 | News Release |
Westmoreland Reports Second Quarter and First Half 2017 Results | |
Englewood, CO – August 3, 2017 - Westmoreland Coal Company (Nasdaq:WLB) today reported financial results for the second quarter 2017 and updated its guidance.
Second Quarter Highlights
• | Revenues of $323.0 million from 11.0 million tons sold |
• | Net loss applicable to common shareholders of $50.4 million, or $2.69 per share |
• | Adjusted EBITDA of $32.6 million |
Six Month Highlights
• | Revenues of $662.8 million from 23.3 million tons sold |
• | Net loss applicable to common shareholders of $87.2 million, or $4.68 per share |
• | Adjusted EBITDA of $120.8 million, including approximately $46 million incremental from the Capital Power payment |
• | Cash flow provided by operating activities of $10.2 million |
• | Free cash flow of $47.5 million, which also includes the accelerated Capital Power payment |
Kevin Paprzycki, Westmoreland's Chief Executive Officer, said, "This quarter, we executed across all of our strategic initiatives to drive long-term value creation. Specifically, we have formalized an agreement to sell ROVA, our coal-fired generating station, secured multiple contract extensions which will add volume and cash flow over multiple years, and continued making progress toward optimizing our capital structure. Our disciplined approach toward capitalizing on near-term catalysts will help further strengthen our business and enhance shareholder value."
"That said, results for the second quarter and first half came in below our expectations as unfavorable sales volume mix and higher costs at Coal Valley weighed on our performance. We continue to expect stronger results in the back half, following last year's pattern, but we have lowered our full year guidance to reflect the first half results, pricing adjustments for contract extensions, as well as our updated demand projections for the remainder of 2017."
Safety
Westmoreland's safety metrics are below.
Six Months Ended June 30, 2017 | |||
Reportable Rate | Lost Time Rate | ||
U.S. Surface Operations | 1.44 | 1.28 | |
U.S. National Surface Average | 1.47 | 1.02 | |
Percentage | 98% | 125% | |
U.S. Underground Operations | 1.61 | 1.21 | |
U.S. National Underground Average | 4.79 | 3.44 | |
Percentage | 34% | 35% | |
Canadian Operations | 0.98 | 0.33 | |
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Consolidated and Segment Results
During the second quarter of 2017, consolidated adjusted EBITDA declined 28.5% compared with the same period in 2016. This decline was driven in part by declines in the Coal - Canada segment resulting from increased equipment maintenance and costs to develop the pit at the Coal Valley mine due to a delay in the sale of this facility. Compared with the same period in 2016, second quarter 2017 revenues were also impacted by the 2016 expiration of the Jewett and Beulah coal supply contracts in the Coal - U.S. segment, which were partially offset by additional reclamation revenue at the Jewett mine. In addition, seasonal outages at our customers' plants and the timing of weather-related demand drove lower adjusted EBITDA as we sold fewer tons to high-margin customers. Adjusted EBITDA was favorably impacted by cost-savings initiatives across the company, particularly in the Coal - WMLP segment.
Consolidated adjusted EBITDA for the first six months of 2017 was $120.8 million, inclusive of the impact of the $52.5 million early repayment from Capital Power. Adjusted EBITDA for the first six months was influenced by the many of the same factors as the three month period: the contract expirations at Jewett and Beulah, operational challenges at Coal Valley, weather-related demand and volume mix issues, offset by cost reductions, increased volume from San Juan, and Jewett reclamation revenue. In addition, the first half of 2017 was impacted by increased costs associated with unexpected dragline maintenance as well as lower revenue and increased costs resulting from record precipitation at the Westmoreland Resource Partners LP's ("WMLP") Kemmerer mine, each of which occurred in the first quarter.
Cash Flow and Liquidity
Westmoreland’s free cash flow through June 30, 2017 was $47.5 million. Free cash flow is the net of cash flow provided by operations of $10.2 million, less capital expenditures of $13.1 million, plus net cash collected for the loan and lease receivables of $50.5 million. Included in cash flow provided by operations was cash used for interest expense of $48.9 million and for asset retirement obligations of $20.8 million, plus positive working capital of $10.5 million.
At June 30, 2017, cash and cash equivalents on hand totaled $57.6 million, a $2.5 million decrease from year end. The decrease was comprised of free cash flow generation of $47.5 million; net debt reductions, including capital lease payments, of $44.3 million; a $3.6 million reserve acquisition and other non-operating cash uses of $2.6 million.
Gross debt plus capital lease obligations at quarter end totaled $1.1 billion, of which $325.5 million resides at WMLP and $782.4 million resides at Westmoreland Coal Company. There was $27.0 million available to draw, net of letters of credit, on Westmoreland's revolving credit facility. An additional $15.0 million was available to WMLP through its revolving credit facility, which is not available to Westmoreland Coal Company for borrowings. No amounts had been drawn on either revolving credit facility as of June 30, 2017.
ROVA Sale
Earlier today, Westmoreland announced the sale of the Roanoke Valley Power Facility ("ROVA") for $5 million. Westmoreland continues to anticipate the return of approximately $10 million of cash collateral this year for the related ROVA power contracts.
Full-Year Guidance
Regarding the revised outlook, Paprzycki commented “We revised the midpoint of our adjusted EBITDA guidance by $35 million. Nearly one-third of this is from contract extensions where we granted price concessions in exchange for extended contract length. These extensions, including the recently announce Kemmerer contract, will increase our total cash flow and EBITDA over multiple years. Another one third of the change to guidance stems from the weather patterns’ effect on our sales volume and mix across our operations. The remainder of the change is from operational issues, in particular the dragline outage we experienced in the first half and higher costs at Coal Valley."
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Westmoreland's 2017 guidance was revised as follows:
Guidance Summary | Original 2017 Guidance | Revised 2017 Guidance |
Coal tons sold | 40 - 50 million tons | 40 - 50 million tons |
Adjusted EBITDA | $280 - $310 million | $250 - $270 million |
Free cash flow | $115 - $140 million | $90 - $115 million |
Capital expenditures | $40 - $45 million | $40 - $45 million |
Cash interest | approximately $95 million | approximately $95 million |
Adjusted EBITDA and free cash flow include the $52.5 million early repayment of loan and lease receivables related to the Genesee mine, of which approximately $40 million is incremental to 2017 compared to 2016 results.
Notes
Westmoreland presents certain non-GAAP financial measures, including adjusted EBITDA and free cash flow, that management believes provide meaningful supplemental information and provide meaningful comparability to prior periods. Reconciliations of non-GAAP to GAAP measures are presented in the accompanying tables.
Conference Call
Westmoreland Coal Company will host its earnings conference call on August 3, 2017, at 10:00 a.m. Eastern Time.
Participants may join the call using the numbers below:
Toll Free: 1-844-WCC-COAL (844-922-2625)
International: 1-201-689-8584
Webcast www.westmoreland.com/investors/investor-webcasts
A replay of the teleconference will be available until August 17, 2017 and can be accessed using the information below:
Replay: 1-877-481-4010 or 1-919-882-2331
Replay ID: 15919
Webcast www.westmoreland.com/investors/investor-webcasts
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 (NYSE:WMLP). For more information, visit www.westmoreland.com.
For further information please contact:
Gary Kohn, Chief Financial Officer
1-720-354-4467
gkohn@westmoreland.com
Cautionary Note Regarding Forward-Looking Statements
Forward-looking statements are based on Westmoreland’s current expectations and assumptions regarding its business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results may differ materially from those contemplated by the forward-looking statements. Westmoreland cautions you against relying on any of these forward-looking statements. They are statements neither of historical fact nor guarantees or assurances of future performance. Possible events or factors that could cause actual results or performance to differ materially from those anticipated in our forward-looking statements include, but are not limited to the following:
• | our ability to consummate the sale of the ROVA and Coal Valley facilities on reasonable terms or at all; |
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• | our relationships with, and other conditions affecting, our customers, including how power prices affect our customers’ decision to run their plants; |
• | seasonal variations and inclement weather, which may cause fluctuations in our operating results, profitability, cash flow and working capital needs related to our operating segments; |
• | our substantial level of indebtedness and our ability to adhere to financial covenants related to our borrowing arrangements; |
• | existing and future legislation and regulation affecting both our coal mining operations and our customers' coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases, |
• | the effect of the Environmental Protection Agency's and Canadian and provincial governments' inquiries and regulations on the operations of the power plants to which we provide coal; |
• | Alberta's Climate Leadership Plan to phase out coal-fired electricity generation by 2030; |
• | our ability to manage the San Juan entities; |
• | the effect of legal and administrative proceedings, settlements, investigations and claims, including any related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage; |
• | changes in our post-retirement medical benefit and pension obligations and the impact of the recently enacted healthcare legislation on our employee health benefit costs; |
• | inaccuracies in our estimates of our coal reserves; |
• | our potential inability to expand or continue current coal operations due to limitations in obtaining bonding capacity for new mining permits, and/or increases in our mining costs as a result of increased bonding expenses; |
• | the effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers; |
• | the inability to control costs, recognize favorable tax credits and/or receive adequate train traffic at our open market mine operations; |
• | the ability or inability of our power hedging arrangements to generate cash. |
• | competition within our industry and with producers of competing energy sources; |
• | the availability and costs of key supplies or commodities, such as diesel fuel, steel and explosives; |
• | potential title defects or loss of leasehold interests in our properties, which could result in unanticipated costs or an inability to mine the properties; |
• | and other risks, uncertainties and assumptions described in our periodic filings with the Securities and Exchange Commission, including in "Risk Factors" in our most recent Annual Report on Form 10-K and subsequent filings. |
Any forward-looking statements made by Westmoreland in this news release speak only as of the date on which it was made. Westmoreland undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.
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Westmoreland Coal Company and Subsidiaries
Summary Consolidated and Operating Segment Data (Unaudited)
Three Months Ended June 30, | ||||||||||||||
Increase / (Decrease) | ||||||||||||||
2017 | 2016 | $ | % | |||||||||||
(In thousands, except tons sold data) | ||||||||||||||
Westmoreland Consolidated | ||||||||||||||
Revenues | $ | 323,025 | $ | 357,597 | $ | (34,572 | ) | (9.7 | )% | |||||
Operating loss | (21,067 | ) | (883 | ) | (20,184 | ) | (2,285.8 | )% | ||||||
Adjusted EBITDA | 32,566 | 45,556 | (12,990 | ) | (28.5 | )% | ||||||||
Tons sold—millions of equivalent tons | 11.0 | 12.0 | (1.0 | ) | (8.3 | )% | ||||||||
Coal - U.S. | ||||||||||||||
Revenues | $ | 141,037 | $ | 152,519 | $ | (11,482 | ) | (7.5 | )% | |||||
Operating (loss) income | (6,623 | ) | 588 | (7,211 | ) | * | ||||||||
Adjusted EBITDA | 23,656 | 20,848 | 2,808 | 13.5 | % | |||||||||
Tons sold—millions of equivalent tons | 4.0 | 4.7 | (0.7 | ) | (14.9 | )% | ||||||||
Coal - Canada | ||||||||||||||
Revenues | $ | 89,349 | $ | 109,328 | $ | (19,979 | ) | (18.3 | )% | |||||
Operating (loss) income | (11,735 | ) | 3,590 | (15,325 | ) | * | ||||||||
Adjusted EBITDA | (1,598 | ) | 14,342 | (15,940 | ) | * | ||||||||
Tons sold—millions of equivalent tons | 5.2 | 5.6 | (0.4 | ) | (7.1 | )% | ||||||||
Coal - WMLP | ||||||||||||||
Revenues | $ | 81,052 | $ | 80,468 | $ | 584 | 0.7 | % | ||||||
Operating income (loss) | 7,588 | (4,282 | ) | 11,870 | * | |||||||||
Adjusted EBITDA | 18,854 | 16,303 | 2,551 | 15.6 | % | |||||||||
Tons sold—millions of equivalent tons | 1.9 | 1.7 | 0.2 | 11.8 | % | |||||||||
Power | ||||||||||||||
Revenues | $ | 19,880 | $ | 21,944 | $ | (2,064 | ) | (9.4 | )% | |||||
Operating (loss) income | (383 | ) | 6,731 | (7,114 | ) | * | ||||||||
Adjusted EBITDA | (141 | ) | 614 | (755 | ) | * | ||||||||
____________________
* Not meaningful
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Westmoreland Coal Company and Subsidiaries
Summary Consolidated and Operating Segment Data (Unaudited)
Six Months Ended June 30, | ||||||||||||||
Increase / (Decrease) | ||||||||||||||
2017 | 2016 | $ | % | |||||||||||
(In thousands, except tons sold data) | ||||||||||||||
Westmoreland Consolidated | ||||||||||||||
Revenues | $ | 662,762 | $ | 713,451 | $ | (50,689 | ) | (7.1 | )% | |||||
Operating (loss) income | (32,154 | ) | 6,736 | (38,890 | ) | * | ||||||||
Adjusted EBITDA | 120,784 | 109,206 | 11,578 | 10.6 | % | |||||||||
Tons sold—millions of equivalent tons | 23.3 | 25.8 | (2.5 | ) | (9.7 | )% | ||||||||
Coal - U.S. | ||||||||||||||
Revenues | $ | 278,405 | $ | 308,508 | $ | (30,103 | ) | (9.8 | )% | |||||
Operating (loss) income | (2,287 | ) | 8,254 | (10,541 | ) | * | ||||||||
Adjusted EBITDA | 51,125 | 51,198 | (73 | ) | (0.1 | )% | ||||||||
Tons sold—millions of equivalent tons | 8.8 | 10.7 | (1.9 | ) | (17.8 | )% | ||||||||
Coal - Canada | ||||||||||||||
Revenues | $ | 198,364 | $ | 203,084 | $ | (4,720 | ) | (2.3 | )% | |||||
Operating (loss) income | (18,839 | ) | 15,693 | (34,532 | ) | * | ||||||||
Adjusted EBITDA | 57,637 | 37,666 | 19,971 | 53.0 | % | |||||||||
Tons sold—millions of equivalent tons | 11.1 | 11.4 | (0.3 | ) | (2.6 | )% | ||||||||
Coal - WMLP | ||||||||||||||
Revenues | $ | 155,857 | $ | 172,949 | $ | (17,092 | ) | (9.9 | )% | |||||
Operating income (loss) | 8,870 | (3,473 | ) | 12,343 | * | |||||||||
Adjusted EBITDA | 31,723 | 35,583 | (3,860 | ) | (10.8 | )% | ||||||||
Tons sold—millions of equivalent tons | 3.6 | 3.7 | (0.1 | ) | (2.7 | )% | ||||||||
Power | ||||||||||||||
Revenues | $ | 41,107 | $ | 43,940 | $ | (2,833 | ) | (6.4 | )% | |||||
Operating (loss) income | (1,136 | ) | 931 | (2,067 | ) | * | ||||||||
Adjusted EBITDA | (3,514 | ) | (2,734 | ) | (780 | ) | (28.5 | )% | ||||||
____________________
* Not meaningful
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Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(In thousands) | |||||||||||||||
Revenues | $ | 323,025 | $ | 357,597 | $ | 662,762 | $ | 713,451 | |||||||
Cost, expenses and other: | |||||||||||||||
Cost of sales | 271,909 | 298,181 | 556,513 | 579,307 | |||||||||||
Depreciation, depletion and amortization | 39,497 | 35,223 | 76,064 | 72,237 | |||||||||||
Selling and administrative | 30,166 | 27,613 | 60,592 | 55,012 | |||||||||||
Heritage health benefit expenses | 3,306 | 3,222 | 6,604 | 6,237 | |||||||||||
Loss (gain) on sale/disposal of assets | 133 | (2,253 | ) | (34 | ) | (1,917 | ) | ||||||||
Derivative loss (gain) | 481 | (5,878 | ) | (1,904 | ) | (3,278 | ) | ||||||||
Income from equity affiliates | (1,400 | ) | (1,287 | ) | (2,919 | ) | (2,580 | ) | |||||||
Other operating loss | — | 3,659 | — | 1,697 | |||||||||||
344,092 | 358,480 | 694,916 | 706,715 | ||||||||||||
Operating (loss) income | (21,067 | ) | (883 | ) | (32,154 | ) | 6,736 | ||||||||
Other (expense) income: | |||||||||||||||
Interest expense | (30,109 | ) | (30,860 | ) | (59,371 | ) | (59,787 | ) | |||||||
Interest income | 1,038 | 2,356 | 1,931 | 4,147 | |||||||||||
Loss on foreign exchange | (1,185 | ) | (364 | ) | (1,652 | ) | (1,751 | ) | |||||||
Other income | 302 | 254 | 2,460 | 132 | |||||||||||
(29,954 | ) | (28,614 | ) | (56,632 | ) | (57,259 | ) | ||||||||
Loss before income taxes | (51,021 | ) | (29,497 | ) | (88,786 | ) | (50,523 | ) | |||||||
Income tax benefit | (501 | ) | (100 | ) | (965 | ) | (48,035 | ) | |||||||
Net loss | (50,520 | ) | (29,397 | ) | (87,821 | ) | (2,488 | ) | |||||||
Less net loss attributable to noncontrolling interest | (138 | ) | (808 | ) | (637 | ) | (1,306 | ) | |||||||
Net loss applicable to common shareholders | $ | (50,382 | ) | $ | (28,589 | ) | $ | (87,184 | ) | $ | (1,182 | ) | |||
Net loss per share applicable to common shareholders: | |||||||||||||||
Basic and diluted | $ | (2.69 | ) | $ | (1.54 | ) | $ | (4.68 | ) | $ | (0.06 | ) | |||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic and diluted | 18,700 | 18,540 | 18,636 | 18,401 | |||||||||||
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Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Unaudited)
June 30, 2017 | December 31, 2016 | ||||||
(In thousands) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 57,620 | $ | 60,082 | |||
Receivables: | |||||||
Trade | 132,715 | 140,731 | |||||
Loan and lease receivables | — | 5,867 | |||||
Other | 11,450 | 13,261 | |||||
Total receivables | 144,165 | 159,859 | |||||
Inventories | 120,580 | 125,515 | |||||
Other current assets | 23,096 | 32,258 | |||||
Total current assets | 345,461 | 377,714 | |||||
Land, mineral rights, property, plant and equipment | 1,647,600 | 1,617,938 | |||||
Less accumulated depreciation, depletion and amortization | 861,752 | 782,417 | |||||
Net land, mineral rights, property, plant and equipment | 785,848 | 835,521 | |||||
Loan and lease receivables, less current portion | — | 44,474 | |||||
Advanced coal royalties | 19,049 | 18,722 | |||||
Reclamation deposits | 76,131 | 74,362 | |||||
Restricted investments and bond collateral | 146,386 | 144,913 | |||||
Investment in joint venture | 27,363 | 26,951 | |||||
Other assets | 59,233 | 62,252 | |||||
Total Assets | $ | 1,459,471 | $ | 1,584,909 | |||
Liabilities and Shareholders’ Deficit | |||||||
Current liabilities: | |||||||
Current installments of long-term debt | $ | 54,494 | $ | 86,272 | |||
Accounts payable and accrued expenses: | |||||||
Trade and other accrued liabilities | 124,474 | 142,233 | |||||
Interest payable | 22,515 | 22,458 | |||||
Production taxes | 44,509 | 44,995 | |||||
Postretirement medical benefits | 14,892 | 14,892 | |||||
Deferred revenue | 15,204 | 15,253 | |||||
Asset retirement obligations | 41,952 | 32,207 | |||||
Other current liabilities | 25,170 | 20,964 | |||||
Total current liabilities | 343,210 | 379,274 | |||||
Long-term debt, less current installments | 1,021,068 | 1,022,794 | |||||
Postretirement medical benefits, less current portion | 309,526 | 308,709 | |||||
Pension and SERP obligations, less current portion | 43,681 | 43,982 | |||||
Deferred revenue, less current portion | 10,498 | 16,251 | |||||
Asset retirement obligations, less current portion | 449,998 | 451,834 | |||||
Other liabilities | 48,000 | 52,182 | |||||
Total liabilities | 2,225,981 | 2,275,026 | |||||
Shareholders’ deficit: | |||||||
Common stock of $.01 par value: Authorized 30,000,000 shares; Issued and outstanding 18,742,143 at June 30, 2017 and 18,570,642 at December 31, 2016 | 187 | 186 | |||||
Other paid-in capital | 249,442 | 248,143 | |||||
Accumulated other comprehensive loss | (168,259 | ) | (179,072 | ) | |||
Accumulated deficit | (844,886 | ) | (757,367 | ) | |||
Total shareholders’ deficit | (763,516 | ) | (688,110 | ) | |||
Noncontrolling interests in consolidated subsidiaries | (2,994 | ) | (2,007 | ) | |||
Total deficit | (766,510 | ) | (690,117 | ) | |||
Total Liabilities and Shareholders’ Deficit | $ | 1,459,471 | $ | 1,584,909 | |||
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Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, | |||||||
2017 | 2016 | ||||||
(In thousands) | |||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (87,821 | ) | $ | (2,488 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Depreciation, depletion and amortization | 76,064 | 72,237 | |||||
Accretion of asset retirement obligation | 22,437 | 14,297 | |||||
Share-based compensation | 2,480 | 4,534 | |||||
Non-cash interest expense | 4,639 | 4,554 | |||||
Amortization of deferred financing costs | 5,193 | 6,630 | |||||
Gain on derivative instruments | (1,904 | ) | (3,278 | ) | |||
Loss on foreign exchange | 1,652 | 1,751 | |||||
Income from equity affiliates | (2,919 | ) | (2,580 | ) | |||
Distributions from equity affiliates | 3,403 | 3,633 | |||||
Deferred income tax benefit | (965 | ) | (47,547 | ) | |||
Other | (1,752 | ) | (8,017 | ) | |||
Changes in operating assets and liabilities: | |||||||
Receivables | 11,360 | 7,362 | |||||
Inventories | 7,706 | 6,343 | |||||
Accounts payable and accrued expenses | (20,919 | ) | (4,044 | ) | |||
Interest payable | 532 | (3,011 | ) | ||||
Deferred revenue | (5,809 | ) | 6,948 | ||||
Other assets and liabilities | 17,596 | 26,123 | |||||
Asset retirement obligations | (20,819 | ) | (41,548 | ) | |||
Net cash provided by operating activities | 10,154 | 41,899 | |||||
Cash flows from investing activities: | |||||||
Additions to property, plant and equipment | (13,104 | ) | (12,231 | ) | |||
Change in restricted investments | (2,009 | ) | 658 | ||||
Cash payments related to acquisitions | (3,580 | ) | (125,314 | ) | |||
Proceeds from sales of assets | 783 | 6,706 | |||||
Receipts from loan and lease receivables | 50,488 | 3,268 | |||||
Payments related to loan and lease receivables | — | (334 | ) | ||||
Other | (969 | ) | (538 | ) | |||
Net cash provided by (used in) investing activities | 31,609 | (127,785 | ) | ||||
Cash flows from financing activities: | |||||||
Borrowings from long-term debt, net of debt discount | — | 122,250 | |||||
Repayments of long-term debt | (44,324 | ) | (17,991 | ) | |||
Borrowings on revolving lines of credit | 113,200 | 195,400 | |||||
Repayments on revolving lines of credit | (113,200 | ) | (194,370 | ) | |||
Debt issuance costs and other refinancing costs | — | (5,709 | ) | ||||
Other | (364 | ) | (529 | ) | |||
Net cash (used in) provided by financing activities | (44,688 | ) | 99,051 | ||||
Effect of exchange rate changes on cash | 463 | (225 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (2,462 | ) | 12,940 | ||||
Cash and cash equivalents, beginning of period | 60,082 | 22,936 | |||||
Cash and cash equivalents, end of period | $ | 57,620 | $ | 35,876 | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid for interest | $ | 48,931 | $ | 47,972 | |||
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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 measures 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 flow 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.
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Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(In thousands) | |||||||||||||||
Adjusted EBITDA by Segment | |||||||||||||||
Coal - U.S. | $ | 23,656 | $ | 20,848 | $ | 51,125 | $ | 51,198 | |||||||
Coal - Canada | (1,598 | ) | 14,342 | 57,637 | 37,666 | ||||||||||
Coal - WMLP | 18,854 | 16,303 | 31,723 | 35,583 | |||||||||||
Power | (141 | ) | 614 | (3,514 | ) | (2,734 | ) | ||||||||
Heritage | (3,786 | ) | (3,518 | ) | (7,456 | ) | (6,999 | ) | |||||||
Corporate | (4,419 | ) | (3,033 | ) | (8,731 | ) | (5,508 | ) | |||||||
Total | $ | 32,566 | $ | 45,556 | $ | 120,784 | $ | 109,206 | |||||||
Reconciliation of Net (Loss) Income to Adjusted EBITDA | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(In thousands) | |||||||||||||||
Net loss | $ | (50,520 | ) | $ | (29,397 | ) | $ | (87,821 | ) | $ | (2,488 | ) | |||
Income tax benefit | (501 | ) | (100 | ) | (965 | ) | (48,035 | ) | |||||||
Interest income | (1,038 | ) | (2,356 | ) | (1,931 | ) | (4,147 | ) | |||||||
Interest expense | 30,109 | 30,860 | 59,371 | 59,787 | |||||||||||
Depreciation, depletion and amortization | 39,497 | 35,223 | 76,064 | 72,237 | |||||||||||
Accretion of asset retirement obligation | 11,142 | 10,332 | 22,437 | 19,950 | |||||||||||
Amortization of intangible assets and liabilities | (267 | ) | (260 | ) | (534 | ) | (427 | ) | |||||||
EBITDA | 28,422 | 44,302 | 66,621 | 96,877 | |||||||||||
Advisory fees (1) | 925 | — | 925 | — | |||||||||||
Loss on foreign exchange | 1,185 | 364 | 1,652 | 1,751 | |||||||||||
Acquisition-related costs | — | 133 | — | 568 | |||||||||||
Customer payments received under loan and lease receivables (2) | — | 2,727 | 50,489 | 5,387 | |||||||||||
Derivative loss (gain) | 481 | (5,878 | ) | (1,904 | ) | (3,278 | ) | ||||||||
Loss on sale/disposal of assets and other adjustments | 420 | 1,954 | 521 | 3,367 | |||||||||||
Share-based compensation | 1,133 | 1,954 | 2,480 | 4,534 | |||||||||||
Adjusted EBITDA | $ | 32,566 | $ | 45,556 | $ | 120,784 | $ | 109,206 | |||||||
___________________
(1) | Amount represents fees paid to financial and legal advisers related to the assessment of Westmoreland's capital structure. These advisers, together with Westmoreland's management and board of directors, are developing and evaluating options to optimize Westmoreland's overall capital structure. |
(2) | Represents a return of and on capital. 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 is treated consistently with all other contracts that do not result in loan and lease receivable accounting. On March 24, 2017, Westmoreland received $52.5 million from its customer at the Genesee mine, representing an accelerated repayment of all outstanding loan and lease receivables. While Westmoreland will continue to provide contract mining services at the Genesee mine, all future capital expenditures at the Genesee mine will be funded by the customer. Accordingly, there will be no additional payments from the customer at the Genesee mine in the form of loan and lease repayments, but Westmoreland will earn a management fee pursuant a contract mining arrangement. |
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Free Cash Flow
Free cash flow represents net cash provided by (used in) operating activities less additions to property, plant and equipment (“CAPEX” or “capital expenditures”) plus net customer payments received under loan and lease receivables. 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 of Net Cash Provided by Operating Activities to Free Cash Flow | Six Months Ended June 30, | ||||||
2017 | 2016 | ||||||
(In thousands) | |||||||
Net cash provided by operating activities | $ | 10,154 | $ | 41,899 | |||
Less cash paid for property, plant and equipment | (13,104 | ) | (12,231 | ) | |||
Net customer payments received under loan and lease receivables | 50,488 | 2,934 | |||||
Free cash flow | $ | 47,538 | $ | 32,602 | |||
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