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Press release from Marketwire

Walter Energy Announces First Quarter 2011 Results

Company Reports Earnings of $1.53 per Diluted Share and Net Income of $81.8 Million, Both Almost Double Compared to First Quarter 2010 EBITDA of $148.1 Million, Up 58 Percent Underground Mining Segment Nearly Doubles Operating Income

Wednesday, April 20, 2011

Walter Energy Announces First Quarter 2011 Results20:14 EDT Wednesday, April 20, 2011TAMPA, FL--(Marketwire - April 20, 2011) - WalterEnergy (NYSE: WLT) (TSX: WLT), the world's leading, publicly traded"pure play" producer of metallurgical coal for the globalsteel industry, today announced earnings per diluted share of $1.53 and netincome of $81.8 million for the quarter ended March 31, 2011, compared toearnings per diluted share of $0.77 and net income of $41.6 million in thefirst quarter 2010. Results for the period exclude results from WesternCoal, which the Company acquired on April 1, 2011."We generated strong year-over-year growth in revenues and income drivenprimarily by the third highest coking coal pricing we have ever achieved,"said Walter Energy Chief Executive Officer Keith Calder. "Now that ouracquisition of Western Coal is complete, we can turn our attention todelivering on our promises, executing integration activities and framingfuture growth opportunities."First Quarter 2011 Financial ResultsRevenues for the first quarter 2011 totaled $408.7 million compared to$312.0 million in the prior-year period. Operating income totaled $119.8million for the quarter, compared to $71.3 million in the prior-yearperiod. Revenue and operating income improvements were primarily due tostrong coking coal pricing from the Company's underground mining segment.Operating income improvements were partially offset by higher costs andlower sales volumes from the underground mining segment.EBITDA for the first quarter 2011 was $148.1 million, compared to $93.5million in the first quarter 2010.Results for the quarter also include $9.9 million in costs associated withthe acquisition of Western Coal.Underground MiningThe underground mining segment reported revenues of $343.2 million in thefirst quarter 2011, compared to $240.3 million in the prior-year period.Operating income was $123.9 million, nearly double the operating income inthe same period last year. Revenues and operating income were higherprimarily due to significantly higher average coking coal contract pricing,partially offset by lower coal sales volumes. Operating income was alsonegatively impacted by higher production costs, royalties and freightcosts.Coking coal sales totaled 1.7 million tons in the first quarter, down 6.4percent compared to the prior-year period due to lower production volumesdespite strong customer demand. The average selling price in the quarterwas $193.51 per short ton FOB Port, a 52.3 percent increase over theaverage selling price of $127.05 per ton for the same period last year.The Company produced 1.6 million tons of coking coal in the quarter,compared to 1.7 million tons in the first quarter 2010. Lower productionwas primarily the result of challenging mining conditions, which persistedlonger than expected in the first quarter 2011. Production costs for thequarter averaged $69.20 per ton compared to $58.19 in the prior-yearperiod. Cost per ton increased due to the effect of lower volumes as wellas planned continuous miner development associated with the preparation offuture longwall panels.The Company's natural gas business sold 3.4 billion cubic feet of gas at anaverage price of $4.09 per thousand cubic feet in the first quarter 2011compared to 1.4 billion cubic feet at an average price of $5.49 perthousand cubic feet in the prior-year period. Increased production andsales for the quarter resulted from the May 2010 acquisition of the WalterBlack Warrior Basin natural gas business.Surface MiningThe surface mining segment reported revenues of $40.8 million for the firstquarter 2011, compared to $31.3 million in the prior-year period onincreased sales volumes and pricing. Operating income for the surfacemining segment was $6.7 million, compared to $7.3 million in the prior-yearperiod. Operating income was lower as higher revenues were more than offsetby increases in production costs, primarily due to higher stripping ratiosand diesel prices.The surface mining segment reported coal sales of 426,000 tons during thefirst quarter, up 13.6 percent compared to the prior-year period primarilydue to incremental sales volumes from the Reid School metallurgical coalmine. Production was 369,000 tons, up 7.0 percent versus the first quarterlast year driven by the incremental Reid School mine tonnage.Walter CokeWalter Coke reported revenues of $47.3 million in the first quarter 2011,compared to $51.2 million in the prior-year period. Revenues were lower asa result of lower sales volumes, which more than offset increased pricing.The segment generated $8.0 million in operating income in the quarter,compared to $7.6 million in the prior-year period. Operating incomeimprovements were the result of strong pricing and improved plantperformance.The segment sold 104,000 tons of metallurgical coke in the first quarter2011 at an average price of $409.85 per ton compared to 139,000 tons soldin the prior-year period at an average price of $327.37 per ton. Priceincreases were primarily attributable to improved demand in the domesticautomotive and steel markets.2011 Full-Year Business OutlookAs previously announced, Walter Energy acquired Western Coal on April 1,2011. Sales volume expectations for both legacy Walter Energy and legacyWestern Coal are as follows:The Company expects full year metallurgical coal sales from the WalterEnergy Alabama underground operations of 7.5 million to 8.0 million shorttons. In addition, the Walter Energy Alabama surface operations expect tosell between 1.4 million and 1.6 million short tons of thermal coal for thefull year.From the legacy Western Coal operations, the Company expects metallurgicalcoal sales of between 4.9 million and 5.3 million metric tons for theperiod of April 1, 2011 to Dec. 31, 2011. The Company expects thermal coalsales of 1.0 million to 1.2 million metric tons for the same period fromthese operations.Capital ExpendituresCapital expenditures for the full year 2011 are expected to total between$500 million and $540 million and includes significant expansion projectsat the Canadian operations. Estimates for the previous Western Coaloperations are for the period covering April 1, 2011 through Dec. 31, 2011.LiquiditySimultaneous with the closing of the acquisition of Western Coal, theCompany entered into a new $2,750 million credit facility. As of mid-April2011, the Company had available liquidity of approximately $500 million,consisting of cash, cash equivalents and marketable securities of $169million, plus $331 million available under the Company's new $375 millionrevolver. Total long-term debt, including the current portion of long-termdebt as of mid-April 2011, was approximately $2,290 million.Conference Call Web CastChief Executive Officer Keith Calder and members of the Company'sleadership team will discuss Walter Energy's first quarter results, itsoutlook and other general business matters during a conference call andlive Web cast to be held Thursday, April 21, 2011, at 11 a.m. EasternDaylight Time. To listen to the event live or in archive, or to view theaccompanying slides, visit the Company Web site at Walter EnergyWalter Energy is the world'sleading, publicly traded "pure play" metallurgical coal producer for theglobal steel industry. The Company also produces steam coal and industrial coal, anthracite, metallurgical coke and coal bed methane gas. The Companyhas strategic access to high-growth steel markets in Asia, South Americaand Europe. Walter Energy had pro forma 2010 revenues of approximately $2.3billion and employs approximately 4,000 employees and contractors withoperations in the United States, Canada and United Kingdom. For moreinformation about Walter Energy, please visit the company website at Harbor StatementExcept for historical information contained herein, the statements in thisrelease are forward-looking and made pursuant to the safe harbor provisionsof the Private Securities Litigation Reform Act of 1995 and may involve anumber of risks and uncertainties. Forward-looking statements are based oninformation available to management at the time, and they involve judgmentsand estimates. Forward-looking statements include expressions such as"believe," "anticipate," "expect," "estimate," "intend," "may," "plan,""predict," "will," and similar terms and expressions. These forward-lookingstatements are made based on expectations and beliefs concerning futureevents affecting us and are subject to various risks, uncertainties andfactors relating to our operations and business environment, all of whichare difficult to predict and many of which are beyond our control, thatcould cause our actual results to differ materially from those mattersexpressed in or implied by these forward-looking statements. The followingfactors are among those that may cause actual results to differ materiallyfrom our forward-looking statements: the market demand for coal, coke andnatural gas as well as changes in pricing and costs; the availability ofraw material, labor, equipment and transportation; changes in weather andgeologic conditions; changes in extraction costs, pricing and assumptionsand projections concerning reserves in our mining operations; changes incustomer orders; pricing actions by our competitors, customers, suppliersand contractors; changes in governmental policies and laws, including withrespect to safety enhancements and environmental initiatives; availabilityand costs of credit, surety bonds and letters of credit; and changes ingeneral economic conditions. Forward-looking statements made by us in thisrelease, or elsewhere, speak only as of the date on which the statementswere made. See also the "Risk Factors" in our 2010 Annual Report on Form10-K and subsequent filings with the SEC which are currently available onour website at New risks and uncertainties arise fromtime to time, and it is impossible for us to predict these events or howthey may affect us or our anticipated results. We have no duty to, and donot intend to, update or revise the forward-looking statements in thisrelease, except as may be required by law. In light of these risks anduncertainties, readers should keep in mind that any forward-lookingstatement made in this press release may not occur. All data presentedherein is as of the date of this release unless otherwise noted. WALTER ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands, except per share and share amounts) Unaudited For the three months ended March 31, ---------------------- 2011 2010 ---------- ----------Revenues: Sales $ 406,575 $ 308,110 Miscellaneous income 2,159 3,939 ---------- ---------- 408,734 312,049 ---------- ----------Costs and expenses: Cost of sales (exclusive of depreciation and depletion) 218,460 189,511 Depreciation and depletion 28,358 22,169 Selling, general and administrative (1) 31,882 18,693 Postretirement benefits 10,267 10,369 ---------- ---------- 288,967 240,742 ---------- ----------Operating income 119,767 71,307 Interest expense (3,556) (4,777) Interest income 156 181 ---------- ----------Income from continuing operations before income taxes 116,367 66,711Income tax expense (2) 34,554 24,016 ---------- ----------Income from continuing operations 81,813 42,695Discontinued operations (3) - (1,144) ---------- ----------Net income $ 81,813 $ 41,551 ========== ==========Basic income per share:Income from continuing operations $ 1.54 $ 0.80Discontinued operations - (0.02) ---------- ----------Basic net income per share $ 1.54 $ 0.78 ========== ==========Weighted average number of shares outstanding 53,190,274 53,437,036 ========== ==========Diluted income per share:Income from continuing operations $ 1.53 $ 0.79Discontinued operations - (0.02) ---------- ----------Diluted net income per share $ 1.53 $ 0.77 ========== ==========Weighted average number of diluted shares outstanding 53,533,421 54,098,171 ========== ==========(1) The 2011 first quarter includes $9.9 million of costs associated with the April 1, 2011 acquisition of Western Coal Corp.(2) Our effective tax rate for the 2010 first quarter is higher than the 2011 first quarter as the 2010 period includes an income tax charge of $20.7 million related to the elimination of the favorable tax treatment of Medicare Part D subsidies due to the passage of the Health Care Reform Act. The prior period tax provision also includes an income tax benefit of $17.4 million related to the unconventional fuel source credits for our Walter Coke segment for the years 2006 through 2009.(3) Discontinued operations includes the results of our closed Homebuilding and Kodiak operations for the first quarter 2010. WALTER ENERGY, INC. AND SUBSIDIARIES RESULTS BY OPERATING SEGMENT ($ in thousands) Unaudited For the three months ended March 31, -------------------- 2011 2010 --------- ---------REVENUES:Underground Mining $ 343,154 $ 240,301Surface Mining 40,796 31,333Walter Coke 47,276 51,182Other 798 778Consolidating eliminations of intersegment activity (23,290) (11,545) --------- --------- $ 408,734 $ 312,049 ========= =========OPERATING INCOME (LOSS):Underground Mining $ 123,876 $ 64,828Surface Mining 6,737 7,260Walter Coke 8,000 7,643Other (1) (19,206) (8,119)Consolidating eliminations of intersegment activity 360 (305) --------- --------- Operating income $ 119,767 $ 71,307 ========= =========(1) Results for the 2011 first quarter include $9.9 million of costs associated with the April 1, 2011 acquisition of Western Coal Corp. WALTER ENERGY, INC. AND SUBSIDIARIES RECONCILIATION OF EBITDA TO AMOUNTS REPORTED UNDER US GAAP ($ in thousands) Unaudited For the three months ended March 31, -------------------------- 2011 2010 ------------ ------------Net income $ 81,813 $ 41,551 Add loss from discontinued operations - 1,144 Add (less) income tax expense (benefit) 34,554 24,016 Add interest expense 3,556 4,777 Less interest income (156) (181) Add depreciation and depletion expense 28,358 22,169Earnings from continuing operations before interest, income taxes, and depreciation and ------------ ------------ depletion (EBITDA) (1) $ 148,125 $ 93,476 ============ ============(1) EBITDA represents earnings from continuing operations 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 entities. WALTER ENERGY, INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION Unaudited For the three months ended March 31,----------------- 2011 2010 -------- --------Operating Data: Underground Mining Tons sold by type (in thousands): Metallurgical coal, contracts 1,564 1,746 Purchased coal 136 70 -------- -------- 1,700 1,816 ======== ======== Average selling price per short ton $ 193.51 $ 127.05 Tons sold by mine (in thousands): Mine No. 4 544 732 Mine No. 7 1,020 1,014 -------- -------- Total 1,564 1,746 ======== ======== Coal cost of sales (exclusive of depreciation): Mine No. 4 per ton $ 96.48 $ 65.80 Mine No. 7 per ton $ 91.06 $ 75.06 Weighted average cost of sales per ton $ 92.95 $ 71.18 Purchased coal costs (in thousands) $ 14,176 $ 4,984 Other costs (in thousands) (1) $ 9,338 $ 4,325 Tons of coal produced (in thousands): Mine No. 4 522 703 Mine No. 7 1,059 955 -------- -------- Total 1,581 1,658 ======== ======== Coal production costs per ton: (2) Mine No. 4 $ 78.83 $ 56.41 Mine No. 7 $ 64.45 $ 59.50 Weighted average production costs per ton $ 69.20 $ 58.19 Natural gas sales, in mmcf (in thousands) 3,376 1,444 Natural gas average sale price per mcf $ 4.09 $ 5.49 Natural gas cost of sales per mcf $ 2.34 $ 3.45 Surface Mining Tons sold (in thousands) 426 375 Tons of coal produced (in thousands) 369 345 Average selling price per short ton $ 92.75 $ 78.89 Coal production costs per ton $ 75.57 $ 57.81(1) Consists of charges (credits) not directly allocable to a specific underground mine. Also includes charges of $5.4 million and $1.9 million in the 2011 first quarter and 2010 first quarter, respectively, due to lower than normal production.(2) Coal production costs per ton are a component of inventoriable costs, including depreciation. Other costs not included in coal production costs per ton include Company-paid outbound freight, postretirement benefits, asset retirement obligation expenses, royalties, and Black Lung excise taxes. WALTER ENERGY, INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION Unaudited For the three months ended March 31, ----------------- 2011 2010 -------- --------Operating Data (continued): Walter Coke: Metallurgical coke tons sold (in thousands) 104 139 Metallurgical coke average sales price per ton $ 409.85 $ 327.37 Depreciation and depletion ($ in thousands): Underground Mining $ 23,113 $ 18,492 Surface Mining 3,960 2,582 Walter Coke 1,096 1,018 Other 189 77 -------- -------- $ 28,358 $ 22,169 ======== ======== Capital expenditures ($ in thousands): Underground Mining $ 37,534 $ 12,731 Surface Mining 4,596 494 Walter Coke 2,006 852 Other 157 260 -------- -------- $ 44,293 $ 14,337 ======== ======== WALTER ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($ in thousands) Unaudited As of --------------------------- March 31, December 31, 2011 2010 ------------- -------------ASSETSCash and cash equivalents $ 93,205 $ 293,410Receivables, net 144,991 143,238Inventories 96,441 97,631Deferred income taxes 62,215 62,371Prepaid expenses 22,614 28,179Other current assets 8,980 10,710 ------------- ------------- Total current assets 428,446 635,539Property, plant and equipment, net 805,031 790,001Deferred income taxes 141,843 149,520Investment in Western Coal Corp. (1) 309,157 -Other long-term assets 83,835 82,705 ------------- ------------- TOTAL ASSETS $ 1,768,312 $ 1,657,765 ============= =============LIABILITIES AND STOCKHOLDERS' EQUITYAccounts payable $ 65,248 $ 70,692Accrued expenses 88,436 52,399Current debt 9,556 13,903Accumulated postretirement benefits obligation 25,066 24,753Other current liabilities 23,339 32,100 ------------- ------------- Total current liabilities 211,645 193,847Long-term debt 151,718 154,570Accumulated postretirement benefits obligation 454,329 451,348Other long-term liabilities 264,240 262,934 ------------- -------------TOTAL LIABILITIES 1,081,932 1,062,699STOCKHOLDERS' EQUITY 686,380 595,066 ------------- -------------TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,768,312 $ 1,657,765 ============= =============(1) In January 2011, we acquired approximately 25.3 million common shares of Western Coal Corp. from funds advised by Audley Capital for $293.7 million in cash. At March 31, 2011 our investment in Western Coal Corp. was measured at fair value. On April 1, 2011 we acquired the remaining common shares of Western Coal Corp. for $3.4 billion, funded through $2.2 billion in long-term debt and the issue of approximately 9.0 million common shares of Walter Energy, Inc. valued at $1.2 billion. WALTER ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2011 ($ in thousands) Unaudited Capital in Excess Accumulated of Other Common Par Comprehensive Retained Comprehensive Total Stock Value Income Earnings Loss -------- ----- -------- ---------- -------- ----------Balance at December 31, 2010 $595,066 $ 531 $355,540 $411,383 $ (172,388)Comprehensive income:Net income 81,813 $ 81,813 81,813Other comprehensive income, net of tax: Change in pension and postretirement benefit plans 3,149 3,149 3,149Change in unrealized gain on investment 9,626 9,626 9,626 Change in unrealized loss on hedges (118) (118) (118) ----------Comprehensive income $ 94,470 ==========Stock issued upon the exercise of stock options 1,691 2 1,689Dividends paid, $0.125 per share (6,642) (6,642)Stock-based compensation 1,150 1,150Excess tax benefit from stock-based compensation arrangements 5,731 5,731Other (5,086) - (5,086) -------- ----- -------- -------- ----------Balance at March 31, 2011 $686,380 $ 533 $359,024 $486,554 $ (159,731) ======== ===== ======== ======== ========== WALTER ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands) Unaudited For the three months ended March 31, ---------------------- 2011 2010 ---------- ----------OPERATING ACTIVITIESNet income $ 81,813 $ 41,551 Loss (income) from discontinued operations - 1,144 ---------- ---------- Income from continuing operations 81,813 42,695Adjustments to reconcile income from continuing operations to net cash flows provided by operating activities: Depreciation and depletion 28,358 22,169 Decrease in deferred income taxes - 32,772 Other 3,961 (828) Decrease (increase) in assets, net of effect of business acquisition: Receivables (1,753) (41,552) Inventories 1,190 18,426 Other current assets 6,488 (909) Increase (decrease) in liabilities, net of effect of business acquisition: Accounts payable (5,444) (260) Accrued expenses and other current liabilities 33,912 2,299 ---------- ---------- Cash flows provided by (used in) operating activities 148,525 74,812 ---------- ----------INVESTING ACTIVITIES Additions to property, plant and equipment (44,293) (14,337) Investment in Western Coal (293,678) - Other 211 (91) ---------- ---------- Cash flows provided by (used in) investing activities (337,760) (14,428) ---------- ----------FINANCING ACTIVITIES Retirements of debt (7,199) (6,627) Dividends paid (6,642) (5,358) Purchases of stock under stock repurchase program - (4,689) Other 2,336 5,794 ---------- ---------- Cash flows provided by (used in) financing activities (11,505) (10,880) ---------- ---------- Cash flows provided by (used in) continuing operations (200,740) 49,504 ---------- ----------CASH FLOWS FROM DISCONTINUED OPERATIONS Cash flows provided by (used in) operating activities - (1,635) Cash flows provided by (used in) investing activities - 599 Cash flows provided by (used in) financing activities - - ---------- ---------- Cash flows provided by (used in) discontinued operations - (1,036) ---------- ----------Net increase (decrease) in cash and cash equivalents $ (200,740) $ 48,468 ========== ==========Cash and cash equivalents at beginning of period $ 293,410 $ 165,279Add: Cash and cash equivalents of discontinued operations at beginning of period 535 1,254Net increase (decrease) in cash and cash equivalents (200,740) 48,468Less: Cash and cash equivalents of discontinued operations at end of period - 577 ---------- ----------Cash and cash equivalents at end of period $ 93,205 $ 214,424 ========== ==========FOR FURTHER INFORMATION PLEASE CONTACT: Mark H. TubbInvestor Contact:Vice President - Investor Relations813.871.4027mtubb@walterenergy.comORMichael A. MonahanMedia Contact:Director - Corporate