Westmoreland Reports Second Quarter 2010 Results
Westmoreland Coal Company (NYSE Amex:WLB) reports its second quarter
2010 results.
Highlights:
- Total revenues were $127.6 million for the quarter, 21.8% higher
than revenues for the same period in the prior fiscal year. Year to
date revenues increased 12.1% over 2009, from $226.6 to $254.1 million. - Second quarter 2010 net income applicable to common shareholders
was $0.9 million ($0.09 per basic and diluted share), compared to a
net loss applicable to common shareholders in second quarter 2009 of
$7.2 million ($0.75 per basic and diluted share), an increase of
112.7%.Year to date net loss to common shareholders decreased
$10.6 million, an improvement of 82.3% versus 2009 (an improvement of
$1.12 per basic and diluted share). - Operating income increased 121.3% during the quarter from a loss of
$6.2 million to an operating profit of $1.3 million. Year to date
operating income increased 162.4% from a loss of $10.7 million to an
operating profit of $6.6 million. - The company recorded income of $4.3 million during the second
quarter 2010 related to the valuation of the conversion feature in its
convertible debt.In the second quarter of 2009, the Company
recorded income of $0.2 million on the conversion feature. The company
recorded a net expense of $0.5 million during the first six months of
2010 related to the conversion feature valuation, compared to $4.0
million of income on the conversion feature in 2009. - Westmoreland continues its strong safety performance into the
second quarter of 2010 with reportable and lost time incident rates
better than the national average for surface operations.
'As we did during the first quarter, we made significant improvement in
our second quarter over prior year results,? said Keith E. Alessi,
Westmoreland′s President and CEO. 'As we previously announced, the
planned maintenance shutdowns of our ROVA facilities during the second
quarter negatively impacted our profits. We also experienced softness in
coal demand due to a planned customer outage and strong hydro electric
supply in the Northwest, which reduced demand for coal fired power at
other customers. Once again, a quarter has been significantly affected
by the valuation of the conversion feature on our convertible debt, but
we stay focused on operating income which continues to improve and truly
reflects our operational efficiencies and cost containment efforts. We
expect that we will see continued improvement over 2009 during our
remaining two quarters of 2010. During the quarter, we also reclassified
$22.5 million in debt as long term from short term, reflective of
covenant resolutions we reached with our lenders.?
Coal Segment
The following table shows comparative coal revenues, operating income
(loss) and production between periods:
| Three Months Ended June 30, | ||||||||||||||||
| Increase / (Decrease) | ||||||||||||||||
| 2010 | 2009 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues | $ | 106,458 | $ | 81,229 | $ | 25,229 | 31.1 | % | ||||||||
Operating income (loss) | 5,721 | (569 | ) | 6,290 | 1,105.4 | % | ||||||||||
Tons sold - millions of equivalent tons | 6.1 | 5.1 | 1.0 | 19.6 | % | |||||||||||
Second quarter 2010 coal revenues increased to $106.5 million, compared
with $81.2 million in the second quarter of 2009. Coal segment revenues
increased primarily due to the 1.0 million increase in tons sold due to
lower tonnages in 2009 as a result of customer shutdowns. These
shutdowns occurred at our Rosebud and Beulah Mines during the second
quarter of 2009, and comparable shutdowns did not occur during the
second quarter of 2010. The Company also benefitted from price increases
under existing coal supply agreements and the start of new agreements
including the new cost-plus contract with its Rosebud Mine′s Unit 1&2
buyers.
Coal segment operating income was $5.7 million in the second quarter of
2010 compared to an operating loss of $0.6 million in the second quarter
of 2009. This $6.3 million increase was also primarily driven by the
customer shutdowns, price increases and new agreements described above.
This operating income increase was partially offset by $2.1 million of
reduced income from the Company′s Indian Coal Tax Credit monetization
transaction due primarily to the initial income recognition upon
receiving the approval in the second quarter of 2009.
Power Segment
The following table shows comparative power revenues, operating income
and production between periods:
| Three Months Ended June 30, | ||||||||||||||||
| Increase / (Decrease) | ||||||||||||||||
| 2010 | 2009 | $ | % | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues | $ | 21,174 | $ | 23,551 | $ | (2,377 | ) | (10.1 | )% | |||||||
Operating income | 1,307 | 5,190 | (3,883 | ) | (74.8 | )% | ||||||||||
Megawatts hours - thousands | 368 | 421 | (53 | ) | (12.6 | )% | ||||||||||
Second quarter 2010 power segment reve nues decreased to $21.2 million
compared to $23.6 million in the second quarter of 2009. This decrease
is primarily from decreased megawatt hours sold as a result of a planned
maintenance outage which occurred in the second quarter of 2010. A
comparable outage occurred during the first quarter of 2009.
Power segment operating income decreased to $1.3 million in the second
quarter of 2010 compared to $5.2 million in the second quarter of 2009,
also due to the planned maintenance outage.
Heritage Segment
Second quarter 2010 heritage operating expenses were $3.7 million
compared to $8.3 million in the second quarter of 2009. Excluding the
$0.8 million gain on a heritage settlement in the second quarter of
2009, heritage segment operating expenses decreased by $5.3 million.
This decrease was primarily due to the agreement the Company entered
into to modernize the method by which prescription drugs are provided to
its retirees. In addition, while the Company continues to work towards
further heritage cost reductions, selling and administrative costs
decreased due to significant cost containment efforts in the second
quarter of 2009. Finally, the Company experienced a favorable change in
the valuation of its Black Lung liabilities due to changes in discount
rates.
Corporate Segment
Corporate segment operating expenses for the second quarter of 2010
decreased to $1.9 million compared to $2.6 million in the second quarter
of 2009. This decrease related to ongoing cost control efforts.
Other Income (Expense) and Income Tax Benefit
The Company′s other expense for the second quarter of 2010 decreased to
$0.7 million compared with $4.4 million of expense for the second
quarter of 2009. Excluding the $4.1 million impact of the fair value
adjustment on the conversion feature in its debt, other expense
increased $0.4 million. This increase was primarily due to decreased
interest income as a result of interest rate changes.
The Company′s second quarter 2010 income tax benefit was $0.1 million
compared with $0.7 million of benefit in the second quarter of 2009.
Excluding the $0.6 million tax effect of other comprehensive income
gains, income tax benefit remained consistent with 2009.
Cash Flow from Operations
Cash provided by operating activities increased $1.5 million in the six
months ended June 30, 2010, compared to the six months ended June 30,
2009. This was primarily driven by the $12.2 million decrease in net
loss and was partially offset by the scheduled decrease in the cash
receipts ROVA collects from its customer.
Liquidity
WRI was not in compliance with the net worth requirement contained in
its Business Loan Agreement at April 30, 2010 and does not expect to
meet this requirement for at least the next twelve months. As a result
of this non-compliance, the interest rate on WRI′s term debt and
revolving line of credit was increased 1% (to 8% and 7%, respectively at
June 30, 2010). These increased interest rates will continue as long as
the non-compliance with the net worth requirement exists. This
non-compliance is not considered an event of default under the Business
Loan Agreement and WRI has therefore classified its term debt as a
noncurrent liability. WRI′s non-compliance does however trigger a cross
default regarding the Company′s convertible notes. On August 2, 2010,
the Company obtained a waiver from its convertible notes lenders
regarding this cross default, and thus also classified its convertible
notes as noncurrent liabilities at June 30, 2010. This waiver states
that the convertible notes lenders waive their rights with this cross
default as long as WRI′s non-compliance with its net worth requirement
is not considered an event of default. In consideration of this waiver,
the interest rate on the convertible notes increased 1% on July 1, 2010
to 10%.
As a result of a decrease in the Company′s heritage health benefit
costs, ability to access funds from WRI′s revolving line of credit and
an increase in WRI′s term debt, the Company anticipates that its cash
from operations and available borrowing capacity will be sufficient to
meet its cash requirements for the foreseeable future. The Company
projects that the margin by which it will be able to meet its cash
requirements will increase over the remainder of 2010.
Safety
Safety performance at Westmoreland mines continues to be better than the
national average for surface operations. Westmoreland mines had
reportable and lost time incident rates for second quarter 2010 of 1.49
and 0.93 versus the national mine rates of 1.86 and 1.37, respectively.
Though comparison to the national statistics is favorable, Westmoreland
performance through second quarter of 2010 is not as good as second
quarter 2009 with reportable and lost time incident rates of 0.94 and
0.57, respectively.
Additional Information
Investors should refer to the attached Consolidated Statements of
Operations and Summary Financial Information, and the Company′s Form
10-Q for the period ended June 30, 2010, for additional information.
Westmoreland Coal Company is the oldest independent coal company in the
United States. The Company′s coal operations include coal mining
operations in Montana, North Dakota and Texas. Its power operations
include ownership of the two-unit ROVA coal-fired power plant in North
Carolina. For more information visit www.westmoreland.com.
Forward-Looking Information
This news release 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 the Company makes regarding
its expected increase in tons of coal to be delivered, increase in power
segment profits, an expected decrease in heritage health benefit
expenses, anticipated compliance with debt covenants and waiver
agreement requirements, an expected decrease in pension expenses due to
the pension freeze, an expected increase in its restricted investments
and bond collateral, our expectation to see these positive trends
continue, expectation that it will not need to rely on proceeds from the
sale of assets or participate in other capital raising transactions to
satisfy liquidity needs and its expectation that cash from operations
and available borrowing capacity will be sufficient to meet its working
capital and bonding requirements, planned capital expenditures and debt
payments for the foreseeable future.
Forward-looking statements are based on the Company′s current
expectations and assumptions regarding its business, the economy and
other future conditions. Because forward-looking statements relate to
the future, they are subject to inherent uncertainties, risks and
changes in circumstances that are difficult to predict. The Company′s
actual results may differ materially from those contemplated by the
forward-looking statements. The Company cautions you therefore against
relying on any of these forward-looking statements. They are neither
statements 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:
changes in the Company′s postretirement medical benefit and pension
obligations and the impact of the recently enacted health care
legislation;
changes in the Company′s black lung obligations and the impact of the
recently enacted health care legislation;
inability to expand or continue current coal operations due to
limitations in obtaining bonding capacity for new mining permits;
the Company′s ability to maintain compliance with debt covenant and
waiver agreement requirements; or in cases of non-compliance with its
debt covenants, that its lenders will not accelerate payment schedules
and its ability to obtain waivers, if necessary;
the inability of the Company′s subsidiaries to pay dividends to them
due to restrictions in its debt arrangements or reductions in planned
coal deliveries or other business factors;
the structure of ROVA′s contracts with its lenders, coal suppliers and
the power purchaser, which could dramatically affect the overall
profitability of ROVA;
the effect of EPA regulations and compliance with EPA information
requests and compliance determinations;
the effect of mark-to-market accounting on our convertible debt due to
volatility in the Company′s stock price;
the effect of prolonged maintenance or unplanned outages at the
Company′s operations or those of its major power generating customers;
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
the other factors that are described in 'Risk Factors? under Part II,
Item 1A of the first and second quarter 2010 Form 10-Q and under Part
I, Item 1A of the 2009 Form 10-K.
Any forward-looking statements made by the Company in this news release
speaks only as of the date on which it was made. Factors or events that
could cause the Company′s actual results to differ may emerge from
time-to-time, and it is not possible for them to predict all of them.
The Company undertakes no obligation to publicly update any
forward-looking statements, whether as a result of new information,
future developments or otherwise, except as may be required by law.
Westmoreland Coal Company and Subsidiaries | ||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Revenues | $ | 127,632 | $ | 104,780 | $ | 254,071 | $ | 226,577 | ||||||||||||
Cost, expenses and other: | ||||||||||||||||||||
Cost of sales | 104,481 | 89,705 | 202,158 | 187,432 | ||||||||||||||||
Depreciation, depletion and amortization | 11,078 | 10,296 | 22,471 | 21,028 | ||||||||||||||||
Selling and administrative | 9,673 | 10,864 | 19,648 | 21,606 | ||||||||||||||||
Heritage health benefit expenses | 3,394 | 7,025 | 7,309 | 14,008 | ||||||||||||||||
Loss (gain) on sales of assets | 19 | (64 | ) | 90 | (46 | ) | ||||||||||||||
Other operating income | (2,346 | ) | (6,797 | ) | (4,252 | ) | (6,797 | ) | ||||||||||||
126,299 | 111,029 | 247,424 | 237,231 | |||||||||||||||||
Operating income (loss) | 1,333 | (6,249 | ) | 6,647 | (10,654 | ) | ||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest expense | (5,767 | ) | (5,681 | ) | (11,490 | ) | (11,516 | ) | ||||||||||||
Interest income | 367 | 790 | 777 | 1,677 | ||||||||||||||||
Other income | 4,726 | 477 | 891 | 4,084 | ||||||||||||||||
(674 | ) | (4,414 | ) | (9,822 | ) | (5,755 | ) | |||||||||||||
Income (loss) before income taxes | 659 | (10,663 | ) | (3,175 | ) | (16,409 | ) | |||||||||||||
Income tax benefit from operations | (47 | ) | (741 | ) | (137 | ) | (1,198 | ) | ||||||||||||
Net income (loss) | 706 | (9,922 | ) | (3,038 | ) | (15,211 | ) | |||||||||||||
Less net loss attributable to noncontrolling interest | (553 | ) | (3,030 | ) | (1,443 | ) | (3,030 | ) | ||||||||||||
Net income (loss) attributable to the Parent company | 1,259 | (6,892 | ) | (1,595 | ) | (12,181 | ) | |||||||||||||
Less preferred stock dividend requirements | 340 | 340 | 680 | 680 | ||||||||||||||||
Net income (loss) applicable to common shareholders | $ | 919 | $ | (7,232 | ) | $ | (2,275 | ) | $ | (12,861 | ) | |||||||||
Net income (loss) per share applicable to common shareholders: | ||||||||||||||||||||
Basic | $ | 0.09 | $ | (0.75 | ) | $ | (0.21 | ) | $ | (1.33 | ) | |||||||||
Diluted | 0.09 | (0.75 | ) | (0.21 | ) | (1.33 | ) | |||||||||||||
Weighted average number of common shares outstanding: | <
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