SOURCE: Walter Energy

Walter Energy

April 20, 2011 20:13 ET

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

TAMPA, FL--(Marketwire - Apr 20, 2011) - Walter Energy (NYSE: WLT) (TSX: WLT), the world's leading, publicly traded "pure play" producer of metallurgical coal for the global steel industry, today announced earnings per diluted share of $1.53 and net income of $81.8 million for the quarter ended March 31, 2011, compared to earnings per diluted share of $0.77 and net income of $41.6 million in the first quarter 2010. Results for the period exclude results from Western Coal, which the Company acquired on April 1, 2011.

"We generated strong year-over-year growth in revenues and income driven primarily by the third highest coking coal pricing we have ever achieved," said Walter Energy Chief Executive Officer Keith Calder. "Now that our acquisition of Western Coal is complete, we can turn our attention to delivering on our promises, executing integration activities and framing future growth opportunities."

First Quarter 2011 Financial Results

Revenues for the first quarter 2011 totaled $408.7 million compared to $312.0 million in the prior-year period. Operating income totaled $119.8 million for the quarter, compared to $71.3 million in the prior-year period. Revenue and operating income improvements were primarily due to strong coking coal pricing from the Company's underground mining segment. Operating income improvements were partially offset by higher costs and lower sales volumes from the underground mining segment.

EBITDA for the first quarter 2011 was $148.1 million, compared to $93.5 million in the first quarter 2010.

Results for the quarter also include $9.9 million in costs associated with the acquisition of Western Coal.

Underground Mining

The underground mining segment reported revenues of $343.2 million in the first quarter 2011, compared to $240.3 million in the prior-year period. Operating income was $123.9 million, nearly double the operating income in the same period last year. Revenues and operating income were higher primarily due to significantly higher average coking coal contract pricing, partially offset by lower coal sales volumes. Operating income was also negatively impacted by higher production costs, royalties and freight costs.

Coking coal sales totaled 1.7 million tons in the first quarter, down 6.4 percent compared to the prior-year period due to lower production volumes despite strong customer demand. The average selling price in the quarter was $193.51 per short ton FOB Port, a 52.3 percent increase over the average 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 production was primarily the result of challenging mining conditions, which persisted longer than expected in the first quarter 2011. Production costs for the quarter averaged $69.20 per ton compared to $58.19 in the prior-year period. Cost per ton increased due to the effect of lower volumes as well as planned continuous miner development associated with the preparation of future longwall panels.

The Company's natural gas business sold 3.4 billion cubic feet of gas at an average price of $4.09 per thousand cubic feet in the first quarter 2011 compared to 1.4 billion cubic feet at an average price of $5.49 per thousand cubic feet in the prior-year period. Increased production and sales for the quarter resulted from the May 2010 acquisition of the Walter Black Warrior Basin natural gas business.

Surface Mining

The surface mining segment reported revenues of $40.8 million for the first quarter 2011, compared to $31.3 million in the prior-year period on increased sales volumes and pricing. Operating income for the surface mining segment was $6.7 million, compared to $7.3 million in the prior-year period. Operating income was lower as higher revenues were more than offset by increases in production costs, primarily due to higher stripping ratios and diesel prices.

The surface mining segment reported coal sales of 426,000 tons during the first quarter, up 13.6 percent compared to the prior-year period primarily due to incremental sales volumes from the Reid School metallurgical coal mine. Production was 369,000 tons, up 7.0 percent versus the first quarter last year driven by the incremental Reid School mine tonnage.

Walter Coke

Walter 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 as a 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 income improvements were the result of strong pricing and improved plant performance.

The segment sold 104,000 tons of metallurgical coke in the first quarter 2011 at an average price of $409.85 per ton compared to 139,000 tons sold in the prior-year period at an average price of $327.37 per ton. Price increases were primarily attributable to improved demand in the domestic automotive and steel markets.

2011 Full-Year Business Outlook

As previously announced, Walter Energy acquired Western Coal on April 1, 2011. Sales volume expectations for both legacy Walter Energy and legacy Western Coal are as follows:

The Company expects full year metallurgical coal sales from the Walter Energy Alabama underground operations of 7.5 million to 8.0 million short tons. In addition, the Walter Energy Alabama surface operations expect to sell between 1.4 million and 1.6 million short tons of thermal coal for the full year.

From the legacy Western Coal operations, the Company expects metallurgical coal sales of between 4.9 million and 5.3 million metric tons for the period of April 1, 2011 to Dec. 31, 2011. The Company expects thermal coal sales of 1.0 million to 1.2 million metric tons for the same period from these operations.

Capital Expenditures

Capital expenditures for the full year 2011 are expected to total between $500 million and $540 million and includes significant expansion projects at the Canadian operations. Estimates for the previous Western Coal operations are for the period covering April 1, 2011 through Dec. 31, 2011.

Liquidity

Simultaneous with the closing of the acquisition of Western Coal, the Company entered into a new $2,750 million credit facility. As of mid-April 2011, the Company had available liquidity of approximately $500 million, consisting of cash, cash equivalents and marketable securities of $169 million, plus $331 million available under the Company's new $375 million revolver. Total long-term debt, including the current portion of long-term debt as of mid-April 2011, was approximately $2,290 million.

Conference Call Web Cast

Chief Executive Officer Keith Calder and members of the Company's leadership team will discuss Walter Energy's first quarter results, its outlook and other general business matters during a conference call and live Web cast to be held Thursday, April 21, 2011, at 11 a.m. Eastern Daylight Time. To listen to the event live or in archive, or to view the accompanying slides, visit the Company Web site at www.walterenergy.com.

About Walter Energy

Walter Energy is the world's leading, publicly traded "pure play" metallurgical coal producer for the global steel industry. The Company also produces steam coal and industrial coal, anthracite, metallurgical coke and coal bed methane gas. The Company has strategic access to high-growth steel markets in Asia, South America and Europe. Walter Energy had pro forma 2010 revenues of approximately $2.3 billion and employs approximately 4,000 employees and contractors with operations in the United States, Canada and United Kingdom. For more information about Walter Energy, please visit the company website at www.walterenergy.com.

Safe Harbor Statement

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and may involve a number of risks and uncertainties. Forward-looking statements are based on information available to management at the time, and they involve judgments and estimates. Forward-looking statements include expressions such as "believe," "anticipate," "expect," "estimate," "intend," "may," "plan," "predict," "will," and similar terms and expressions. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to various risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements: the market demand for coal, coke and natural gas as well as changes in pricing and costs; the availability of raw material, labor, equipment and transportation; changes in weather and geologic conditions; changes in extraction costs, pricing and assumptions and projections concerning reserves in our mining operations; changes in customer orders; pricing actions by our competitors, customers, suppliers and contractors; changes in governmental policies and laws, including with respect to safety enhancements and environmental initiatives; availability and costs of credit, surety bonds and letters of credit; and changes in general economic conditions. Forward-looking statements made by us in this release, or elsewhere, speak only as of the date on which the statements were made. See also the "Risk Factors" in our 2010 Annual Report on Form 10-K and subsequent filings with the SEC which are currently available on our website at www.walterenergy.com. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us or our anticipated results. We have no duty to, and do not intend to, update or revise the forward-looking statements in this release, except as may be required by law. In light of these risks and uncertainties, readers should keep in mind that any forward-looking statement made in this press release may not occur. All data presented herein is as of the date of this release unless otherwise noted.

                   WALTER ENERGY, INC. AND SUBSIDIARIES
                  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      66,711
Income tax expense (2)                                  34,554      24,016
                                                    ----------  ----------
Income from continuing operations                       81,813      42,695
Discontinued operations (3)                                  -      (1,144)
                                                    ----------  ----------
Net income                                          $   81,813  $   41,551
                                                    ==========  ==========

Basic income per share:
Income from continuing operations                   $     1.54  $     0.80
Discontinued 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  $     0.79
Discontinued 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  $ 240,301
Surface Mining                                           40,796     31,333
Walter Coke                                              47,276     51,182
Other                                                       798        778
Consolidating eliminations of intersegment activity     (23,290)   (11,545)
                                                      ---------  ---------
                                                      $ 408,734  $ 312,049
                                                      =========  =========

OPERATING INCOME (LOSS):
Underground Mining                                    $ 123,876  $  64,828
Surface Mining                                            6,737      7,260
Walter Coke                                               8,000      7,643
Other (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        22,169
Earnings 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
                                                ------------- -------------
ASSETS
Cash and cash equivalents                       $      93,205 $     293,410
Receivables, net                                      144,991       143,238
Inventories                                            96,441        97,631
Deferred income taxes                                  62,215        62,371
Prepaid expenses                                       22,614        28,179
Other current assets                                    8,980        10,710
                                                ------------- -------------
  Total current assets                                428,446       635,539
Property, plant and equipment, net                    805,031       790,001
Deferred income taxes                                 141,843       149,520
Investment 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' EQUITY
Accounts payable                                $      65,248 $      70,692
Accrued expenses                                       88,436        52,399
Current debt                                            9,556        13,903
Accumulated postretirement benefits obligation         25,066        24,753
Other current liabilities                              23,339        32,100
                                                ------------- -------------
  Total current liabilities                           211,645       193,847
Long-term debt                                        151,718       154,570
Accumulated postretirement benefits obligation        454,329       451,348
Other long-term liabilities                           264,240       262,934
                                                ------------- -------------
TOTAL LIABILITIES                                   1,081,932     1,062,699
STOCKHOLDERS' 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    81,813
Other
 comprehensive
 income, net of
 tax:
  Change in
   pension and
   postretirement
   benefit
   plans           3,149                       3,149                 3,149
  Change 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    1,689
Dividends paid,
 $0.125 per
 share            (6,642)                               (6,642)
Stock-based
 compensation      1,150           1,150
Excess tax
 benefit from
 stock-based
 compensation
 arrangements      5,731           5,731
Other             (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 ACTIVITIES
Net income                                          $   81,813  $   41,551
  Loss (income) from discontinued operations                 -       1,144
                                                    ----------  ----------
  Income from continuing operations                     81,813      42,695

Adjustments 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  $  165,279
Add: Cash and cash equivalents of discontinued
 operations at beginning of period                         535       1,254
Net increase (decrease) in cash and cash
 equivalents                                          (200,740)     48,468
Less: Cash and cash equivalents of discontinued
 operations at end of period                                 -         577
                                                    ----------  ----------
Cash and cash equivalents at end of period          $   93,205  $  214,424
                                                    ==========  ==========