be lower in the third quarter, as the Wolverine mine has moved into a less favorable phase of its mining cycle. The Company remains on track to achieve its full-year met coal production target of approximately 11 million metric tons.

The Company is planning further reductions in SG&A expenses and capital expenditures. SG&A expenses have been targeted for additional reductions of $10 million, with an annual targeted run rate of $80 million. In addition, the Company has reduced its capital spending target to approximately $150 million for the full-year 2013.

Use of Non-GAAP Measures

This release contains the use of certain U.S. non-GAAP (Generally Accepted Accounting Principles) measures. These non-GAAP measures are provided as supplemental information for financial measures prepared in accordance with GAAP. Management believes that these non-GAAP measures provide additional insights into the performance of the Company, and they reflect how management analyzes Company performance and compares that performance against other companies. These non GAAP measures may not be comparable to other similarly titled measures used by other entities. A reconciliation of non-GAAP to GAAP measures is provided in the financial section of this release.

Conference Call Webcast

The Company will hold a webcast to discuss second quarter 2013 results on Thursday, August 1, 2013, at 10:00 a.m. ET. To listen to the live event, visit www.walterenergy.com.  

About Walter Energy

Walter Energy is a leading, publicly traded "pure-play" metallurgical coal producer for the global steel industry with strategic access to high-growth steel markets in Asia, South America and Europe. The Company also produces thermal coal, anthracite, metallurgical coke and coal bed methane gas. Walter Energy employs approximately 4,100 employees, with operations in the United States, Canada and United Kingdom. For more information about Walter Energy, please visit www.walterenergy.com.  

Safe Harbor Statement

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and may involve a number of risks and uncertainties. Forward-looking statements are based on information available to management at the time, and they involve judgments and estimates. Forward-looking statements include expressions such as "believe," "anticipate," "expect," "estimate," "intend," "may," "plan," "predict," "will," and similar terms and expressions. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to various risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of that are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements: unfavorable economic, financial and business conditions; the global economic crisis; market conditions beyond our control; prolonged decline in the price of coal; decline in global coal or steel demand; prolonged or dramatic shortages or difficulties in coal production; our customer's refusal to honor or renew contracts; our ability to collect payments from our customers; inherent risks in coal mining such as weather patterns and conditions affecting production, geological conditions, equipment failure and other operational risks associated with mining; title defects preventing us from (or resulting in additional costs for) mining our mineral interests; concentration of our mining operations in limited number of areas; a significant reduction of, or loss of purchases by, our largest customers; unavailability of cost-effective transportation for our coal; availability, performance and costs of railroad, barge, truck and other transportation; disruptions or delays at the port facilities we use; risks associated with our reclamation and mine closure obligations, including failure to obtain or renew surety bonds; significant increase in competitive pressures and foreign currency fluctuations; significant cost increases and delays in the delivery of raw materials, mining equipment and purchased components; availability of adequate skilled employees and other labor relations matters; inaccuracies in our estimates of our coal reserves; estimates concerning economically recoverable coal reserves; greater than anticipated costs incurred for compliance with environmental liabilities or limitations on our abilities to produce or sell coal; our ability to attract and retain key personnel; future regulations that increase our costs or limit our ability to produce coal; new laws and regulations to reduce greenhouse gas emissions that impact the demand for our coal reserves; adverse rulings in current or future litigation; inability to access needed capital; events beyond our control that may result in an event of default under one or more of our debt instruments; availability of licenses, permits, and other authorizations that may be subject to challenges; risks associated with our reclamation and mine closure obligations; failure to meet project development and expansion targets; risks associated with operating in foreign jurisdictions; risks related to our indebtedness and our ability to generate cash for our financial obligations; downgrade in our credit rating; our ability to identify suitable acquisition candidates to promote growth; our ability to integrate acquisitions successfully; our exposure to indemnification obligations; volatility in the price of our common stock; our ability to pay regular dividends to stockholders; costs related to our postretirement benefit obligations and workers' compensation obligations; our exposure to litigation; and other risks and uncertainties including those described in our filings with the SEC. Forward-looking statements made by us in this release, or elsewhere, speak only as of the date on which the statements were made. You are advised to read the risk factors in our most recently filed Annual Report on Form 10-K and subsequent filings with the SEC, which are available on our website at www.walterenergy.com and on the SEC's website at www.sec.gov. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us or our anticipated results. We have no duty to, and do not intend to, update or revise the forward-looking statements in this release, except as may be required by law. In light of these risks and uncertainties, readers should keep in mind that any forward-looking statement made in this press release may not occur. All data presented herein is as of the date of this release unless otherwise noted.

   
   
WALTER ENERGY, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
AND COMPREHENSIVE INCOME  
($in thousands, except per share and share amounts)  
Unaudited  
                         
    For the three months     For the six months  
    ended June 30,     ended June 30,  
    2013     2012     2013     2012  
Revenues:                                
  Sales   $ 437,798     $ 668,605     $ 927,407     $ 1,295,903  
  Miscellaneous income     3,698       8,969       5,432       13,234  
      441,496       677,574       932,839       1,309,137  
                                 
Costs and expenses:                                
  Cost of sales (exclusive of depreciation and depletion)     367,616       486,084       788,550       917,618  
  Depreciation and depletion     68,320       74,459       149,510       140,952  
  Selling, general and administrative     27,129       35,845       57,803       72,092  
  Postretirement benefits     14,725       13,213       29,450       26,426  
  Restructuring and asset impairment (1)     (5,741 )     -       1,699       -  
      472,049       609,601       1,027,012       1,157,088  
                                 
Operating income (loss)     (30,553 )     67,973       (94,173 )     152,049  
  Interest expense (2)     (53,129 )     (31,104 )     (105,747 )     (59,171 )
  Interest income     144       341       794       618  
  Other loss, net (3)     (714 )     (5,919 )     (609 )     (12,912 )
Income (loss) from continuing operations before income tax expense (benefit)     (84,252 )     31,291       (199,735 )     80,584  
Income tax expense (benefit)     (49,760 )     4,535       (115,799 )     13,212  
  Income (loss) from continuing operations     (34,492 )     26,756       (83,936 )     67,372  
  Income from discontinued operations     -       5,180       -       5,180  
Net Income (loss)   $ (34,492 )   $ 31,936     $ (83,936 )   $ 72,552  
                                 
Basic income (loss) per share:                                
  Income (loss) from continuing operations   $ (0.55 )   $ 0.43     $ (1.34 )   $ 1.08  
  Income from discontinued operations     -       0.08       -       0.08  
  Net Income (loss)   $ (0.55 )   $ 0.51     $ (1.34 )   $ 1.16  
                                 
Weighted average number of basic shares outstanding (4)     62,632,384       62,537,177       62,614,387       62,502,508  
                                 
Diluted income (loss) per share:                                
  Income (loss) from continuing operations   $ (0.55 )   $ 0.43     $ (1.34 )   $ 1.08  
  Income from discontinued operations     -       0.08       -       0.08  
  Net Income (loss)   $ (0.55 )   $ 0.51     $ (1.34 )   $ 1.16  
                                 
Weighted average number of diluted shares outstanding (4)     62,632,384       62,780,225       62,614,387       62,758,532  
                                 
Comprehensive income (loss)   $ (30,770 )   $ 30,637     $ (90,414 )   $ 75,918  
                                 
     
(1)   Restructuring and asset impairment includes a benefit associated with the accelerated closure of the Alabama North River mine anticipated in the latter half of 2013, partially offset by restructuring charges incurred in connection with the curtailment of operations at our Willow Creek mine.
(2)   Interest expense reflects an increase in interest rates on our outstanding debt obligations due to the Second and Third Amendments to the 2011 Credit Agreement, an increase in interest associated with the issuance of $500.0 million 9.875% senior notes in the fourth quarter of 2012 and $450.0 million 8.5% senior notes in the first quarter of 2013, and the related accelerated amortization of debt expense of $6.0 million.
(3)   The other loss includes losses on the sale and remeasurement to fair value of equity investments.
(4)   In periods of net loss, the number of shares used to calculate diluted earnings per share is the same as that used to calculate basic earnings per share.
     
     
   
WALTER ENERGY, INC. AND SUBSIDIARIES  
RESULTS BY OPERATING SEGMENT  
($ in thousands)  
Unaudited  
                         
    For the three months     For the six months  
    ended June 30,     ended June 30,  
    2013     2012     2013     2012  
                                 
REVENUES:                                
U.S. Operations   $ 321,009     $ 466,761     $ 660,234     $ 918,911  
Canadian and U.K. Operations     119,873       209,645       271,317       387,996  
Other     614       1,168       1,288       2,230  
  Revenues   $ 441,496     $ 677,574     $ 932,839     $ 1,309,137  
                                 
OPERATING INCOME (LOSS):                                
U.S. Operations   $ 37,333     $ 107,245     $ 30,376     $ 214,226  
Canadian and U.K. Operations     (66,347 )     (24,679 )     (115,113 )     (38,234 )
Other     (1,539 )     (14,593 )     (9,436 )     (23,943 )
  Operating income (loss)   $ (30,553 )   $ 67,973     $ (94,173 )   $ 152,049  
                                 
DEPRECIATION AND DEPLETION:                                
U.S. Operations   $ 31,189     $ 43,704     $ 78,662     $ 85,846  
Canadian and U.K. Operations     36,620       30,535       69,852       54,671  
Other     511       220       996       435  
  Depreciation and depletion   $ 68,320     $ 74,459     $ 149,510     $ 140,952  
                                 
CAPITAL EXPENDITURES:                                
U.S. Operations   $ 38,803     $ 43,851     $ 66,204     $ 79,963  
Canadian and U.K. Operations     7,231       78,177       13,545       162,357  
Other     190       3,183       502       3,736  
  Capital expenditures   $ 46,224     $ 125,211     $ 80,251     $ 246,056  
                                   
                                   
 
WALTER ENERGY, INC. AND SUBSIDIAIRES
SUPPLEMENTAL FINANCIAL DATA
(Ton information in 000's metric tons and dollars in USD)
Unaudited
 
                                     
                                     
    3 Months Ended June 30, 2013   3 Months Ended June 30, 2012   3 Months Ended March 31, 2013
    U.S. Operations   Canadian and U.K. Operations   Total   U.S. Operations   Canadian and U.K. Operations (3)   Total   U.S. Operations   Canadian and U.K. Operations   Total
Total Metallurgical                                                      
  Sales Metric Tons     1,621     819     2,440     1,784     1,058     2,842     1,706     1,071     2,777
  Production Metric Tons     2,070     879     2,949     1,724     976     2,700     1,738     1,019     2,757
  Average Net Selling Price   $ 153.99   $ 143.31   $ 150.41   $ 194.10   $ 191.99   $ 193.31   $ 157.28   $ 143.96   $ 152.14
  Average Cash Cost of Sales per Ton (1)(2)   $ 101.12   $ 163.43   $ 122.04   $ 107.19   $ 182.34   $ 135.17   $ 109.76   $ 134.91   $ 119.46
  Average Cash Cost of Production per Ton (1)   $ 68.22   $ 102.62   $ 78.47   $ 73.55   $ 153.01   $ 102.28   $ 78.11   $ 109.67   $ 89.78
                                                       
    Low Vol Hard Coking                                                      
      Sales Metric Tons     983     -     983     1,097     -     1,097     1,166     -     1,166
      Production Metric Tons     1,272     -     1,272     1,152     -     1,152     1,074     -     1,074
      Average Net Selling Price   $ 158.93   $ -   $ 158.93   $ 207.88   $ -   $ 207.88   $ 162.97   $ -   $ 162.97
      Average Cash Cost of Sales per Ton (1)(2)   $ 91.52   $ -   $ 91.52   $ 98.28   $ -   $ 98.28   $ 104.26   $ -   $ 104.26
      Average Cash Cost of Production per Ton (1)   $ 57.99   $ -   $ 57.99   $ 61.63   $ -   $ 61.63   $ 64.69   $ -   $ 64.69
                                                       
    Low Vol Hard Coking - Willow Creek                                                      
      Sales Metric Tons     -     37     37     -     -     -     -     105     105
      Production Metric Tons     -     3     3     -     66     66     -     99     99
      Average Net Selling Price   $ -   $ 146.31   $ 146.31   $ -   $ -     -   $ -   $ 135.63   $ 135.63
      Average Cash Cost of Sales per Ton (1)(2)   $ -   $ 224.76   $ 224.76   $ -   $ -     -   $ -   $ 199.39   $ 199.39
      Average Cash Cost of Production per Ton (1)   $ -   $ 107.17   $ 107.17   $ -   $ 209.35   $ 209.35   $ -   $ 155.66   $ 155.66
                                                       
    Mid Vol Hard Coking                                                      
      Sales Metric Tons     500     317     817     396     506     902     390     547     937
      Production Metric Tons     596     411     1,007     331     470     801     418     433     851
      Average Net Selling Price   $ 154.94   $ 154.35   $ 154.71   $ 200.18   $ 223.06   $ 212.90   $ 153.28   $ 149.19   $ 150.89
      Average Cash Cost of Sales per Ton (1)(2)   $ 127.28   $ 162.19   $ 140.83   $ 146.28   $ 143.98   $ 145.00   $ 135.53   $ 131.10   $ 132.94
      Average Cash Cost of Production per Ton (1)   $ 81.69   $ 123.36   $ 98.71   $ 105.38   $ 80.42   $ 90.74   $ 106.86   $ 99.84   $ 103.29
                                                       
    High Vol Hard Coking                                                      
      Sales Metric Tons     138     -     138     291     -     291     150     -     150
      Production Metric Tons     202     -     202     241     -     241     246     -     246
      Average Net Selling Price   $ 110.15   $ -   $ 110.15   $ 138.64   $ -   $ 138.64   $ 121.31   $ -   $ 121.31
      Average Cash Cost of Sales per Ton (1)(2)   $ 106.69   $ -   $ 106.69   $ 119.88   $ -   $ 119.88   $ 109.50   $ -   $ 109.50
      Average Cash Cost of Production per Ton (1)   $ 92.95   $ -   $ 92.95   $ 86.80   $ -   $ 86.80   $ 87.80   $ -   $ 87.80
                                                       
    Low Vol PCI                                                      
      Sales Metric Tons     -     401     401     -     411     411     -     271     271
      Production Metric Tons     -     421     421     -     286     286     -     332     332
      Average Net Selling Price   $ -   $ 135.52   $ 135.52   $ -   $ 158.29   $ 158.29   $ -   $ 133.82   $ 133.82
      Average Cash Cost of Sales per Ton (1)(2)   $ -   $ 143.44   $ 143.44   $ -   $ 203.32   $ 203.32   $ -   $ 122.34   $ 122.34
      Average Cash Cost of Production per Ton (1)   $ -   $ 79.82   $ 79.82   $ -   $ 228.13   $ 228.13   $ -   $ 101.68   $ 101.68
                                                       
    Low Vol PCI - Willow Creek                                                      
      Sales Metric Tons     -     64     64     -     141     141     -     148     148
      Production Metric Tons     -     44     44     -     154     154     -     155     155
      Average Net Selling Price   $ -   $ 135.77   $ 135.77   $ -   $ 178.74   $ 178.74   $ -   $ 149.10   $ 149.10
      Average Cash Cost of Sales per Ton (1)(2)   $ -   $ 259.97   $ 259.97   $ -   $ 258.86   $ 258.86   $ -   $ 126.00   $ 126.00
      Average Cash Cost of Production per Ton (1)   $ -   $ 126.86   $ 126.86   $ -   $ 210.34   $ 210.34   $ -   $ 124.95   $ 124.95
                                                       
Thermal                                                      
  Sales Metric Tons     305     12     317     871     20     891     383     4     387
  Production Metric Tons     407     12     419     908     17     925     434     12     446
  Average Net Selling Price   $ 68.03   $ 111.03   $ 69.65   $ 68.11   $ 126.61   $ 69.40   $ 64.23   $ 32.98   $ 63.92
  Average Cash Cost of Sales per Ton (1)(2)   $ 92.48   $ 252.27   $ 98.52   $ 65.39   $ 103.40   $ 66.23   $ 90.34   $ 341.79   $ 92.87
  Average Cash Cost of Production per Ton (1)   $ 63.34   $ 115.73   $ 64.89   $ 55.35   $ -   $ 54.34   $ 76.16   $ 102.96   $ 76.89
                                                       
     
(1)   Average Cash Cost of Sales per Ton is based on reported Cost of Sales and includes items such as freight, royalties, manpower, fuel and other similar production and sales cost items but excludes depreciation, depletion and post retirement benefits. Average Cash Cost of Production per Ton is based on period costs of mining and includes items such as manpower, fuel and other similar production items but excludes depreciation, depletion and post retirement benefits. Average Cash Cost per Ton is a non-GAAP financial measure which is not calculated in conformity with U.S. Generally Accepted Accounting Principles (GAAP) and should be considered supplemental to, and not as a substitute or superior to financial measures calculated in conformity with GAAP. We believe Average Cash Cost per Ton is a useful measure of performance and we believe it aids some investors and analysts in comparing us against other companies to help analyze our current and future potential performance. Average Cash Cost of Sales per Ton may not be comparable to similarly titled measures used by other companies.
(2)   Reconciliation of Cash Cost of Sales per Ton to Cost of Sales as disclosed (in thousands USD):
     
 
    Quarter Ended
June 30, 2013
  Quarter Ended
June 30, 2012
  Quarter Ended
March 31, 2013
Cash Cost of Sales as calculated from above (sales tons times average cash cost per ton)   $ 329,008   $ 443,164   $ 367,681
Cash Cost of other products     38,608     42,920     53,253
  Total Cost of Sales   $ 367,616   $ 486,084   $ 420,934
                     
     
(3)   During the third quarter of 2012, in our Canadian and U.K. operations certain metrics around tons included in production were realigned to align with how we account for production in the U.S. operations. Historically, the Canadian and U.K. operations were not recording tons produced until they were deemed finished goods. We revised this methodology to include all tons mined, no matter if in process or finished, as produced based on a clean coal tonnage equivalent. Our Form 8-K filed on November 5, 2012, includes a reconciliation of production statistics previously presented as compared with the realigned methodology from the Western Coal acquisition date of April 1, 2011 through June 30, 2012.
     
     
 
WALTER ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($in thousands)
Unaudited
         
    June 30,   December 31,
    2013   2012
ASSETS            
Cash and cash equivalents   $ 170,878   $ 116,601
Receivables, net     254,256     256,967
Inventories     339,584     306,018
Deferred income taxes     55,318     58,526
Prepaid expenses     60,151     53,776
Other current assets     23,754     23,928
  Total current assets     903,941     815,816
Mineral interests, net     2,914,825     2,965,557
Property, plant and equipment, net     1,657,123     1,732,131
Deferred income taxes     161,215     160,422
Other long-term assets     94,752     94,494
TOTAL ASSETS   $ 5,731,856   $ 5,768,420
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current debt   $ 14,919   $ 18,793
Accounts payable     123,540     114,913
Accrued expenses     135,772     184,875
Accumulated postretirement benefits obligation     30,074     29,200
Other current liabilities     202,300     206,473
  Total current liabilities     506,605     554,254
Long-term debt     2,591,181     2,397,372
Deferred income taxes     848,748     921,687
Accumulated postretirement benefits obligation     638,713     633,264
Other long-term liabilities     237,320     251,272
TOTAL LIABILITIES     4,822,567     4,757,849
STOCKHOLDERS' EQUITY     909,289     1,010,571
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 5,731,856   $ 5,768,420
             
             
   
WALTER ENERGY, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY  
FOR THE SIX MONTHS ENDED JUNE 30, 2013  
($in thousands, except per share amounts)  
Unaudited  
                             
    Total     Common Stock   Capital in Excess of Par Value     Accumulated Deficit     Accumulated Other Comprehensive Loss  
                                       
Balance at December 31, 2012   $ 1,010,571     $ 625   $ 1,628,244     $ (347,448 )   $ (270,850 )
                                       
Net loss     (83,936 )                   (83,936 )        
Other comprehensive loss, net of tax     (6,478 )                           (6,478 )
Stock issued upon the exercise of stock options     279       1     278                  
Dividends paid, $0.25 per share (1)     (15,638 )           (23,452 )     7,814          
Stock-based compensation     5,370             5,370                  
Tax effect from stock-based compensation arrangements     (586 )           (586 )                
Other     (293 )     -     -       (293 )        
Balance at June 30, 2013   $ 909,289     $ 626   $ 1,609,854     $ (423,863 )   $ (277,328 )
                                       
 (1)   An adjustment of $7.8 million was made to Capital in Excess of Par Value in the first quarter of 2013 to correct the classification of the dividend declared in the fourth quarter of 2012. Refer to Note 1 "Basis of Presentation" in our first quarter of 2013 Form 10-Q filed on May 8, 2013 for further discussion.
     
     
   
WALTER ENERGY, INC. AND SUBSIDIARIES  
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  
Unaudited  
   
RECONCILIATION OF EBITDA FROM CONTINUING OPERATIONS, EBITDA AND ADJUSTED EBITDA TO AMOUNTS REPORTED UNDER US GAAP:  
   
    For the three months ended     For the six months ended  
    June 30,     June 30,  
($in thousands)   2013     2012     2013     2012  
                                 
Income (loss) from continuing operations   $ (34,492 )   $ 26,756     $ (83,936 )   $ 67,372  
  Interest expense     53,129       31,104       105,747       59,171  
  Interest income     (144 )     (341 )     (794 )     (618 )
  Income tax expense (benefit)     (49,760 )     4,535       (115,799 )     13,212  
  Depreciation and depletion expense     68,320       74,459       149,510       140,952  
Earnings from continuing operations before interest, income taxes,                                
and depreciation and depletion (EBITDA from continuing operations) (1)     37,053       136,513       54,728       280,089  
  Pretax income from discontinued operations     -       8,282       -       8,282  
Earnings before interest, income taxes, and depreciation and depletion                                
  (EBITDA) (2)     37,053       144,795       54,728       288,371  
  Restructuring and asset impairment     (5,741 )     -       1,699       -  
  Proxy contest expenses and other     5,429       -       12,267       -  
Adjusted EBITDA (3)   $ 36,741     $ 144,795     $ 68,694     $ 288,371  
                                 
RECONCILIATION OF ADJUSTED NET INCOME (LOSS) TO AMOUNTS REPORTED UNDER US GAAP:                 
                                 
    For the three months ended     For the six months ended  
    June 30,     June 30,  
($in thousands)   2013     2012     2013     2012  
                                 
Net income (loss)   $ (34,492 )   $ 31,936     $ (83,936 )   $ 72,552  
Restructuring and asset impairment, net of tax expense (benefit): $2.3 million and $(0.3) million for the three and six months ended June 30, 2013, respectively     (3,432 )     -       1,418       -  
Proxy contest expenses and other, net of tax benefit: $2.1 million and $4.8 million for the three and six months ended June 30, 2013, respectively     3,261       -       7,527       -  
Adjusted net income (loss) (4)   $ (34,663 )   $ 31,936     $ (74,991 )   $ 72,552  
                                 
Weighted average number of diluted shares outstanding     62,632,384       62,780,225       62,614,387       62,758,532  
                                 
Adjusted diluted income (loss) per share:   $ (0.55 )   $ 0.51     $ (1.20 )   $ 1.16  
                                 
(1)   EBITDA from continuing operations is defined as earnings excluding discontinued operations before interest expense, interest income, income taxes, and depreciation and depletion expense. EBITDA from continuing operations is a financial measure which is not calculated in conformity with U.S. Generally Accepted Accounting Principles (GAAP) and should be considered supplemental to, and not as a substitute or superior to financial measures calculated in conformity with GAAP. We believe that EBITDA from continuing operations is a useful measure as some investors and analysts use EBITDA from continuing operations to compare us against other companies and to help analyze our ability to satisfy principal and interest obligations and capital expenditure needs. EBITDA from continuing operations may not be comparable to similarly titled measures used by other companies.
(2)   EBITDA is defined as net income (loss) before interest expense, interest income, income taxes, and depreciation and depletion expense. EBITDA is a financial measure which is not calculated in conformity with U.S. Generally Accepted Accounting Principles (GAAP) and should be considered supplemental to, and not as a substitute or superior to financial measures calculated in conformity with GAAP. We believe that EBITDA is a useful measure as some investors and analysts use EBITDA to compare us against other companies and to help analyze our ability to satisfy principal and interest obligations and capital expenditure needs. EBITDA may not be comparable to similarly titled measures used by other companies.
(3)   Adjusted EBITDA is defined as EBITDA further adjusted to exclude restructuring charges (benefits), asset impairment, proxy contest expenses and other miscellaneous items. Adjusted EBITDA is not a measure of financial performance in accordance with GAAP, and we believe items excluded from Adjusted EBITDA are significant to a reader in understanding and assessing our financial condition. Therefore, Adjusted EBITDA should not be considered in isolation, nor as an alternative to net income, income from operations, cash flows from operations or as a measure of our profitability, liquidity or performance under generally accepted accounting principles. We believe that Adjusted EBITDA presents a useful measure of our ability to incur and service debt based on ongoing operations. Furthermore, analogous measures are used by industry analysts to evaluate our operating performance. Investors should be aware that our presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.
(4)   Adjusted net income (loss) is defined as net income (loss) excluding restructuring charges (benefits), asset impairment, proxy contest expenses and other miscellaneous items, net of tax. Adjusted net income (loss) is not a measure of financial performance in accordance with generally accepted accounting principles, and we believe items excluded from Adjusted net income (loss) are significant to a reader in understanding and assessing our results of operations. Therefore, Adjusted net income (loss) should not be considered in isolation, nor as an alternative to net income (loss) under generally accepted accounting principles.
     
     
   
WALTER ENERGY, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
($ in thousands)  
Unaudited  
             
    For the six months ended June 30,  
    2013     2012  
OPERATING ACTIVITIES                
Net income (loss)   $ (83,936 )   $ 72,552  
  Less income from discontinued operations     -       (5,180 )
Income (loss) from continuing operations     (83,936 )     67,372  
                 
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:                
                 
  Depreciation and depletion     149,510       140,952  
  Deferred income tax benefit     (77,717 )     (18,894 )
  Amortization of debt issuance costs     14,015       9,033  
  Other     8,402       9,327  
                 
  Decrease (increase) in current assets:                
    Receivables     (2,302 )     113,203  
    Inventories     (24,281 )     (66,213 )
    Prepaid expenses and other current assets     (8,826 )     (22,095 )
                 
  Increase (decrease) in current liabilities:                
    Accounts payable     24,483       81,684  
    Accrued expenses and other current liabilities     (23,450 )     (5,807 )
      Cash flows provided by (used in) operating activities     (24,102 )     308,562  
                 
INVESTING ACTIVITIES                
  Additions to property, plant and equipment     (80,251 )     (246,056 )
  Proceeds from sales of investments     202       12,228  
  Other     762       582  
      Cash flows used in investing activities     (79,287 )     (233,246 )
                 
FINANCING ACTIVITIES                
  Proceeds from issuance of debt     450,000       -  
  Borrowings under revolving credit agreement     529,382       112,350  
  Repayments on revolving credit agreement     (529,382 )     (63,341 )
  Retirements of debt     (259,200 )     (118,003 )
  Dividends paid     (15,638 )     (15,618 )
  Debt issuance costs     (15,080 )     -  
  Other     (600 )     288  
      Cash flows provided by (used in) financing activities     159,482       (84,324 )
      Cash flows provided by (used in) continuing operations     56,093       (9,008 )
                 
CASH FLOWS FROM DISCONTINUED OPERATIONS     -       9,500  
                 
EFFECT OF FOREIGN EXCHANGE RATES ON CASH     (1,816 )     (242 )
                 
Net increase in cash and cash equivalents   $ 54,277     $ 250  
Cash and cash equivalents at beginning of period     116,601       128,430  
Cash and cash equivalents at end of period   $ 170,878     $ 128,680  
                 
                 
Contact:
For media:
Ruth Pachman
212-521-4891
ruth-pachman@kekst.com
or
For investors:
Mark Tubb
205-745-2627
mark.tubb@walterenergy.com
View Comments (0)