Westmoreland Reports First Quarter 2017 Results; Reiterates Full-Year Guidance

| Source: Westmoreland Coal Company

ENGLEWOOD, Colo., May 15, 2017 (GLOBE NEWSWIRE) -- Westmoreland Coal Company (Nasdaq:WLB) today reported financial results for the first quarter 2017 and reiterated its 2017 guidance.

First Quarter Highlights

  • Revenues of $339.7 million from 12.4 million tons sold
  • Net loss applicable to common shareholders of $36.8 million, or $1.98 per share
  • Adjusted EBITDA of $88.2 million, including approximately $47 million accelerated from the Capital Power payment
  • Cash flow used in operating activities of $0.7 million
  • Free cash flow of $42.6 million, which also includes the accelerated Capital Power payment

“We remain on track to achieve our full year guidance, despite a challenging first quarter," said Westmoreland Chief Executive Officer, Kevin Paprzycki.  "Our adjusted EBITDA and cash flow were impacted during the quarter by low weather-related demand. We also performed dragline repairs and worked through some challenging parts of our mine plan.  Our operators took proactive steps to minimize the impact of these headwinds, and I'm pleased that we now have these factors behind us.  This quarter’s results demonstrate the resiliency of our model in that, despite an unusual set of challenges, we produced positive free cash flow.”


Westmoreland's safety metrics are below.

  Three Months Ended March 31, 2017
  Reportable Rate Lost Time Rate
U.S. Surface Operations 1.82  1.51 
U.S. National Surface Average 1.35  0.82 
Percentage 135% 184%
U.S. Underground Operations 1.64  0.82 
U.S. National Underground Average 4.95  3.56 
Percentage 33% 23%
Canadian Operations 0.69  0.34 

Consolidated and Segment Results

Consolidated adjusted EBITDA for the first quarter of 2017 was $88.2 million.  As expected, revenue in the Coal-US segment was lower due to the expiration of the Jewett and Beulah coal supply contracts. Unfavorable weather also impacted all operating segments, particularly Coal -WMLP, where mild weather in Ohio added to the existing softness in price and demand. Heavy snowfall, followed by heavy rain, at the Kemmerer mine, lowered first quarter deliveries and increased costs.  Operational challenges, including dragline repairs in Canada and temporary mining in a lower-yield area of certain mines in both the Coal - Canada and Coal - WMLP segments, drove lower sales and increased costs.  Offsetting these declines was the effect of the early repayment of loan and lease receivables by Capital Power, of which approximately $47 million represented accelerated collections in the first quarter of 2017. Adjusted EBITDA also benefited from an additional month of San Juan operations compared with the previous year.

Cash Flow and Liquidity

Westmoreland’s free cash flow through March 31, 2017, was $42.6 million, including the benefit from the early repayment of loan and lease receivables.  Free cash flow is the net of cash flow used in operations of $0.7 million, less capital expenditures of $7.2 million, plus net cash collected for the loan and lease receivables of $50.5 million.  Included in cash flow used in operations were cash uses for interest expense of $32.0 million, for asset retirement obligations of $10.7 million, and negative working capital of $3.2 million.

At March 31, 2017, cash and cash equivalents on hand totaled $75.4 million, a $15.4 million increase from year end.  The increase was comprised of free cash flow generation of $42.6 million; net cash debt reductions including capital lease payments of $22.4 million; a $3.6 million reserve acquisition and other non-operating cash uses of $1.2 million.

Gross debt plus capital lease obligations at quarter end totaled $1.1 billion, of which $324.4 million resides at Westmoreland Resource Partners, LP and $802.7 million resides at Westmoreland Coal Company. There was $33.4 million available to draw, net of letters of credit, on Westmoreland's revolving credit facility. An additional $14.7 million was available to Westmoreland Resource Partners through its revolving credit facility, which is not available to the parent for borrowings. No amounts had been drawn on either revolving credit facility as of March 31, 2017.

Full-Year Guidance

Westmoreland reiterated its 2017 guidance, which includes the impact of the early repayment of loan and lease receivables related to the Genesee mine, as follows:

Guidance Summary  2017
Coal tons sold  40 - 50 million tons
Adjusted EBITDA  $280 - $310 million
Free cash flow  $115 - $140 million
Capital expenditures  $40 - $50 million
Cash interest  approximately $95 million


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 May 15, 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 June 5, 2017 and can be accessed using the information below:

Replay: 1-877-481-4010 or 1-919-882-2331
Replay ID: 10368
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).  Its power operations include ownership of the two-unit ROVA coal-fired power plant in North Carolina.  For more information, visit www.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.  Important factors that could cause actual results to differ materially from those in the forward-looking statements include political, economic, business, competitive, market, weather and regulatory conditions.

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.

Westmoreland Coal Company and Subsidiaries
Summary Consolidated and Operating Segment Data (Unaudited)
  Three Months Ended March 31,
      Increase / (Decrease)
  2017 2016 $ %
  (In thousands, except tons sold data)
Westmoreland Consolidated        
Revenues $339,737  $355,854  $(16,117) (4.5)%
Operating (loss) income (11,088) 7,619  (18,707) *
Adjusted EBITDA 88,217  63,651  24,566  38.6%
Tons sold—millions of equivalent tons 12.4  13.8  (1.4) (10.1)%
Coal - U.S.        
Revenues $137,368  $155,990  $(18,622) (11.9)%
Operating income 4,336  7,667  (3,331) (43.4)%
Adjusted EBITDA 27,469  30,350  (2,881) (9.5)%
Tons sold—millions of equivalent tons 4.7  6.0  (1.3) (21.7)%
Coal - Canada        
Revenues $109,015  $93,756  $15,259  16.3%
Operating (loss) income (7,104) 12,103  (19,207) *
Adjusted EBITDA 59,235  23,325  35,910  154.0%
Tons sold—millions of equivalent tons 6.0  5.8  0.2  3.4%
Coal - WMLP        
Revenues $74,805  $92,481  $(17,676) (19.1)%
Operating income 1,282  809  473  58.5%
Adjusted EBITDA 12,869  19,280  (6,411) (33.3)%
Tons sold—millions of equivalent tons 1.7  2.0  (0.3) (15.0)%
Revenues $21,227  $21,995  $(768) (3.5)%
Operating loss (753) (5,801) 5,048  87.0%
Adjusted EBITDA (3,373) (3,348) (25) (0.7)%

* Not meaningful

Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations (Unaudited)
  Three Months Ended March 31,
  2017 2016
  (In thousands)
Revenues $339,737  $355,854 
Cost, expenses and other:    
Cost of sales 284,604  281,125 
Depreciation, depletion and amortization 36,567  37,015 
Selling and administrative 30,426  27,399 
Heritage health benefit expenses 3,298  3,015 
(Gain) loss on sale/disposal of assets (166) 336 
Derivative (gain) loss (2,384) 2,600 
Income from equity affiliates (1,520) (1,293)
Other operating gain   (1,962)
  350,825  348,235 
Operating (loss) income (11,088) 7,619 
Other (expense) income:    
Interest expense (29,261) (28,927)
Interest income 893  1,791 
Loss on foreign exchange (467) (1,387)
Other income (loss) 2,158  (122)
  (26,677) (28,645)
Loss before income taxes (37,765) (21,026)
Income tax benefit (465) (47,935)
Net (loss) income (37,300) 26,909 
Less net loss attributable to noncontrolling interest (499) (498)
Net (loss) income applicable to common shareholders $(36,801) $27,407 
Net (loss) income per share applicable to common shareholders:    
Basic and diluted $(1.98) $1.50 
Weighted average number of common shares outstanding:    
Basic 18,572  18,262 
Diluted 18,572  18,269 

Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Unaudited)
  March 31, 2017 December 31, 2016
  (In thousands)
Current assets:    
Cash and cash equivalents $75,438  $60,082 
Trade 131,124  140,731 
Loan and lease receivables   5,867 
Other 11,053  13,261 
Total receivables 142,177  159,859 
Inventories 120,298  125,515 
Other current assets 24,836  32,258 
Total current assets 362,749  377,714 
Land, mineral rights, property, plant and equipment 1,635,151  1,617,938 
Less accumulated depreciation, depletion and amortization 818,032  782,417 
Net property, plant and equipment 817,119  835,521 
Loan and lease receivables, less current portion   44,474 
Advanced coal royalties 18,837  18,722 
Reclamation deposits 75,511  74,362 
Restricted investments and bond collateral 145,642  144,913 
Investment in joint venture 26,992  26,951 
Other assets 63,966  62,252 
Total Assets $1,510,816  $1,584,909 
Liabilities and Shareholders’ Deficit    
Current liabilities:    
Current installments of long-term debt $72,710  $86,272 
Accounts payable and accrued expenses:    
Trade and other accrued liabilities 117,280  142,233 
Interest payable 14,679  22,458 
Production taxes 47,081  44,995 
Postretirement medical benefits 14,892  14,892 
Deferred revenue 19,984  15,253 
Asset retirement obligations 31,362  32,207 
Other current liabilities 20,121  20,964 
Total current liabilities 338,109  379,274 
Long-term debt, less current installments 1,019,432  1,022,794 
Postretirement medical benefits, less current portion 309,217  308,709 
Pension and SERP obligations, less current portion 43,819  43,982 
Deferred revenue, less current portion 13,524  16,251 
Asset retirement obligations, less current portion 457,166  451,834 
Other liabilities 52,171  52,182 
Total liabilities 2,233,438  2,275,026 
Shareholders’ deficit:    
Common stock of $.01 par value: Authorized 30,000,000 shares; Issued and
outstanding 18,572,233 at March 31, 2017 and 18,570,642 at December 31, 2016
 186  186 
Other paid-in capital 249,441  248,143 
Accumulated other comprehensive loss (175,037) (179,072)
Accumulated deficit (794,536) (757,367)
Total shareholders’ deficit (719,946) (688,110)
Noncontrolling interests in consolidated subsidiaries (2,676) (2,007)
Total deficit (722,622) (690,117)
Total Liabilities and Shareholders' Deficit $1,510,816  $1,584,909 

Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
  Three Months Ended March 31,
  2017 2016
  (In thousands)
Cash flows from operating activities:    
Net (loss) income $(37,300) $26,909 
Adjustments to reconcile net (loss) income to net cash provided by (used in)
   operating activities:
Depreciation, depletion and amortization 36,567  37,015 
Accretion of asset retirement obligation 11,295  7,007 
Share-based compensation 1,347  2,580 
Non-cash interest expense 2,296  2,269 
Amortization of deferred financing costs 2,626  3,214 
(Gain) loss on derivative instruments (2,384) 2,600 
Loss on foreign exchange 467  1,387 
Income from equity affiliates (1,520) (1,293)
Distributions from equity affiliates 1,671  1,451 
Deferred income tax benefit (465) (47,973)
Other (1,474) (2,926)
Changes in operating assets and liabilities:    
Receivables 12,250  (10,052)
Inventories 5,156  (7,323)
Accounts payable and accrued expenses (21,905) 7,698 
Interest payable (7,787) (5,600)
Deferred revenue 2,005  3,389 
Other assets and liabilities 7,104  (18,247)
Asset retirement obligations (10,659) 18,449 
Net cash (used in) provided by operating activities (710) 20,554 
Cash flows from investing activities:    
Additions to property, plant and equipment (7,210) (5,548)
Change in restricted investments (1,171) (3,172)
Cash payments related to acquisitions (3,580) (126,865)
Proceeds from sales of assets 466  1,626 
Receipts from loan and lease receivables 50,488  1,620 
Payments related to loan and lease receivables   (312)
Other (293) 79 
Net cash provided by (used in) investing activities 38,700  (132,572)
Cash flows from financing activities:    
Borrowings from long-term debt, net of debt discount   121,225 
Repayments of long-term debt (22,368) (9,018)
Borrowings on revolving lines of credit 123,200  77,500 
Repayments on revolving lines of credit (123,200) (79,500)
Debt issuance costs and other refinancing costs   (2,927)
Other (178) (262)
Net cash (used in) provided by financing activities (22,546) 107,018 
Effect of exchange rate changes on cash (88) (182)
Net increase (decrease) in cash and cash equivalents 15,356  (5,182)
Cash and cash equivalents, beginning of period 60,082  22,936 
Cash and cash equivalents, end of period $75,438  $17,754 
Supplemental disclosures of cash flow information:    
Cash paid for interest $31,951  $30,397 

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.

  Three Months Ended March 31,
  2017 2016
  (In thousands)
Adjusted EBITDA by Segment    
Coal - U.S. $27,469  $30,350 
Coal - Canada 59,235  23,325 
Coal - WMLP 12,869  19,280 
Power (3,373) (3,348)
Heritage (3,670) (3,481)
Corporate (4,313) (2,475)
Total $88,217  $63,651 

  Three Months Ended March 31,
  2017 2016
  (In thousands)
Reconciliation of Net (Loss) Income to Adjusted EBITDA    
Net (loss) income $(37,300) $26,909 
Income tax benefit (465) (47,935)
Interest income (893) (1,791)
Interest expense 29,261  28,927 
Depreciation, depletion and amortization 36,567  37,015 
Accretion of asset retirement obligation 11,295  9,618 
Amortization of intangible assets and liabilities (267) (167)
EBITDA 38,198  52,576 
Loss on foreign exchange 467  1,387 
Acquisition-related costs    435 
Customer payments received under loan and lease receivables (1) 50,489  2,660 
Derivative (gain) loss (2,384) 2,600 
Loss on sale/disposal of assets and other adjustments 100  1,413 
Share-based compensation 1,347  2,580 
Adjusted EBITDA $88,217  $63,651 

(1) 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.

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 (Used in) Provided by Operating Activities to Free Cash Flow Three Months Ended March 31,
  2017 2016
  (In thousands)
Net cash (used in) provided by operating activities $(710) $20,554 
Less cash paid for property, plant and equipment (7,210) (5,548)
Net customer payments received under loan and lease receivables 50,488  1,308 
Free cash flow $42,568  $16,314 

Reconciliations of EBITDA and Adjusted EBITDA for Restated Periods

In the Company's Form 10-K for the year ended December 31, 2016, Westmoreland restated certain financial information, including its consolidated statements of operations for the year ended December 31, 2015, and its unaudited quarterly financial information for 2016 and 2015. Presented below are reconciliations of EBITDA and Adjusted EBITDA for each of the quarters in the years ended December 31, 2016 and 2015, as restated, and are provided for reference.

EBITDA and Adjusted EBITDA are non-GAAP measures.  See "EBITDA and Adjusted EBITDA" above for further explanation of these measures.

 Three Months Ended
 March 31, 2016 June 30, 2016 September 30,
 December 31,
 (In thousands)
Adjusted EBITDA by Segment       
Coal - U.S.$30,350  $20,848  $38,020  $37,347 
Coal - Canada23,325  14,342  18,562  32,181 
Coal - WMLP19,280  16,303  22,686  21,044 
Power(3,348) 614  507  5,854 
Heritage(3,481) (3,518) (3,326) (3,083)
Corporate(2,475) (3,033) (2,916) (4,228)
Total$63,651  $45,556  $73,533  $89,115 

  Three Months Ended
  March 31, 2016 June 30, 2016 September 30,
 December 31,
  (In thousands)
Reconciliation of Net Income (Loss) to Adjusted EBITDA        
Net income (loss) $26,909  $(29,397) $(18,607) $(7,777)
Income tax expense (benefit) (47,935) (100) (1,625) 1,601 
Interest income (1,791) (2,356) (1,374) (1,914)
Interest expense 28,927  30,860  30,882  31,150 
Depreciation, depletion and amortization 37,015  35,223  40,859  72,170 
Accretion of ARO 9,618  10,332  10,280  10,193 
Amortization of intangible assets and liabilities (167) (260) (225) (158)
EBITDA 52,576  44,302  60,190  105,265 
(Gain) loss on foreign exchange 1,387  364  (220) (816)
Acquisition-related costs  435  133     
Customer payments received under loan and lease
 2,660  2,727  2,582  5,095 
Derivative loss (gain) 2,600  (5,878) 5,442  (26,219)
Loss on sale/disposal of assets and other
 1,413  1,954  4,148  4,131 
Share-based compensation 2,580  1,954  1,391  1,659 
Adjusted EBITDA $63,651  $45,556  $73,533  $89,115 

  Three Months Ended
  March 31, 2015 June 30, 2015 September 30,
 December 31,
  (In thousands)
Adjusted EBITDA by Segment        
Coal - U.S. $23,121  $17,208  $16,884  $19,922 
Coal - Canada 23,702  32,702  21,439  27,901 
Coal - WMLP 19,005  15,175  15,648  16,306 
Power (2,613) (614) 75  3,895 
Heritage (3,348) (2,401) (2,950) (6,897)
Corporate (2,202) (3,980) (3,224) (1,922)
Total $57,665  $58,090  $47,872  $59,205 

  Three Months Ended
  March 31, 2015 June 30, 2015 September 30,
 December 31,
  (In thousands)
Reconciliation of Net Loss to Adjusted EBITDA        
Net loss $(16,024) $(39,415) $(52,875) $(110,781)
Income tax expense (benefit) 2,040  7,556  4,362  (33,848)
Interest income (2,140) (2,567) (1,555) (1,731)
Interest expense 23,999  24,850  25,865  26,597 
Depreciation, depletion and amortization 39,908  36,332  37,240  26,848 
Accretion of ARO 9,702  9,748  9,812  9,630 
Amortization of intangible assets and liabilities (253) (253) (250) (254)
EBITDA 57,232  36,251  22,599  (83,539)
Restructuring charges 553  103     
(Gain) loss on foreign exchange (2,109) 1,313  (1,678) (1,200)
Loss on extinguishment of debt     5,385   
Loss on impairment       136,210 
Acquisition-related costs  1,400    3,070  1,489 
Customer payments received under loan and lease
 4,103  11,418  8,731  2,876 
Derivative loss (gain) (5,276) 6,178  5,815  (1,130)
Loss on sale/disposal of assets and other adjustments 240  703  2,008  2,339 
Share-based compensation 1,522  2,124  1,942  2,160 
Adjusted EBITDA $57,665  $58,090  $47,872  $59,205 


For further information please contact:

Gary Kohn, Chief Financial Officer