Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
WLB > SEC Filings for WLB > Form 10-Q on 25-Oct-2013All Recent SEC Filings

Show all filings for WESTMORELAND COAL CO | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for WESTMORELAND COAL CO


25-Oct-2013

Quarterly Report


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains "forward-looking statements." Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects" and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make about our expectation that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future, our anticipated cash spend on heritage health and pension obligations, the possibility that we may from time to time use available cash to repurchase our 10.75% Senior Notes on the open market, and that we expect to have Excess Cash Flows for 2013.
Forward-looking statements are based on our current expectations and assumptions regarding our 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. Our actual results may differ materially from those contemplated by the forward-looking statements. We therefore caution 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 and the following:
risks associated with our estimated postretirement medical benefit and pension obligations, including those we assumed in the Kemmerer acquisition, and the impact of regulatory changes on those obligations;

changes in our black lung obligations, changes in our experience related to black lung claims, and the impact of the Patient Protection and Affordable Care Act;

our potential inability to maintain compliance with debt covenant requirements;

competition with natural gas and other non-coal energy resources, which may be increased as a result of energy policies, regulations and subsidies or other government incentives that encourage or mandate use of alternative energy sources;

coal-fired power plant capacity, including the impact of environmental regulations, energy policies and other factors that may cause utilities to phase out or close existing coal-fired power plants or reduce construction of any new coal-fired power plants;

railroad, export terminal capacity and other transportation performance, costs and availability;

the potential inability of our subsidiaries to pay dividends to us due to restrictions in our debt arrangements, reductions in planned coal deliveries or other business factors;

our potential inability to enter into new coal supply agreements with existing customers due to the unfavorable result of competitive bid processes or the shutdown of a power facility due to new environmental legislation or regulations;

risks associated with the structure of Westmoreland Energy LLC's and its subsidiaries, collectively referred to herein as ROVA, contracts with its coal suppliers and power purchaser, which could dramatically affect the overall profitability of ROVA;

the effect of Environmental Protection Agency inquiries and regulations on the operations of ROVA and our customer's power facilities;

the effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers, including unplanned outages at our customers due to the impact of weather-related variances or catastrophic events;

the potential that insurance proceeds from our business interruption claim relating to the unexpected shutdown of one of the Absaloka mine customers will not be sufficient to cover our losses associated with the business interruption;

future legislation and changes in regulations, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases; and

other factors that are described in "Risk Factors" in our 2012 Form 10-K and any subsequent quarterly filing on Form 10-Q

Unless otherwise specified, the forward-looking statements in this report speak as of the filing date of this report. Factors or events that could cause our actual results to differ may emerge from time-to-time, and it is not possible for us to


Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

predict all of them. We undertake no obligation to publicly update any forward-looking statements, whether because of new information, future developments or otherwise, except as may be required by law. Overview

Westmoreland Coal Company is an energy company whose operations include six surface coal mines in Montana, Wyoming, North Dakota and Texas, and two coal-fired power-generating units in North Carolina. We sold 21.7 million tons of coal in 2012 and 18.4 million tons through September 30, 2013. Our two principal operating segments are our coal and power segments. Our two non-operating segments are our heritage and corporate segments. Our heritage segment primarily includes the costs of benefits we provide to former mining operation employees and our corporate segment consists primarily of corporate administrative expenses.

We are a holding company and conduct our operations through subsidiaries. We have significant cash requirements to fund our ongoing heritage health benefit costs and corporate overhead expenses. The principal sources of cash flow to us are distributions from our principal operating subsidiaries. Indian Coal Production Tax Credits (ICTC) amendment and extension On May 30, 2013, we extended our ICTC monetization transaction two and a half months to December 31, 2013 to coincide with the IRS's extension of the ICTC. We also agreed with our partner in the transaction to adjust the mining fee WRI receives as compensation for mining to better reflect current market conditions. In October, 2013 our partner informed us they do not expect to extend the ICTC monetization transaction, which will expire on December 31, 2013. Since 2009, we have experienced a yearly average of $3.0 million of income and $6.2 million of cash receipts from the ICTC. We are currently evaluating alternative options regarding the future monetization of our ICTC, in the event that the IRS extends the ICTC beyond December 31, 2013.
Xcel Fire

In November 2011, an explosion and subsequent fire occurred at Unit 3 of Xcel Energy's Sherburne County Generating Station, or Unit 3, which is the largest customer of our Absaloka Mine. Xcel indicated that Unit 3 would be offline for an extended period. Unit 3 resumed operations during October 2013. WRI, our wholly owned subsidiary that operates the Absaloka Mine, maintains business interruption insurance coverage and has recognized $5.0 million and $16.3 million of income for the three and nine months ended September 30, 2013, respectively; and $3.3 million and $11.9 million of income for the three and nine months ended September 30, 2012, respectively. We received $6.0 million and $13.4 million of cash proceeds for the three and nine months ended September 30, 2013, respectively. Insurance proceeds are included in Net cash provided by operating activities. At the time Unit 3 resumed operations, we will no longer record income from business interruption insurance.

Results of Operations
Three Months Ended September 30, 2013 Compared to Three Months Ended September
30, 2012
Summary
The following table shows the comparative consolidated results and changes
between periods:
                                                     Three Months Ended September 30,
                                                                           Increase / (Decrease)
                                           2013             2012             $                %
                                                              (In millions)
Revenues                             $     176.8        $    161.3     $      15.5             9.6  %
Net income (loss) applicable to
common shareholders                          2.4               7.3            (4.9 )         (67.1 )%
Adjusted EBITDA(1)                          30.1              35.5            (5.4 )         (15.2 )%


____________________


(1) Adjusted EBITDA , a non-GAAP measure, is defined and reconciled to net loss at the end of this "Results of Operations" section.


Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Our third quarter 2013 revenues increased primarily due to stronger power demand, favorable weather conditions, and fewer unplanned outages at ROVA. Our third quarter 2013 net income applicable to common shareholders decreased by $4.9 million. The primary factors, in aggregate, driving this decrease in net income were:

Three Months Ended
September 30, 2013
(In millions)

Decrease in our coal segment primarily due to costs incurred to increase production levels at the Absaloka Mine, coal mined at the Kemmerer Mine carried a higher royalty rate, and a contract adjustment related to employee benefit costs. $ (6.2 ) Increase in our power segment operating income primarily due to
fewer unplanned outages.                                                            1.1
Increase due to other factors                                                       0.2
Total                                                                $             (4.9 )

Coal Segment Operating Results
The following table shows comparative coal revenues, operating income, adjusted
EBITDA, sales volume, and percentage changes between periods:
                                                Three Months Ended September 30,
                                                                  Increase / (Decrease)
                                         2013         2012            $              %
                                              (In thousands, except per ton data)
Revenues                              $ 151,881    $ 138,798    $    13,083         9.4  %
Operating income                         10,231       18,025         (7,794 )     (43.2 )%
Adjusted EBITDA(1)                       28,420       34,584         (6,164 )     (17.8 )%
Tons sold-millions of equivalent tons       6.6          6.0            0.6        10.0  %


____________________


(1) Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this "Results of Operations" section.

Our third quarter 2013 coal segment revenues and tons sold increased due to stronger power demand and favorable weather conditions. Operating income decreased mostly due to increased costs incurred at the Absaloka Mine in preparation for higher production levels, primarily in anticipation of resumed operations at Sherco Unit 3; coal mined at the Kemmerer Mine carried a higher royalty rate; and a contract adjustment related to employee benefit costs. Power Segment Operating Results
The following table shows comparative power revenues, operating income, adjusted EBITDA, production and percentage changes between periods:

                                 Three Months Ended September 30,
                                                      Increase / (Decrease)
                        2013           2012                $                %
                                          (In thousands)
Revenues           $   24,911        $ 22,534    $      2,377             10.5 %
Operating income        5,087           4,023           1,064             26.4 %
Adjusted EBITDA(1)      7,814           6,742           1,072             15.9 %
Megawatts hours           454             417              37              8.9 %


____________________


(1) Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this "Results of Operations" section.

Our third quarter 2013 power segment revenues, operating income and megawatt hours increased due to fewer unplanned outages at our ROVA power plant.


Table of Contents
                   WESTMORELAND COAL COMPANY AND SUBSIDIARIES
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONT.)

We are actively pursuing various possibilities with ROVA in anticipation of the
termination of our coal supply agreements beginning in 2014. Today's open market
price for Central Appalachia coal is significantly greater than the price in our
coal supply agreements.
Heritage Segment Operating Results
The following table shows comparative heritage segment's operating expenses and
percentage change between periods:
                                                  Three Months Ended September 30,
                                                                       Increase / (Decrease)
                                         2013            2012             $               %
                                                           (In thousands)
Heritage segment operating expenses  $     4,326     $    4,149     $        177           4.3 %

Our third quarter 2013 heritage segment operating expenses remained consistent with third quarter 2012.
Corporate Segment Operating Results
The following table shows comparative corporate segment's operating expenses and percentage change between periods:

                                                   Three Months Ended September 30,
                                                                        Increase / (Decrease)
                                         2013            2012              $                %
                                                            (In thousands)
Corporate segment operating expenses $     2,456     $    2,448     $          8             0.3 %

Our third quarter 2013 corporate segment operating expenses remained consistent with third quarter 2012.
Nonoperating Results (including interest expense, interest income, other income, income tax expense, and net loss attributable to noncontrolling interest) Our interest expense for the third quarter of 2013 decreased to $9.9 million compared with $11.1 million for the third quarter of 2012 primarily due to lower debt levels.
Our interest income and other income for the third quarter of 2013 is comparable to the third quarter of 2012.
Our income tax expense for the third quarter of 2013 increased to less than $0.1 million compared to income tax benefit of $0.3 million for the third quarter of 2012 due to higher taxable income.
Our net loss attributable to noncontrolling interest for the third quarter of 2013 increased to $3.8 million compared with $2.3 million for the third quarter of 2012 related to increased losses from a partially owned consolidated subsidiary.
Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012
Summary
The following table shows the comparative consolidated results and changes between periods:

                                                      Nine Months Ended September 30,
                                                                           Increase / (Decrease)
                                         2013            2012                $                  %
                                                               (In millions)
Revenues                             $     500.7     $    441.4     $      59.3                 13.4  %
Net income (loss) applicable to
common shareholders                         (0.9 )         (4.6 )           3.7                (80.4 )%
Adjusted EBITDA(1)                          87.8           77.4            10.4                 13.4  %


____________________


Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

(1) Adjusted EBITDA , a non-GAAP measure, is defined and reconciled to net loss at the end of this "Results of Operations" section.

Our revenues for the first nine months of 2013 increased primarily due to stronger power demand, favorable weather conditions and the Kemmerer acquisition. In addition, our ROVA power plant had fewer unplanned outages. Our net loss applicable to common shareholders for the first nine months of 2013 decreased by $3.7 million. The primary factors, in aggregate, driving this decrease in net loss were:

Nine Months Ended
September 30, 2013
(In millions)

Increase in our power segment operating income due to fewer unplanned
outages.                                                              $              3.9
Decrease in interest expense due to lower debt levels.                               1.9
Decrease in our coal segment primarily due to costs incurred to
increase production levels at the Absaloka Mine, coal mined at the
Kemmerer Mine carried a higher royalty rate, and a contract
adjustment related to employee benefit costs.                                       (1.1 )
Decrease due to other factors                                                       (1.0 )
Total                                                                 $              3.7

Coal Segment Operating Results
The following table shows comparative coal revenues, operating income, adjusted
EBITDA, sales volume, and percentage changes between periods:
                                                Nine Months Ended September 30,
                                                                  Increase / (Decrease)
                                         2013         2012             $              %
                                              (In thousands, except per ton data)
Revenues                              $ 433,330    $ 382,272    $     51,058       13.4  %
Operating income                         36,778       37,478            (700 )     (1.9 )%
Adjusted EBITDA(1)                       87,993       84,080           3,913        4.7  %
Tons sold-millions of equivalent tons      18.4         15.5             2.9       18.7  %


____________________


(1) Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this "Results of Operations" section.

Our coal segment revenues and tons sold increased for the first nine months of 2013 primarily due to stronger power demand, favorable weather conditions, and the Kemmerer acquisition. Operating income decreased mostly due to increased costs incurred at the Absaloka Mine in preparation for higher production levels, primarily in anticipation of resumed operations at Sherco Unit 3; coal mined at the Kemmerer Mine carried a higher royalty rate; and a contract adjustment related to employee benefit costs. These decreases in operating income were partially offset with increased revenues described above. Power Segment Operating Results
The following table shows comparative power revenues, operating income, adjusted EBITDA, production, and percentage changes between periods:


Table of Contents
                   WESTMORELAND COAL COMPANY AND SUBSIDIARIES
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONT.)

                                 Nine Months Ended September 30,
                                                     Increase / (Decrease)
                        2013          2012                $                %
                                          (In thousands)
Revenues           $   67,409       $ 59,138    $      8,271             14.0 %
Operating income        8,922          5,066           3,856             76.1 %
Adjusted EBITDA(1)     17,096         13,168           3,928             29.8 %
Megawatts hours         1,216          1,077             139             12.9 %


____________________


(1) Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this "Results of Operations" section.

Our power segment revenues, operating income and megawatt hours increased for the first nine months of 2013 due to fewer unplanned outages at our ROVA power plant.
Heritage Segment Operating Results
The following table shows comparative heritage segment's operating expenses and percentage change between periods:

Nine Months Ended September 30,
Increase / (Decrease)
2013 2012 $ %
(In thousands)

Heritage segment operating expenses $ 12,031 $ 12,687 $ (656 ) (5.2 )%

Our heritage segment operating expenses decreased for the first nine months of 2013 primarily due to higher interest rates. Corporate Segment Operating Results
The following table shows comparative corporate segment's operating expenses and percentage change between periods:

Nine Months Ended September 30,
Increase / (Decrease)
2013 2012 $ %
(In thousands)

Corporate segment operating expenses $ 7,424 $ 9,583 $ (2,159 ) (22.5 )%

Our corporate segment operating expenses for the first nine months of 2013 decreased primarily due to a deductible on a claim paid by our captive insurance entity to our subsidiary related to the business interruption claim at our Absaloka Mine during the first quarter of 2012, however this expense was offset by proceeds recorded in the coal segment and thus had no impact on a consolidated basis. In addition, expenses decreased due to one-time recruiting and compensation expenses related to a new executive position occurring during the first nine months of 2012.
Nonoperating Results (including interest expense, interest income, other income, income tax expense, and net loss attributable to noncontrolling interest) Our interest expense for the first nine months of 2013 decreased to $30.1 million compared with $32.0 million for the first nine months of 2012 primarily due to lower overall debt levels.
Our interest income and other income for the first nine months of 2013 is comparable to the first nine months of 2012.
Our income tax expense for the first nine months of 2013 increased to $0.1 million compared with $1.2 million of benefit for the first nine months of 2012 due to higher taxable income on improved results.


Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

Our net loss attributable to noncontrolling interest for the first nine months of 2013 decreased to $3.0 million compared with a loss of $4.9 million for the first nine months of 2012 related to decreased losses from a partially owned consolidated subsidiary due to the ICTC amendment. Reconciliation of Adjusted EBITDA to Net Income (Loss) The discussion in "Results of Operations" includes references to our Adjusted EBITDA results. EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. EBITDA and Adjusted EBITDA are key metrics used by us to assess our operating performance and we believe that EBITDA and Adjusted EBITDA are useful to an investor in evaluating our 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; and

help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results.

Neither EBITDA nor Adjusted EBITDA is a measure calculated in accordance with GAAP. The items excluded from EBITDA and Adjusted EBITDA are significant in assessing our operating results. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. For example, EBITDA and Adjusted EBITDA:
do not reflect our 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, our 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 our 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. Other companies in our industry and in other industries may calculate EBITDA and Adjusted EBITDA differently from the way that we do, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only as supplemental data.


Table of Contents
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)

. . .

  Add WLB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for WLB - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.