OREANDA-NEWS. Westmoreland Coal Company (Nasdaq:WLB) today reported financial results for the 2016 first quarter and affirmed its full-year 2016 outlook.

First Quarter Highlights

  • Revenues of $354.7 million, from tons sold of 13.8 million
  • Net income applicable to common shareholders of $30.6 million, or $1.67 per diluted share, including a $47.9 million, or $2.62 per diluted share, tax benefit resulting from the change in valuation of tax assets following the San Juan acquisition
  • Adjusted EBITDA1 of $63.0 million
  • Cash flow provided by operating activities of $18.2 million
  • Free cash flow1 of $14.0 million

“Despite weak power demand during the first quarter, which was one of the warmest quarters on record, our mine-mouth and cost-protected model again helped us deliver solid results, especially cash flows,” said Kevin Paprzycki, Westmoreland’s Chief Executive Officer.  “We continue to make progress on our cash generation initiatives as we work towards paying down our debt late in the year.  Our goal is to create value for Westmoreland’s investors by generating cash and strengthening our balance sheet.”

Safety

Westmoreland is committed to achieving the highest safety standards.  Reflected in the safety performance in the first quarter of 2016 is an admirable accomplishment of 21 years with no lost time incidents at Westmoreland’s Sheerness mine, near Hanna, Alberta.

     
    First Quarter 2016
    Reportable   Lost Time
U.S. Operations     2.12       1.59  
U.S. National Average     3.27       2.28  
Percentage     65 %     70 %
         
Canadian Operations     5.00       1.67  
                 

Consolidated and Segment Results

The record-setting warm weather and the power pricing environment in many of Westmoreland’s markets impacted the first quarter results.  Westmoreland made progress in the quarter implementing cost curtailment initiatives and integrating San Juan Coal Company following the January 31 acquisition.  The consolidated and Coal - U.S. segment results benefited year over year from having two months of San Juan results included in the first quarter of 2016.

The Coal - U.S. segment experienced market softness as our customers reduced their power generation due to the low number of heating days this winter.  Coal - Canada results were impacted by low demand, however operating improvements led to increased profitability.  Lower open market pricing in Ohio pressured results at Coal - WMLP.

Cash Flow and Liquidity

The $14.0 million of free cash flow Westmoreland generated in the quarter was comprised of cash flow provided by operations of $18.2 million, less capital expenditures of $5.5 million, plus net cash collected under a certain contract for loan and lease receivables of $1.3 million.  Working capital investments, which included the initial underwriting of San Juan’s accounts receivables, reduced Westmoreland’s free cash flow by $16.9 million in the first quarter. 

Westmoreland ended the 2016 first quarter with $17.8 million of cash and cash equivalents on hand.  Contributing to the $5.2 million decrease from year end were, among other items, first quarter’s free cash flow generation, $11.0 million cash debt reductions, approximately $6 million of cash used, net of loan proceeds received, to purchase San Juan and $3.2 million of cash used for additional bonding.  Westmoreland had outstanding debt at quarter end of $1,129.0 million, an increase from year end driven by the San Juan financing.

At March 31, 2016, Westmoreland had zero drawn on its revolving credit facility and had, net of letters of credit, $36.3 million available to draw.  An additional $15 million was available to Westmoreland Resource Partners through its revolving credit facility, which is not available to the parent for borrowings. 

Full-Year Guidance

Commenting on the outlook, Paprzycki said, “After taking into account the current market conditions, we still expect to achieve the guidance we issued in February.  We have visibility into our cash flow stream because we entered this year with nearly 90% of our tons under cost-protected contracts.  Our cash generation, considering normal seasonality, will strengthen following the second quarter which typically experiences the year’s lowest energy demand.  We will look to reduce debt later in the year with our increased cash flow.”

Westmoreland’s 2016 guidance remains:

     
Coal tons sold   53 - 60 million tons
Adjusted EBITDA   $235 - $275 million
Free cash flow   $60 - $80 million
Capital expenditures   $59 - $71 million
Cash interest   approximately $90 million
     

 

About Westmoreland Coal Company

Westmoreland Coal Company is the oldest independent coal company in the United States.  Westmoreland’s coal operations include surface coal mines in the United States and Canada, underground coal mines in Ohio and New Mexico, a char production facility, and a 50% interest in an activated carbon plant.  Westmoreland also owns the general partner of and a majority interest in Westmoreland Resource Partners, LP, a publicly-traded coal master limited partnership.  Its power operations include ownership of the two-unit ROVA coal-fired power plant in North Carolina. 

 
Westmoreland Coal Company and Subsidiaries
Summary Consolidated and Segment Data (Unaudited)
 
 
    Three Months Ended March 31,
            Increase / (Decrease)
    2016   2015   $   %
    (In thousands, except tons sold data)
Westmoreland Consolidated                
Revenues   $ 354,721     $ 371,483     (16,762 )   (4.5 )%
Operating income   11,538     8,455     3,083     36.5 %
Adjusted EBITDA   62,957     56,027     6,930     12.4 %
Tons sold—millions of equivalent tons   13.8     13.5     0.3     2.2 %
                 
Coal - U.S.                
Revenues   $ 155,179     $ 154,869     $ 310     0.2 %
Operating income   11,280     7,118     4,162     58.5 %
Adjusted EBITDA   29,540     20,263     9,277     45.8 %
Tons sold—millions of equivalent tons   6.0     5.8     0.2     3.4 %
                 
Coal - Canada                
Revenues   $ 93,434     $ 103,242     $ (9,808 )   (9.5 )%
Operating income   12,409     9,865     2,544     25.8 %
Adjusted EBITDA   23,441     24,922     (1,481 )   (5.9 )%
Tons sold—millions of equivalent tons   5.8     5.5     0.3     5.5 %
                 
Coal - WMLP                
Revenues   $ 92,481     $ 109,090     $ (16,609 )   (15.2 )%
Operating income (loss)   809     (369 )   1,178     319.2 %
Adjusted EBITDA   19,280     19,005     275     1.4 %
Tons sold—millions of equivalent tons   2.0     2.2     (0.2 )   (9.1 )%
                 
Power                
Revenues   $ 21,995     $ 20,647     $ 1,348     6.5 %
Operating income (loss)   (5,801 )   413     (6,214 )   *  
Adjusted EBITDA   (3,348 )   (2,613 )   (735 )   (28.1 )%
                         
* Not meaningful                        
                         
 

Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations (Unaudited)
 
 
    Three Months Ended March 31,
    2016   2015
    (In thousands, except per share data)
Revenues   $ 354,721     $ 371,483  
Cost, expenses and other:        
Cost of sales   273,802     301,711  
Depreciation, depletion and amortization   35,013     38,059  
Selling and administrative   31,672     26,716  
Heritage health benefit expenses   3,015     3,059  
Loss on sale/disposal of assets   336     229  
Restructuring charges   —     553  
Derivative loss (gain)   2,600     (5,276 )
Income from equity affiliates   (1,293 )   (2,025 )
Other operating loss (gain)   (1,962 )   2  
    343,183     363,028  
Operating income   11,538     8,455  
Other income (expense):        
Interest expense   (29,669 )   (24,735 )
Interest income   1,791     2,140  
Gain (loss) on foreign exchange   (1,387 )   2,109  
Other income (loss)   (122 )   193  
    (29,387 )   (20,293 )
Loss before income taxes   (17,849 )   (11,838 )
Income tax expense (benefit)   (47,935 )   2,040  
Net income (loss)   30,086     (13,878 )
Less net loss attributable to noncontrolling interest   (498 )   (2,146 )
Net income (loss) applicable to common shareholders   $ 30,584     $ (11,732 )
Net income (loss) per share applicable to common shareholders:        
Basic and diluted   $ 1.67     $ (0.67 )
Weighted average number of common shares outstanding:        
Basic   18,262     17,621  
Diluted   18,269     17,621  
             
 
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Unaudited)
 
 
  March
31,
2016		   December
31,
2015
  (In thousands)
Assets      
Current assets:      
Cash and cash equivalents $ 17,754     $ 22,936  
Receivables:      
Trade 150,068     134,141  
Loan and lease receivables 5,968     6,157  
Contractual third-party reclamation receivables 12,564     8,020  
Other 19,021     11,598  
  187,621     159,916  
Inventories 143,399     121,858  
Other current assets 19,951     16,103  
Total current assets 368,725     320,813  
Property, plant and equipment:      
Land and mineral rights 596,448     476,447  
Plant and equipment 869,901     790,677  
  1,466,349     1,267,124  
Less accumulated depreciation, depletion and amortization 586,968     554,008  
Net property, plant and equipment 879,381     713,116  
Loan and lease receivables 51,823     49,313  
Advanced coal royalties 16,367     19,781  
Reclamation deposits 77,807     77,364  
Restricted investments 143,345     140,807  
Contractual third-party reclamation receivables, less current portion 154,816     86,915  
Investment in joint venture 29,014     27,374  
Intangible assets, net of accumulated amortization of $2.9 million and $15.9 million at March 31, 2016 and December 31, 2015, respectively 28,574     29,190  
Other assets 20,837     11,904  
Total Assets $ 1,770,689     $ 1,476,577  
               
 
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheet (Continued) (Unaudited) 
 
 
  March
31,
2016		   December
31,
2015
  (In thousands)
Liabilities and Shareholders’ Deficit      
Current liabilities:      
Current installments of long-term debt $ 77,375     $ 38,852  
Revolving lines of credit —     1,970  
Accounts payable and accrued expenses:      
Trade and other accrued liabilities 136,844     109,850  
Interest payable 11,749     15,527  
Production taxes 54,215     46,895  
Postretirement medical benefits 13,855     13,855  
SERP 368     368  
Deferred revenue 20,303     10,715  
Asset retirement obligations 49,445     43,950  
Other current liabilities 36,782     30,688  
Total current liabilities 400,936     312,670  
Long-term debt, less current installments 1,051,674     979,073  
Workers’ compensation, less current portion 5,034     5,068  
Excess of black lung benefit obligation over trust assets 17,423     17,220  
Postretirement medical benefits, less current portion 288,437     285,518  
Pension and SERP obligations, less current portion 44,221     44,808  
Deferred revenue, less current portion 21,986     24,613  
Asset retirement obligations, less current portion 450,422     375,813  
Intangible liabilities, net of accumulated amortization of $10.0 million and $9.8 million at March 31, 2016 and December 31, 2015, respectively 3,203     3,470  
Other liabilities 37,434     30,208  
Total liabilities 2,320,770     2,078,461  
Shareholders’ deficit:      
Common stock of $0.01 par value      
Authorized 30,000,000 shares; issued and outstanding 18,402,961 shares at March 31, 2016 and 18,162,148 shares at December 31, 2015 184     182  
Other paid-in capital 243,297     240,721  
Accumulated other comprehensive loss (151,897 )   (171,300 )
Accumulated deficit (641,635 )   (672,219 )
Total Westmoreland Coal Company shareholders’ deficit (550,051 )   (602,616 )
Noncontrolling interest (30 )   732  
Total deficit (550,081 )   (601,884 )
Total Liabilities and Deficit $ 1,770,689     $ 1,476,577  
               
 
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited) 
 
 
    Three Months Ended March 31,
    2016   2015
    (In thousands)
Cash flows from operating activities:        
Net income (loss)   $ 30,086     $ (13,878 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation, depletion and amortization   35,013     38,059  
Accretion of asset retirement obligation and receivable   7,007     7,031  
Share-based compensation   2,578     1,522  
Non-cash interest expense   2,269     1,327  
Amortization of deferred financing costs   3,214     2,532  
Loss (gain) on derivative instruments   2,600     (5,276 )
Loss (gain) on foreign exchange   1,387     (2,109 )
Income from equity affiliates   (1,293 )   (2,025 )
Deferred income tax expense (benefit)   (47,973 )   2,766  
Other   299     (499 )
Changes in operating assets and liabilities:        
Receivables   (10,052 )   (15,899 )
Inventories   (6,956 )   (4,957 )
Accounts payable and accrued expenses   2,098     12,336  
Deferred revenue   3,389     605  
Asset retirement obligations   (7,977 )   (4,838 )
Other assets and liabilities   2,552     (15,057 )
Net cash provided by operating activities   18,241     1,640  
Cash flows from investing activities:        
Additions to property, plant and equipment   (5,548 )   (13,027 )
Change in restricted investments   (3,172 )   2,106  
Cash payments in escrow for future acquisitions   —     34,000  
Cash payments related to acquisitions and other   (126,865 )   (35,887 )
Cash acquired related to acquisition, net   —     2,783  
Net proceeds from sales of assets   1,626     1,123  
Receipts from loan and lease receivables   1,620     2,591  
Payments related to loan and lease receivables   (312 )   (1,044 )
Other   1,530     (3,295 )
Net cash used in investing activities   (131,121 )   (10,650 )
Cash flows from financing activities:        
Borrowings from long-term debt, net of debt discount   121,225     79,359  
Repayments of long-term debt   (9,018 )   (17,160 )
Borrowings on revolving lines of credit   77,500     32,675  
Repayments on revolving lines of credit   (79,500 )   (42,251 )
Debt issuance costs and other refinancing costs   (2,927 )   (2,806 )
Other   (262 )   98  
Net cash provided by financing activities   107,018     49,915  
Effect of exchange rate changes on cash   680     (1,770 )
Net increase (decrease) in cash and cash equivalents   (5,182 )   39,135  
Cash and cash equivalents, beginning of period   22,936     14,258  
Cash and cash equivalents, end of period   $ 17,754     $ 53,393  
                 
 
Westmoreland Coal Company and Subsidiaries
Non-GAAP Reconciliations (Unaudited)
 
 

The tables below show how the Company calculates and reconciles to the most directly comparable GAAP financial measure EBITDA; Adjusted EBITDA, including a breakdown by segment; and free cash flow.

EBITDA, Adjusted EBITDA and free cash flow are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP.  EBITDA, Adjusted EBITDA and free cash flow are included in this news release because they are key metrics used by management to assess Westmoreland’s operating performance and as a basis for strategic planning and forecasting.  Westmoreland believes that EBITDA, Adjusted EBITDA, and free cash are useful to an investor in evaluating the Company’s operating performance because these measures:

  • are used widely by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
  • are used by rating agencies, lenders and other parties to evaluate creditworthiness; and
  • help investors to more meaningfully evaluate and compare the results of Westmoreland’s operations from period to period by removing the effect of the Company’s capital structure and asset base from the Company’s operating results.

Neither EBITDA, Adjusted EBITDA nor free cash flow are measures calculated in accordance with GAAP.  The items excluded from EBITDA, Adjusted EBITDA and free cash flow are significant in assessing Westmoreland’s operating results.  EBITDA, Adjusted EBITDA, and free cash flow have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, analysis of the Company’s results as reported under GAAP.

Other companies in Westmoreland’s industry and in other industries may calculate EBITDA, Adjusted EBITDA and free cash flow differently from the way that Westmoreland does, limiting their usefulness as comparative measures.  Because of these limitations, EBITDA, Adjusted EBITDA and free cash flow should not be considered as measures of discretionary cash available to the Company to invest in the growth of its business.  Westmoreland compensates for these limitations by relying primarily on its GAAP results and using EBITDA, Adjusted EBITDA and free cash flow only as supplemental data.

EBITDA and Adjusted EBITDA

EBITDA (earnings before interest expense, interest income, income taxes, depreciation, depletion, amortization and accretion expense) and Adjusted EBITDA are non-GAAP measures that do not reflect the Company’s cash expenditures, or future requirements for capital and major maintenance expenditures or contractual commitments; do not reflect income tax expenses or the cash requirements necessary to pay income taxes; do not reflect changes in, or cash requirements for, the Company’s working capital needs; and do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on certain of the Company’s debt obligations.  In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements.  Westmoreland considers Adjusted EBITDA to be useful because it reflects operating performance before the effects of certain non-cash items and other items that it believes are not indicative of core operations.  The Company uses Adjusted EBITDA to assess operating performance.

 
Adjusted EBITDA by Segment   Three Months Ended March 31,
    2016   2015
    (In thousands)
Coal - U.S.   $ 29,540     $ 20,263  
Coal - Canada   23,441     24,922  
Coal - WMLP   19,280     19,005  
Power   (3,348 )   (2,613 )
Heritage   (3,481 )   (3,348 )
Corporate   (2,475 )   (2,202 )
Total   $ 62,957     $ 56,027  
     
     
Reconciliation of Net Income (Loss) to Adjusted EBITDA   Three Months Ended March 31,
    2016   2015
    (In thousands)
Net income (loss)   $ 30,086     $ (13,878 )
         
Income tax expense (benefit)   (47,935 )   2,040  
Interest income   (1,791 )   (2,140 )
Interest expense   29,669     24,735  
Depreciation, depletion and amortization   35,013     38,059  
Accretion of ARO and receivable   7,007     7,031  
Amortization of intangible assets and liabilities   (167 )   (253 )
EBITDA   51,882     55,594  
         
Restructuring charges   —     553  
Loss (gain) on foreign exchange   1,387     (2,109 )
Acquisition related costs (1)   435     1,400  
Customer payments received under loan and lease receivables (2)   2,660     4,103  
Derivative loss (gain)   2,600     (5,276 )
Loss (gain) on sale/disposal of assets and other adjustments   1,413     240  
Share-based compensation   2,580     1,522  
Adjusted EBITDA   $ 62,957     $ 56,027  
____________________
  (1 ) Includes the impact of cost of sales related to the sale of inventory written up to fair value in the acquisition of Westmoreland Resources GP, LLC, the general partner of WMLP.
  (2 ) Represents a return of and on capital.  A portion of these amounts are not included in operating income or operating cash flows, as the capital outlays are treated as loan and lease receivables but are included within Adjusted EBITDA so that the cash received by the Company is treated consistently with all other contracts within the Company that do not result in loan and lease receivable accounting.
   

Free Cash Flow

Free cash flow represents net cash provided (used) by operating activities less additions to property, plant and equipment (“CAPEX” or “capital expenditures”) plus net customer payments received under loan and lease receivable.  Free cash flow is a non-GAAP measure and should not be considered as an alternative to cash and cash equivalents, cash flow from operations, cash flow from investing activities, cash flow from financing activities, net income (loss) or any other measure of performance presented in accordance with GAAP.  Free cash flow is intended to represent cash flow available to satisfy our debts, after giving consideration to those expenses required to maintain our assets and infrastructure.  Accordingly, although free cash flow is not a measure of performance calculated in accordance with GAAP, the Company believes free cash flow is useful to investors because it allows analysts and others in the industry to assess performance, liquidity and ability to satisfy debt requirements.

     
Reconciliation Net Cash Provided by Operating Activities to Free Cash Flow   Three Months Ended March 31,
    2016   2015
    (In thousands)
Net cash provided by operating activities   $ 18,241     $ 1,640  
Less cash paid for property, plant and equipment   (5,548 )   (13,027 )
Net customer payments received under loan and lease receivables   1,308     1,547  
Free cash flow   $ 14,001     $ (9,840 )