SOURCE: Walter Energy

Walter Energy

October 30, 2014 07:30 ET

Walter Energy Announces Third Quarter 2014 Results

Metallurgical Coal Sales of 2.3 Million Metric Tons

Metallurgical Coal Cash Cost of Sales per Metric Ton Improved 18.7%

Liquidity Totaled $624 Million

Full-Year 2014 Capital Spending Target Reduced to $110 Million

Full-Year Cash Cost of Sales Target for Alabama Underground Mines Reduced to $96 per Metric Ton

BIRMINGHAM, AL--(Marketwired - Oct 30, 2014) - Walter Energy, Inc. (NYSE: WLT), a leading, publicly traded "pure-play" producer of metallurgical ("met") coal for the global steel industry, today announced results for the quarter ended September 30, 2014.

"In the challenging pricing environment for met coal, we remain focused on lowering production costs, reducing SG&A and improving productivity," said Walt Scheller, Chief Executive Officer. "We have also idled assets that aren't generating cash, and we're reducing inventory across the Company. We expect our operating and financial results to reflect these actions going forward, making us more competitive and positioning us well for a recovery in met coal pricing."

Consolidated Financial Results

Walter Energy reported a net loss of $98.9 million, or $1.48 per diluted share, in the third quarter of 2014 compared with a net loss of $100.7 million, or $1.61 per diluted share, in the third quarter of 2013. Adjusted net loss for the quarter, which excludes certain unusual items, was $105.8 million, or $1.58 per diluted share as compared with an adjusted net loss for the prior-year period of $102.3 million, or $1.63 per diluted share. A reconciliation of net loss to adjusted net loss is provided in the Company's "Reconciliation of Non-GAAP Financial Measures" included with this release.

Third quarter 2014 consolidated revenues totaled $329.5 million, compared with $455.8 million in the third quarter of 2013, reflecting a decrease in average met coal selling prices of $22.57 per metric ton ("MT") and a decline in met coal sales of 0.5 million metric tons ("MMTs"). Third quarter results also reflected a reduction in met coal cash cost of sales of $22.04 per ton and a 24% reduction in selling, general and administrative ("SG&A") expenses.

As previously disclosed, the Company idled its remaining Canadian mining operations in the second quarter of 2014. Costs incurred in the third quarter related to the idled mining operations totaled $9.4 million, representing idle mine costs of $8.2 million and transportation take-or-pay charges of $1.2 million, all of which are recorded in cost of sales. Results for the quarter also include a net benefit of $2.4 million resulting from a revision in the estimate of severance costs. The Company expects the idle mine costs to trend down going forward.

In August 2014, the Company issued 2.25 million shares of common stock in exchange for $25.0 million principal amount of the Company's 9.875% Senior Notes due 2020 resulting in a net gain of $9.9 million. This debt retirement will reduce annual interest expense by approximately $2.5 million. Results for the quarter also included $6.5 million of accelerated amortization of debt issuance costs associated with the Eighth Amendment to the 2011 Credit Agreement which was executed during the quarter.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the quarter was $8.4 million, and adjusted EBITDA was $0.2 million, compared with EBITDA of $23.6 million and adjusted EBITDA of $21.3 million for the third quarter 2013. A reconciliation of net loss to EBITDA and adjusted EBITDA is provided in the Company's "Reconciliation of Non-GAAP Financial Measures" included with this release.

Metallurgical Coal Sales Volume and Pricing

Third quarter 2014 met coal sales volumes, including both hard coking coal ("HCC") and low-volatility ("low-vol") pulverized coal injection product ("PCI"), was 2.3 MMTs compared with 2.8 MMTs in the prior-year comparable quarter. The decline in met coal sales volumes was due to lower sales volumes from the Canadian mining operations.

HCC sales volumes totaled 2.0 MMTs compared with 2.3 MMTs in 2013. The average selling price for HCC was $110.42 per MT, down from $133.72 per MT in the third quarter of 2013.

Low-vol PCI sales volume totaled 0.3 MMTs, down 0.2 MMTs from the prior-year comparable quarter. The selling price for low-vol PCI averaged $102.85 per MT compared with $121.76 per MT in 2013.

Metallurgical Coal Cash Cost of Sales

Met coal cash cost of sales for the third quarter of 2014 averaged $95.91 per MT, down $22.04, or 18.7%, compared with the third quarter of 2013, driven primarily by continued improvement in mining costs.

Metallurgical Coal Production

Met coal production was 2.0 MMTs in the quarter, compared with 2.8 MMTs in the prior-year period, with the decrease primarily resulting from the idling of the Canadian mining operations in the current year. Met coal production in Canada for the prior-year quarter totaled 0.7 MMTs.

Met coal cash cost of production averaged $66.90 per MT, down from $77.56 per MT in the prior-year comparable quarter.

Other Expenses

SG&A expenses totaled $16.6 million, compared with $21.9 million in the prior year quarter.

Income Taxes

The Company recognized an income tax benefit of $30.3 million in the third quarter compared with a tax benefit of $17.0 million in the prior-year period. The prior-year period includes charges related to a statutory tax rate increase enacted by British Columbia and a charge recorded to reflect the loss of tax attributes due to the restructuring of the Company's West Virginia operations. The income tax benefit for the current period excludes the tax effect of U.S. operating losses, as there currently is not adequate evidence that such benefit would be realized.

Capital Expenditures

Capital expenditures in the quarter totaled $26.3 million, compared with $28.5 million in the prior-year period, which reflects the Company's continued focus on disciplined spending in light of ongoing weak market conditions. The Company has reduced its full-year 2014 capital spending target to approximately $110 million from $120 million.

Liquidity

Available liquidity was $623.9 million at the end of the quarter, consisting of cash and cash equivalents of $614.6 million plus $9.3 million in availability under the Company's $76.9 million revolving credit facilities, net of outstanding letters of credit of $67.6 million.

On July 14, 2014, the Company issued $320 million in principal amount of 9.5% senior secured notes. As a result, cash and cash equivalents increased and overall liquidity improved. The Company has no significant debt maturities until 2018.

Outlook

The Company expects full-year 2014 met coal production of approximately 9.5 MMTs, within the range previously provided by the Company. Cash cost of sales per ton for the Company's Alabama underground mines is expected to average approximately $96 per MT for the full year, down from the Company's previous target of approximately $100 per MT.

Full-year 2014 met coal sales volumes are expected to total approximately 10.0 MMTs, within the previously provided range.

Use of Non-GAAP Financial Measures

In addition to the results prepared in accordance with generally accepted accounting principles in the United States ("GAAP") provided throughout this release, the Company has presented the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted net loss and Average Cash Cost of Sales per Ton. These non-GAAP financial measures are provided as supplemental information for financial measures prepared in accordance with GAAP. Management believes that these non-GAAP financial measures provide additional insights into the performance of the Company, and they reflect how management analyzes Company performance and compares that performance against other companies. These non-GAAP measures may not be comparable to other similarly titled measures used by other entities. A reconciliation of non-GAAP to GAAP financial measures is provided in the financial section of this release.

Conference Call Webcast

The Company will hold a webcast to discuss third quarter 2014 results on Thursday, October 30, 2014, at 10:00 a.m. ET. To listen to the live event, visit www.walterenergy.com.

About Walter Energy

Walter Energy is a leading, publicly traded "pure-play" metallurgical coal producer for the global steel industry with strategic access to steel producers in Europe, Asia and South America. The Company also produces thermal coal, anthracite, metallurgical coke and coal bed methane gas. Walter Energy employs approximately 2,700 employees, with operations in the United States, Canada and United Kingdom. For more information about Walter Energy, please visit 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 Walter Energy and are subject to various risks, uncertainties and factors relating to Walter Energy's operations and business environment, all of which are difficult to predict and many of which are beyond Walter Energy's control, which could cause Walter Energy's 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 Walter Energy's forward-looking statements: unfavorable economic, financial and business conditions; a substantial or extended decline in pricing, demand, and other factors beyond Walter Energy's control; failure of Walter Energy's customers to honor or renew contracts; Walter Energy's ability to collect payments from its customers; inherent risks in coal mining that are beyond Walter Energy's control; title defects preventing Walter Energy from (or resulting in additional costs for) mining its mineral interests; concentration of Walter Energy's mining operations in a limited number of areas; a significant reduction of or loss of purchases by Walter Energy's largest customers; unavailability or uneconomical transportation for Walter Energy's coal; significant competition and foreign currency fluctuation; significant cost increases and fluctuations, and delay in the delivery of raw materials, mining equipment and purchased components; work stoppages, labor shortages and other labor relations matters; Walter Energy's ability to hire and retain a skilled labor force; risks associated with Walter Energy's reclamation and mine closure obligations; inaccuracies in Walter Energy's estimates of coal reserves; Walter Energy's ability to develop or acquire coal reserves in an economically feasible manner; challenges to Walter Energy's licenses, permits and other authorizations; failure to meet project development and expansion targets; risks associated with operating in foreign jurisdictions; risks associated with environmental, health and safety laws and regulations; risks associated with federal, state and provincial regulatory agencies' authority to order temporary or permanent closure of Walter Energy's mines; increased focus by regulatory authorities on the effects of surface coal mining on the environment; risks related to climate change concerns; risks related to Walter Energy's operations' impact on the environment; risks related to Walter Energy's indebtedness; Walter Energy's ability to generate cash for its financial obligations, to refinance its indebtedness or to obtain additional financing; Walter Energy's ability to incur additional indebtedness; restrictions in Walter Energy's existing and future debt agreements; events beyond Walter Energy's control that may result in an event of default under one or more of its debt instruments; downgrades in Walter Energy's credit ratings; failure to obtain or renew surety bonds on acceptable terms that could affect Walter Energy's ability to secure reclamation and coal lease obligations; costs associated with Walter Energy's pension and benefits, including post-retirement benefits; costs associated with Walter Energy's workers' compensation and certain medical and disability benefits; adverse rulings in current or future litigation; Walter Energy's ability to attract and retain key personnel; Walter Energy's ability to identify or integrate suitable acquisition candidates to promote growth; volatility in the price of Walter Energy's common stock; Walter Energy's ability to pay regular dividends to stockholders; Walter Energy's exposure to indemnification obligations; risks associated with terrorist attacks and threats and escalation of military activity in response to such attacks; risks associated with cyber-attacks or other security breaches; and other risks and uncertainties including those described in Walter Energy's filings with the SEC. Forward-looking statements made by Walter Energy in this release, or elsewhere, speak only as of the date on which the statements were made. You are advised to read the risk factors in Walter Energy's most recently filed Annual Report on Form 10-K and subsequent filings with the SEC, which are available on Walter Energy's website at www.walterenergy.com and on the SEC's website at www.sec.gov. New risks and uncertainties arise from time to time, and it is impossible for Walter Energy to predict these events or how they may affect it or its anticipated results. Walter Energy has no duty to, and does 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  
  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
  AND COMPREHENSIVE LOSS  
  ($ in thousands, except per share and share amounts)  
  Unaudited  
                           
      For the three months     For the nine months  
      ended September 30,     ended September 30,  
      2014     2013     2014     2013  
  Revenues:                                
    Sales   $ 319,542     $ 445,937     $ 1,102,753     $ 1,373,344  
    Miscellaneous income     10,004       9,859       19,029       15,291  
        329,546       455,796       1,121,782       1,388,635  
                                   
  Costs and expenses:                                
    Cost of sales (exclusive of depreciation and depletion) (1)     297,925       395,311       991,561       1,183,861  
    Depreciation and depletion     58,413       82,986       204,653       232,496  
    Selling, general and administrative     16,598       21,873       56,379       79,676  
    Postretirement benefits     13,869       14,707       41,607       44,157  
    Restructuring and asset impairments (2)     (2,426 )     -       28,916       1,699  
        384,379       514,877       1,323,116       1,541,889  
                                   
  Operating loss     (54,833 )     (59,081 )     (201,334 )     (153,254 )
    Interest expense, net (3)     (79,231 )     (58,362 )     (218,065 )     (157,314 )
    Gain (loss) on extinguishment of debt (4)     3,394       (874 )     902       (6,875 )
    Other income (loss), net     1,424       593       646       (16 )
  Loss before income tax benefit     (129,246 )     (117,724 )     (417,851 )     (317,459 )
    Income tax benefit (5)     (30,344 )     (17,000 )     (75,380 )     (132,799 )
  Net loss   $ (98,902 )   $ (100,724 )   $ (342,471 )   $ (184,660 )
                                   
  Basic and diluted net loss per share   $ (1.48 )   $ (1.61 )   $ (5.27 )   $ (2.95 )
                                   
  Weighted average number of basic and diluted shares outstanding (6)    
66,952,238
     
62,573,205
     
64,986,354
     
62,554,556
 
                                   
                                   
  Comprehensive loss   $ (117,597 )   $ (81,505 )   $ (339,042 )   $ (171,919 )
   
(1) Cost of sales for the three and nine months ended September 30, 2014 includes idle mine costs of approximately $8.2 million and $12.7 million, respectively, and transportation take-or-pay charges of approximately $1.2 million and $7.6 million, respectively, related to the idling of the Canadian Operations.
(2) The three months ended September 30, 2014 includes a net benefit of $2.4 million as a result of a revision in the estimate of severance within our Canadian operations as employee notices were rescinded during the current quarter. The nine months ended September 30, 2014 includes severance charges primarily incurred in connection with the idling of the Canadian operations of $5.8 million and an asset impairment of $23.1 million related to the sale of the Blue Creek Coal Terminal and related parcels of land.
(3) The current period interest expense reflects an increase in the effective interest rates on our outstanding debt due to amendments to our 2011 Credit Agreement and refinancing of existing debt through the issuance of senior notes in 2013 and 2014.
(4) Gain (loss) on extinguishment of debt for the three and nine months ended September 30, 2014 includes a net gain of $9.9 million recognized upon the extinguishment of $25.0 million of the 9.875% Senior Notes in exchange for shares of common stock and accelerated amortization of $6.5 million of deferred financing costs associated with the Eighth Amendment to the 2011 Credit Agreement. The nine months ended September 30, 2014 includes a net gain of $21.3 million recognized upon the extinguishment of $60.0 million of the 9.875% Senior Notes in exchange for shares of common stock offset partially by $20.4 million in accelerated amortization of deferred financing costs associated with the refinancing of term loan A debt and amendments to the 2011 Credit Agreement. The three and nine months ended September 30, 2013 includes a net loss on extinguishment of debt associated with the refinancing of term loan A and B debt through the issuance of senior notes in March and September of 2013. The Condensed Consolidated Statements of Operations for prior periods has been revised to present gain (loss) on extinguishment of debt, previously classified in interest expense and other income (loss), as a component of the gain or loss on extinguishment of debt.
(5) Income taxes for the three and nine months ended September 30, 2014 exclude tax benefits related to U.S. operating losses as there currently is not sufficient evidence that those benefits would be realized. The three months ended September 30, 2013 includes charges related to a statutory tax rate increase enacted by British Columbia and a charge recorded to reflect the loss of tax attributes due to the restructuring of our West Virginia operations.
(6) In periods of net loss, the number of shares used to calculate diluted earnings per share is the same as that used to calculate basic earnings per share.
   
   
WALTER ENERGY, INC. AND SUBSIDIARIES  
RESULTS BY OPERATING SEGMENT  
($ in thousands)  
Unaudited  
                         
    For the three months     For the nine months  
    ended September 30,     ended September 30,  
    2014     2013     2014     2013  
                                 
REVENUES:                                
U.S. Operations   $ 282,356     $ 337,269     $ 911,705     $ 997,503  
Canadian and U.K. Operations     46,355       119,367       206,976       390,684  
Other     835       (840 )     3,101       448  
  Revenues   $ 329,546     $ 455,796     $ 1,121,782     $ 1,388,635  
                                 
OPERATING INCOME (LOSS):                                
U.S. Operations   $ (26,837 )   $ (8,008 )   $ (51,376 )   $ 22,368  
Canadian and U.K. Operations     (26,598 )     (48,022 )     (145,642 )     (163,135 )
Other     (1,398 )     (3,051 )     (4,316 )     (12,487 )
  Operating loss   $ (54,833 )   $ (59,081 )   $ (201,334 )   $ (153,254 )
                                 
DEPRECIATION AND DEPLETION:                                
U.S. Operations   $ 36,649     $ 53,060     $ 113,409     $ 131,722  
Canadian and U.K. Operations     21,152       29,383       89,371       99,235  
Other     612       543       1,873       1,539  
  Depreciation and depletion   $ 58,413     $ 82,986     $ 204,653     $ 232,496  
                                 
CAPITAL EXPENDITURES:                                
U.S. Operations   $ 23,503     $ 24,741     $ 63,244     $ 90,945  
Canadian and U.K. Operations     1,687       2,867       3,731       16,412  
Other     1,067       876       2,758       1,378  
  Capital expenditures   $ 26,257     $ 28,484     $ 69,733     $ 108,735  
                                 
 
WALTER ENERGY, INC. AND SUBSIDIAIRES
QUARTERLY SUPPLEMENTAL FINANCIAL DATA
(Ton information in 000's metric tons and dollars in USD)
Unaudited
                                     
    Three Months Ended September 30, 2014   Three Months Ended September 30, 2013   Three Months Ended June 30, 2014
    U.S. Operations   Canadian and U.K. Operations (3)   Total   U.S. Operations   Canadian and U.K. Operations   Total   U.S. Operations   Canadian and U.K. Operations   Total
Total Metallurgical                                                      
  Sales Metric Tons     1,989     345     2,334     1,953     871     2,824     2,041     669     2,710
  Production Metric Tons     1,956     -     1,956     2,069     704     2,773     1,924     519     2,443
  Average Net Selling Price   $ 110.42   $ 102.85   $ 109.31   $ 132.46   $ 130.56   $ 131.88   $ 113.64   $ 115.96   $ 114.21
  Average Cash Cost of Sales per Ton (1)(2)   $ 94.48   $ 104.17   $ 95.91   $ 105.26   $ 146.40   $ 117.95   $ 90.83   $ 126.78   $ 99.70
  Average Cash Cost of Production per Ton (1)   $ 66.90   $ -   $ 66.90   $ 63.12   $ 119.98   $ 77.56   $ 70.34   $ 82.71   $ 72.97
                                                       
    Low Vol Hard Coking                                                      
      Sales Metric Tons     1,190     -     1,190     1,116     -     1,116     1,329     -     1,329
      Production Metric Tons     1,073     -     1,073     1,330     -     1,330     1,200     -     1,200
      Average Net Selling Price   $ 113.48   $ -   $ 113.48   $ 137.31   $ -   $ 137.31   $ 114.77   $ -   $ 114.77
      Average Cash Cost of Sales per Ton (1)(2)   $ 94.43   $ -   $ 94.43   $ 98.67   $ -   $ 98.67   $ 85.26   $ -   $ 85.26
      Average Cash Cost of Production per Ton (1)   $ 68.94   $ -   $ 68.94   $ 58.76   $ -   $ 58.76   $ 63.73   $ -   $ 63.73
                                                           
    Mid Vol Hard Coking                                                      
      Sales Metric Tons     569     -     569     581     346     927     593     315     908
      Production Metric Tons     757     -     757     576     234     810     583     73     656
      Average Net Selling Price   $ 106.25   $ -   $ 106.25   $ 132.90   $ 143.94   $ 137.02   $ 110.54   $ 123.35   $ 114.99
      Average Cash Cost of Sales per Ton (1)(2)   $ 98.05   $ -   $ 98.05   $ 113.58   $ 179.79   $ 138.26   $ 108.13   $ 128.18   $ 115.08
      Average Cash Cost of Production per Ton (1)   $ 61.18   $ -   $ 61.18   $ 78.37   $ 184.59   $ 109.09   $ 82.16   $ 133.69   $ 87.86
                                                           
    High Vol Hard Coking                                                      
      Sales Metric Tons     230     -     230     256     -     256     119     -     119
      Production Metric Tons     126     -     126     163     -     163     141     -     141
      Average Net Selling Price   $ 104.86   $ -   $ 104.86   $ 106.14   $ -   $ 106.14   $ 106.32   $ -   $ 106.32
      Average Cash Cost of Sales per Ton (1)(2)   $ 85.88   $ -   $ 85.88   $ 113.28   $ -   $ 113.28   $ 81.90   $ -   $ 81.90
      Average Cash Cost of Production per Ton (1)   $ 83.83   $ -   $ 83.83   $ 44.76   $ -   $ 44.76   $ 77.72   $ -   $ 77.72
                                                           
    Low Vol PCI                                                      
      Sales Metric Tons     -     345     345     -     525     525     -     354     354
      Production Metric Tons     -     -     -     -     470     470     -     446     446
      Average Net Selling Price   $ -   $ 102.85   $ 102.85   $ -   $ 121.76   $ 121.76   $ -   $ 109.37   $ 109.37
      Average Cash Cost of Sales per Ton (1)(2)   $ -   $ 96.74   $ 96.74   $ -   $ 124.45   $ 124.45   $ -   $ 124.76   $ 124.76
      Average Cash Cost of Production per Ton (1)   $ -   $ -   $ -   $ -   $ 87.75   $ 87.75   $ -   $ 73.31   $ 73.31
                                                       
Thermal                                                      
  Sales Metric Tons     234     25     259     540     -     540     196     26     222
  Production Metric Tons     162     3     165     620     29     649     140     5     145
  Average Net Selling Price   $ 69.52   $ 121.55   $ 74.54   $ 65.04   $ -   $ 65.04   $ 75.03   $ 126.24   $ 80.99
  Average Cash Cost of Sales per Ton (1)(2)   $ 97.36   $ 156.75   $ 103.09   $ 53.44   $ -   $ 53.44   $ 89.20   $ 125.80   $ 93.45
  Average Cash Cost of Production per Ton (1)   $ 54.62   $ 777.24   $ 65.94   $ 34.77   $ 75.69   $ 36.61   $ 55.40   $ 397.78   $ 67.27
   
(1) Average Cash Cost of Sales per Ton is based on reported Cost of Sales and includes items such as freight, royalties, manpower, fuel and other similar production and sales cost items but excludes depreciation, depletion, postretirement benefits, idle mine costs and transportation take-or-pay charges. Average Cash Cost of Production per Ton is based on period costs of mining and includes items such as manpower, fuel and other similar production items but excludes depreciation, depletion, postretirement benefits, idle mine costs and transportation take-or-pay charges. Average Cash Cost of Sales per Ton is a non-GAAP 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 Average Cash Cost of Sales per Ton is a useful measure of performance and we believe it aids some investors and analysts in comparing us against other companies to help analyze our current and future potential performance. Average Cash Cost of Sales per Ton may not be comparable to similarly titled measures used by other companies.
(2) Reconciliation of Cash Cost of Sales per Ton to Cost of Sales as disclosed (in thousands USD):
 
    Three Months
Ended September 30,
  Three Months
Ended June 30,
    2014   2013   2014
Cash Cost of Sales as calculated from above                  
  (sales tons times average cash cost per ton)   $ 250,564   $ 361,948   $ 290,933
Canada idle mine costs     8,152     -     4,509
Canada transportation take or pay charges     1,236     -     6,394
Cash Cost of other products     37,973     33,363     41,925
  Total Cost of Sales   $ 297,925   $ 395,311   $ 343,761
                   
(3) The total Average Cash Cost of Sales per Ton for our Canadian and U.K. Segment includes lower of cost or market charges recognized on low-vol and mid-vol hard coking coal ending inventory.
 
 
WALTER ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
Unaudited
         
    September 30,   December 31,
    2014   2013
ASSETS            
Cash and cash equivalents   $ 614,623   $ 260,818
Receivables, net     217,083     281,763
Inventories     226,074     312,647
Deferred income taxes     30,246     37,067
Prepaid expenses     43,320     39,022
Other current assets     12,999     18,031
  Total current assets     1,144,345     949,348
Mineral interests, net     2,867,569     2,905,002
Property, plant and equipment, net     1,513,165     1,637,552
Other long-term assets     115,433     98,958
TOTAL ASSETS   $ 5,640,512   $ 5,590,860
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current debt   $ 14,178   $ 9,210
Accounts payable     51,894     92,712
Accrued expenses     179,673     133,870
Accumulated postretirement benefits obligation     31,311     30,036
Other current liabilities     221,409     214,073
  Total current liabilities     498,465     479,901
Long-term debt     3,176,219     2,769,622
Deferred income taxes     751,565     822,867
Accumulated postretirement benefits obligation     576,878     570,712
Other long-term liabilities     182,467     195,064
TOTAL LIABILITIES     5,185,594     4,838,166
STOCKHOLDERS' EQUITY     454,918     752,694
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 5,640,512   $ 5,590,860
             
   
WALTER ENERGY, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014  
($ in thousands, except per share amounts)  
Unaudited  
                             
   


Total
   

Common
Stock
 
Capital in
Excess of
Par Value
   

Accumulated
Deficit
    Accumulated
Other
Comprehensive
Loss
 
                                       
Balance at December 31, 2013   $ 752,694     $ 626   $ 1,613,256     $ (698,930 )   $ (162,258 )
                                       
Net loss     (342,471 )     -     -       (342,471 )     -  
Other comprehensive income, net of tax     3,429       -     -       -       3,429  
Dividends paid, $0.03 per share     (1,944 )     -     (1,944 )     -       -  
Stock-based compensation     6,263       -     6,263       -       -  
Issuance of common stock in connection with the extinguishment of debt     37,142       55     37,087       -       -  
Other     (195 )     -     (195 )     -       -  
Balance at September 30, 2014   $ 454,918     $ 681   $ 1,654,467     $ (1,041,401 )   $ (158,829 )
                                       
                                       
WALTER ENERGY, INC. AND SUBSIDIARIES  
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  
Unaudited  
                         
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA TO AMOUNTS REPORTED UNDER US GAAP:  
                         
    For the three months     For the nine months  
    ended September 30,     ended September 30,  
($ in thousands)   2014     2013     2014     2013  
                                 
Net loss   $ (98,902 )   $ (100,724 )   $ (342,471 )   $ (184,660 )
  Interest expense, net     79,231       58,362       218,065       157,314  
  Income tax benefit     (30,344 )     (17,000 )     (75,380 )     (132,799 )
  Depreciation and depletion expense     58,413       82,986       204,653       232,496  
Earnings before interest, income taxes, and depreciation and depletion ("EBITDA") (1)     8,398       23,624       4,867       72,351  
  Restructuring and asset impairments     (2,426 )     -       28,916       1,699  
  (Gain) loss on extinguishment of debt     (3,394 )     874       (902 )     6,875  
  Canada transportation take-or-pay charges     1,236       -       7,630       -  
  Other items, including proxy contest expenses and foreign currency adjustments     (2,627 )     (3,415 )     (2,223 )     8,852  
  (Gain) Loss on interest rate swap hedge ineffectiveness     (1,019 )     235       (296 )     235  
Adjusted EBITDA (2)   $ 168     $ 21,318     $ 37,992     $ 90,012  
                                 
RECONCILIATION OF ADJUSTED NET LOSS TO AMOUNTS REPORTED UNDER US GAAP:                 
                                 
    For the three months     For the nine months  
    ended September 30,     ended September 30,  
($ in thousands)   2014     2013     2014     2013  
                                 
Net loss   $ (98,902 )   $ (100,724 )   $ (342,471 )   $ (184,660 )
  Restructuring and asset impairments, net of tax     (1,562 )     -       27,249       1,330  
  (Gain) loss on extinguishment of debt, net of tax     (3,394 )     541       (902 )     4,254  
  Canada transportation take-or-pay charges, net of tax     796       -       4,912       -  
  Other items, including proxy contest expenses and foreign currency adjustments, net of tax     (1,689 )     (2,251 )     (713 )     5,300  
  (Gain) loss on interest rate swap hedge ineffectiveness, net of tax     (1,019 )     145       (296 )     145  
Adjusted net loss (3)   $ (105,770 )   $ (102,289 )   $ (312,221 )   $ (173,631 )
                                 
Weighted average number of basic and diluted shares outstanding     66,952,238       62,573,205       64,986,354       62,554,556  
                                 
Adjusted basic and diluted loss per share:   $ (1.58 )   $ (1.63 )   $ (4.80 )   $ (2.78 )
                                 
(1) EBITDA is defined as net loss before interest expense, interest income, income taxes, and depreciation and depletion expense. EBITDA is a financial measure which is not calculated in conformity with 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 companies.  
(2) Adjusted EBITDA is defined as EBITDA further adjusted to exclude restructuring and asset impairment charges, (gain) loss on interest rate swap hedge ineffectiveness, gain (loss) on extinguishment of debt, Canada transportation take-or-pay charges and other items including proxy contest expenses and foreign currency adjustments. Adjusted EBITDA is not a measure of financial performance in accordance with GAAP, and we believe items excluded from Adjusted EBITDA are significant to a reader in understanding and assessing our financial condition. Therefore, Adjusted EBITDA should not be considered in isolation, nor as an alternative to net income, income from operations, cash flows from operations or as a measure of our profitability, liquidity or performance under GAAP. We believe that Adjusted EBITDA presents a useful measure of our ability to incur and service debt based on ongoing operations. Furthermore, analogous measures are used by industry analysts to evaluate our operating performance. Investors should be aware that our presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.  
(3) Adjusted net loss is defined as net loss net of restructuring and asset impairment charges, (gain) loss on interest rate swap hedge ineffectiveness, gain (loss) on extinguishment of debt, Canada transportation take-or-pay charges, and other items including proxy contest expenses and foreign currency adjustments, net of tax. Adjusted net loss is not a measure of financial performance in accordance with GAAP, and we believe items excluded from Adjusted net loss are significant to a reader in understanding and assessing our results of operations. Therefore, Adjusted net loss should not be considered in isolation, nor as an alternative to net loss under GAAP.  
   
   
WALTER ENERGY, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
($ in thousands)  
Unaudited  
    For the nine months ended
September 30,
 
    2014     2013  
OPERATING ACTIVITIES                
Net loss   $ (342,471 )   $ (184,660 )
                 
Adjustments to reconcile net loss to net cash flows used in operating activities:                
                 
  Depreciation and depletion     204,653       232,496  
  Deferred income tax benefit     (70,772 )     (68,426 )
  Amortization of debt issuance costs     11,920       14,224  
  (Gain) loss on extinguishment of debt     (902 )     6,875  
  Impairment charges     23,081       -  
  Other     16,969       (129 )
                 
  Decrease (increase) in current assets:                
    Receivables     48,578       (48,631 )
    Inventories     74,243       (7,274 )
    Prepaid expenses and other current assets     (4,426 )     4,801  
                 
  Increase (decrease) in current liabilities:                
    Accounts payable     (39,588 )     (1,397 )
    Accrued interest     61,126       30,676  
    Accrued expenses and other current liabilities     (3,197 )     (22,581 )
    Cash flows used in operating activities     (20,786 )     (44,026 )
                 
INVESTING ACTIVITIES                
  Additions to property, plant and equipment     (69,733 )     (108,735 )
  Proceeds from sale of property, plant and equipment     24,112       -  
  Proceeds from sales of investments     -       1,559  
  Other     134       663  
    Cash flows used in investing activities     (45,487 )     (106,513 )
                 
FINANCING ACTIVITIES                
  Proceeds from issuance of debt     869,800       897,412  
  Retirements of debt     (418,321 )     (510,255 )
  Dividends paid     (1,944 )     (16,264 )
  Debt issuance costs     (27,748 )     (42,128 )
  Other     (195 )     (732 )
    Cash flows provided by financing activities     421,592       328,033  
                 
EFFECT OF FOREIGN EXCHANGE RATES ON CASH     (1,514 )     (961 )
                 
Net increase in cash and cash equivalents     353,805       176,533  
Cash and cash equivalents at beginning of period     260,818       116,601  
Cash and cash equivalents at end of period   $ 614,623     $ 293,134  
                 

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