XMEX:WLT Walter Energy Inc Quarterly Report 10-Q Filing - 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

or

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-13711

WALTER ENERGY, INC.
(Exact name of registrant as specified in its charter)

Incorporated in Delaware
(State or other jurisdiction of
incorporation or organization)
  13-3429953
IRS Employer
Identification No.

3000 Riverchase Galleria, Suite 1700
Birmingham, Alabama

(Address of principal executive offices)

 

35244
(Zip Code)

(205) 745-2000
Telephone Number

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. (Check one): Yes o No ý

        Number of shares of common stock outstanding as of July 31, 2012: 62,514,140

   


PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS


WALTER ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 
  June 30,
2012
  Recast
December 31,
2011(1)
 

ASSETS

             

Cash and cash equivalents

  $ 128,680   $ 128,430  

Receivables, net

    194,217     313,343  

Inventories

    316,505     240,437  

Deferred income taxes

    56,645     61,079  

Prepaid expenses

    63,733     49,974  

Other current assets

    36,928     45,649  
           

Total current assets

    796,708     838,912  

Mineral interests, net of accumulated depletion of $132.3 million and $84.2 million, respectively

    3,010,448     3,056,258  

Property, plant and equipment, net of accumulated depreciation of $687.1 million and $614.6 million, respectively

    1,739,506     1,631,333  

Deferred income taxes

    106,848     109,300  

Goodwill

    1,066,754     1,066,754  

Other long-term assets

    134,891     153,951  
           

  $ 6,855,155   $ 6,856,508  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current debt

  $ 49,890   $ 56,695  

Accounts payable

    155,524     112,661  

Accrued expenses

    233,749     229,067  

Accumulated postretirement benefits obligation

    28,181     27,247  

Other current liabilities

    45,885     63,757  
           

Total current liabilities

    513,229     489,427  

Long-term debt

    2,206,866     2,269,020  

Deferred income taxes

    1,007,065     1,029,336  

Accumulated postretirement benefits obligation

    556,758     550,671  

Other long-term liabilities

    370,908     381,537  
           

Total liabilities

    4,654,826     4,719,991  
           

Commitments and contingencies (Note 10)

             

Stockholders' equity:

             

Common stock, $0.01 par value per share:

             

Authorized—200,000,000 shares,

             

Issued—62,511,717 and 62,444,905 shares, respectively

    625     624  

Capital in excess of par value

    1,624,652     1,620,430  

Retained earnings

    801,162     744,939  

Accumulated other comprehensive income (loss):

             

Pension and other postretirement benefit plans, net of tax

    (217,746 )   (225,541 )

Foreign currency translation adjustment

    (4,066 )   (3,276 )

Unrealized loss on hedges, net of tax

    (4,057 )   (787 )

Unrealized investment gain (loss), net of tax

    (241 )   128  
           

Total stockholders' equity

    2,200,329     2,136,517  
           

  $ 6,855,155   $ 6,856,508  
           

(1)
Certain previously reported December 31, 2011 balances have been recast to reflect the effects of finalizing the allocation of the Western Coal purchase price during the 2012 first quarter. See Note 2 for further information.

   

The accompanying notes are an integral part of the condensed consolidated financial statements.

1



WALTER ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 
  For the three months
ended June 30,
 
 
  2012   Recast
2011(1)
 

Revenues:

             

Sales

  $ 668,605   $ 764,587  

Miscellaneous income

    8,969     6,284  
           

    677,574     770,871  
           

Costs and expenses:

             

Cost of sales (exclusive of depreciation and depletion)

    486,084     466,074  

Depreciation and depletion

    74,459     72,470  

Selling, general and administrative

    35,845     57,521  

Postretirement benefits

    13,213     10,343  
           

    609,601     606,408  
           

Operating income

    67,973     164,463  

Interest expense

    (31,104 )   (32,047 )

Interest income

    341     160  

Other income (loss)

    (5,919 )   24,503  
           

Income from continuing operations before income tax expense

    31,291     157,079  

Income tax expense

    4,535     42,626  
           

Income from continuing operations

    26,756     114,453  

Income from discontinued operations

    5,180      
           

Net income

  $ 31,936   $ 114,453  
           

Basic income per share:

             

Income from continuing operations

  $ 0.43   $ 1.84  

Income from discontinued operations

    0.08      
           

Net income

  $ 0.51   $ 1.84  
           

Diluted income per share:

             

Income from continuing operations

  $ 0.43   $ 1.83  

Income from discontinued operations

    0.08      
           

Net income

  $ 0.51   $ 1.83  
           

Comprehensive income

  $ 30,637   $ 101,722  
           

Dividends per share

  $ 0.125   $ 0.125  
           

(1)
Certain previously reported three months ended June 30, 2011 balances have been recast to reflect the effects of finalizing the allocation of the Western Coal purchase price during the 2012 first quarter. See Note 2 for further information.

   

The accompanying notes are an integral part of the condensed consolidated financial statements.

2



WALTER ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 
  For the six months
ended June 30,
 
 
  2012   Recast
2011(1)
 

Revenues:

             

Sales

  $ 1,295,903   $ 1,171,162  

Miscellaneous income

    13,234     8,443  
           

    1,309,137     1,179,605  
           

Costs and expenses:

             

Cost of sales (exclusive of depreciation and depletion)

    917,618     684,534  

Depreciation and depletion

    140,952     100,828  

Selling, general and administrative

    72,092     89,403  

Postretirement benefits

    26,426     20,610  
           

    1,157,088     895,375  
           

Operating income

    152,049     284,230  

Interest expense

    (59,171 )   (35,603 )

Interest income

    618     316  

Other income (loss)

    (12,912 )   24,503  
           

Income from continuing operations before income tax expense

    80,584     273,446  

Income tax expense

    13,212     77,180  
           

Income from continuing operations

    67,372     196,266  

Income from discontinued operations

    5,180      
           

Net income

  $ 72,552   $ 196,266  
           

Basic income per share:

             

Income from continuing operations

  $ 1.08   $ 3.36  

Income from discontinued operations

    0.08      
           

Net income

  $ 1.16   $ 3.36  
           

Diluted income per share:

             

Income from continuing operations

  $ 1.08   $ 3.34  

Income from discontinued operations

    0.08      
           

Net income

  $ 1.16   $ 3.34  
           

Comprehensive income

  $ 75,918   $ 196,192  
           

Dividends per share

  $ 0.25   $ 0.25  
           

(1)
Certain previously reported six months ended June 30, 2011 balances have been recast to reflect the effects of finalizing the allocation of the Western Coal purchase price during the 2012 first quarter. See Note 2 for further information.

   

The accompanying notes are an integral part of the condensed consolidated financial statements.

3



WALTER ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2012 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 
  Total   Common
Stock
  Capital in
Excess of
Par Value
  Retained
Earnings
  Accumulated
Other
Comprehensive
Income (Loss)
 

Balance at December 31, 2011, recast

  $ 2,136,517   $ 624   $ 1,620,430   $ 744,939   $ (229,476 )

Net income

    72,552                 72,552        

Other comprehensive income, net of tax

    3,366                       3,366  

Stock issued upon the exercise of stock options

    122     1     121              

Dividends paid, $0.25 per share

    (15,618 )               (15,618 )      

Stock based compensation

    3,224           3,224              

Excess tax benefits from stock-based compensation arrangements

    877           877              

Other

    (711 )               (711 )      
                       

Balance at June 30, 2012

  $ 2,200,329   $ 625   $ 1,624,652   $ 801,162   $ (226,110 )
                       

   

The accompanying notes are an integral part of the condensed consolidated financial statements.

4



WALTER ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN THOUSANDS)

 
  For the six months
ended June 30,
 
 
  2012   Recast
2011(1)
 

OPERATING ACTIVITIES

             

Net income

  $ 72,552   $ 196,266  

Less income from discontinued operations

    (5,180 )    
           

Income from continuing operations

    67,372     196,266  

Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:

             

Depreciation and depletion

    140,952     100,828  

Deferred income tax credit

    (18,894 )   (11,121 )

Gain on investment in Western Coal Corp

        (20,553 )

Other

    18,360     10,247  

Decrease (increase) in current assets, net of effect of business acquisitions:

             

Receivables

    113,203     (41,571 )

Inventories

    (66,213 )   38,076  

Prepaid expenses and other current assets

    (22,095 )   30  

Increase (decrease) in current liabilities, net of effect of business acquisitions:

             

Accounts payable

    81,684     (29,612 )

Accrued expenses and other current liabilities

    (5,807 )   36,769  
           

Cash flows provided by operating activities

    308,562     279,359  
           

INVESTING ACTIVITIES

             

Additions to property, plant and equipment

    (246,056 )   (136,417 )

Acquisition of Western Coal Corp., net of cash acquired

        (2,432,693 )

Proceeds from sales of investments

    12,228      

Other

    582     5,286  
           

Cash flows used in investing activities

    (233,246 )   (2,563,824 )
           

FINANCING ACTIVITIES

             

Proceeds from issuance of debt

        2,350,000  

Borrowings under revolving credit agreement

    112,350     41,461  

Repayments on revolving credit agreement

    (63,341 )   (20,725 )

Retirements of debt

    (118,003 )   (153,310 )

Dividends paid

    (15,618 )   (14,434 )

Debt issuance costs

        (80,027 )

Other

    288     1,766  
           

Cash flows provided by (used in) financing activities

    (84,324 )   2,124,731  
           

Cash flows used in continuing operations

    (9,008 )   (159,734 )
           

CASH FLOWS FROM DISCONTINUED OPERATIONS

             

Cash flows provided by investing activities

    9,500      
           

Effect of foreign exchange rates on cash

    (242 )    
           

Net increase (decrease) in cash and cash equivalents

  $ 250   $ (159,734 )
           

Cash and cash equivalents at beginning of period

  $ 128,430   $ 293,410  

Add: Cash and cash equivalents of discontinued operations at beginning of period

        535  

Net increase (decrease) in cash and cash equivalents

    250     (159,734 )
           

Cash and cash equivalents at end of period

  $ 128,680   $ 134,211  
           

(1)
Certain previously reported six months ended June 30, 2011 balances have been recast to reflect the effects of finalizing the allocation of the Western Coal purchase price during the 2012 first quarter. See Note 2 for further information.

   

The accompanying notes are an integral part of the condensed consolidated financial statements.

5



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 1—Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements of Walter Energy, Inc. and its subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

        The balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date as recast to reflect the effects of finalizing the allocation of the Western Coal purchase price, but does not include all the notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and related notes for the year ended December 31, 2011 included in the Company's Annual Report on Form 10-K. In addition, certain previously reported three and six months ended June 30, 2011 Condensed Consolidated Statements of Operations and Comprehensive Income balances and six months ended June 30, 2011 Condensed Consolidated Statement of Cash Flows balances have been recast to include the effects of finalizing the allocation of the Western Coal purchase price.

        As described in Note 2, on April 1, 2011 the Company completed the acquisition of all the outstanding common shares of Western Coal Corp. ("Western Coal"). The accompanying financial statements include the results of operations of Western Coal since April 1, 2011.

Note 2—Acquisition

        On November 18, 2010, the Company announced its intent to acquire all of the outstanding common shares of Western Coal. In connection with the acquisition the Company acquired high quality metallurgical coal mines in Northeast British Columbia (Canada), high quality metallurgical coal and compliant thermal coal mines located in West Virginia (United States), and a high quality anthracite coal mine located in South Wales (United Kingdom). The acquisition of Western Coal substantially increased the Company's reserves available for future production, the majority of which is high-quality metallurgical coal, and created a diverse geographical footprint with strategic access to high-growth steel-producing countries in both the Atlantic and Pacific basins.

        On November 17, 2010, the Company entered into a share purchase agreement with various funds advised by Audley Capital to purchase approximately 54.5 million common shares, or 19.8%, of the outstanding common shares of Western Coal for $11.50 Canadian dollars per share in two separate transactions. On December 2, 2010 the Company entered into an arrangement agreement with Western Coal to acquire all the remaining outstanding common shares of Western Coal for $11.50 Canadian dollars per share in cash or 0.114 of a Walter Energy share, or for a combination thereof at the holder's election, subject to proration.

        In January 2011, the Company completed the first transaction to acquire 25,274,745 common shares of Western Coal, or 9.15% of the outstanding shares, from funds advised by Audley Capital. The shares were purchased for $293.7 million in cash and had a fair value of $314.2 million on April 1,

6



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 2—Acquisition (Continued)

2011. The Company recognized a gain on April 1, 2011 of $20.5 million as a result of remeasuring to fair value the Western Coal shares acquired from Audley Capital which was included in other income in the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2011. On April 1, 2011, the Company acquired the remaining outstanding common shares of Western Coal (including the second Audley Capital transaction) for a combination of $2.2 billion in cash and the issuance of 8,951,558 common shares of Walter Energy valued at $1.2 billion. The fair value of Walter Energy's common stock on April 1, 2011 was $136.75 per share based on the closing value on the New York Stock Exchange. The cash portion was funded with part of the proceeds from the new $2.725 billion credit facility discussed in Note 6. All of the outstanding options to purchase Western Coal common shares that were not exercised prior to the acquisition were exchanged for fully-vested and immediately exercisable options to purchase shares of Walter Energy common stock. The Company issued 193,498 stock options in exchange for the Western Coal stock options outstanding as of April 1, 2011. The stock options issued had a fair value of $15.5 million, which was estimated using the Black-Scholes option pricing model. The outstanding warrants of Western Coal were not directly affected by the acquisition. Instead, upon exercise each warrant entitled the holder to receive cash and shares of Walter Energy common stock that would have been issued if the warrants had been exercised immediately before closing the acquisition. As of June 30, 2012, no warrants of Western Coal were outstanding.

        The purchase consideration has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. Fair values were determined using the income, cost and market price valuation methods as deemed appropriate. During the 2012 first quarter, the Company completed the valuation of the assets and liabilities with the assistance of an independent third party and recorded refinement adjustments to the preliminary purchase price allocation. These refinements were primarily around the areas of acquired mineral interests including estimates for future costs, production volumes and timing which resulted in a $94.0 million increase in fair value allocated to mineral interests as compared to the December 31, 2011 preliminary fair value. This also resulted in a decrease in goodwill of $57.8 million and the deferred tax liability was increased by $25.5 million reflecting an increase in future depletion expense not deductible for tax. Retrospective application of the changes made to the allocation of the purchase consideration in the 2012 first quarter increased retained earnings, a component of stockholders' equity, as of December 31, 2011 and net income by $14.4 million for the year ended December 31, 2011. The increase to retained earnings resulting from the change in net income was primarily due to a decrease in mineral interests depletion related to

7



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 2—Acquisition (Continued)

2011. The following table summarizes the Company's recast and previously reported December 31, 2011 consolidated balance sheet amounts (in thousands):

 
  Recast
December 31,
2011(1)
  December 31,
2011(2)
 

ASSETS

             

Inventories

  $ 240,437   $ 242,607  

Other current assets

  $ 45,649   $ 45,627  

Mineral interests, net

  $ 3,056,258   $ 2,946,113  

Property, plant and equipment, net

  $ 1,631,333   $ 1,637,182  

Goodwill

  $ 1,066,754   $ 1,124,597  

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Other current liabilities

  $ 63,757   $ 59,827  

Deferred income taxes

  $ 1,029,336   $ 1,003,383  

Retained earnings

  $ 744,939   $ 730,517  

(1)
As presented in the June 30, 2012 condensed consolidated financial statements herein.

(2)
As previously presented in the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

        Retrospective application of the changes made to the allocation of the purchase consideration in the 2012 first quarter increased net income by $7.1 million for the three and six months ended June 30, 2011. The increase to net income was primarily due to a decrease in mineral interests depletion during

8



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 2—Acquisition (Continued)

the period. The following table summarizes the changes to the Company's recast and previously reported June 30, 2011 Condensed Consolidated Statements of Operations amounts (in thousands):

 
  Recast
June 30,
2011(1)
  June 30,
2011(2)
 

For the three months ended:

             

Sales

  $ 764,587   $ 766,716  

Cost of sales (exclusive of depreciation and depletion)

    466,074     462,061  

Depreciation and depletion

    72,470     89,426  

Operating income

    164,463     153,649  

Income before income tax expense

    157,079     146,265  

Income tax expense

    42,626     38,907  

Net income

  $ 114,453   $ 107,358  

Net income per share:

             

Basic

  $ 1.84   $ 1.72  
           

Diluted

  $ 1.83   $ 1.71  
           

For the six months ended:

             

Sales

  $ 1,171,162   $ 1,173,291  

Cost of sales (exclusive of depreciation and depletion)

    684,534     680,521  

Depreciation and depletion

    100,828     117,784  

Operating income

    284,230     273,416  

Income before income tax expense

    273,446     262,632  

Income tax expense

    77,180     73,461  

Net income

  $ 196,266   $ 189,171  

Net income per share:

             

Basic

  $ 3.36   $ 3.24  
           

Diluted

  $ 3.34   $ 3.22  
           

(1)
As presented in the June 30, 2012 condensed financial statements herein.

(2)
As previously presented in the condensed consolidated financial statements in the Company's Form 10-Q for the three and six months ended June 30, 2011.

9



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 2—Acquisition (Continued)

        The following table summarizes the changes to the Company's recast and previously reported June 30, 2011 Condensed Consolidated Statement of Cash Flows amounts (in thousands):

 
  For the six months
ended June 30,
 
 
  Recast
2011(1)
  2011(2)  

Net Income

  $ 196,266   $ 189,171  

Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:

             

Depreciation and depletion

  $ 100,828   $ 117,784  

Deferred income tax credit

  $ (11,121 ) $ (14,840 )

Other

  $ 10,247   $ 27,521  

Decrease in current assets, net of effect of business acquisitions:

             

Inventories

  $ 38,076   $ 14,660  

(1)
As presented in the June 30, 2012 condensed consolidated financial statements herein.

(2)
As previously presented in the condensed consolidated financial statements in the Company's Form 10-Q for the six months ended June 30, 2011.

        The following tables summarize the purchase consideration, the final purchase price allocation, the preliminary purchase price allocation reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 and the adjustments made in the three months ended March 31, 2012 (in thousands):

Purchase consideration:

       

Cash

  $ 2,173,080  

Fair value of shares of common stock issued

    1,224,126  

Fair value of stock options issued and warrants

    34,765  
       

Fair value of consideration transferred

    3,431,971  

Fair value of equity interest in Western Coal held before the acquisition

    314,231  
       

Total consideration

  $ 3,746,202  
       

10



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 2—Acquisition (Continued)

 

 
  Preliminary as of
December 31, 2011
  Adjustments   Final  

Fair value of assets acquired and liabilities assumed:

                   

Cash and cash equivalents

  $ 34,065   $   $ 34,065  

Receivables

    163,668         163,668  

Inventories

    121,229         121,229  

Other current assets

    86,475     23     86,498  

Mineral interests

    2,992,000     94,000     3,086,000  

Property, plant and equipment

    560,894     (6,702 )   554,192  

Goodwill

    1,122,884     (57,844 )   1,065,040  

Other long-term assets

    54,150         54,150  
               

Total assets

    5,135,365     29,477     5,164,842  
               

Accounts payable and accrued liabilities

    184,983         184,983  

Other current liabilities

    82,175     3,930     86,105  

Deferred tax liability

    1,021,161     25,547     1,046,708  

Other long-term liabilities

    100,844         100,844  
               

Total liabilities

    1,389,163     29,477     1,418,640  
               

Net assets acquired

  $ 3,746,202   $   $ 3,746,202  
               

        Goodwill is calculated as the excess of the purchase consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed. The factors that contribute to the recognition of goodwill include Western Coal's (i) historical cash flows and income levels, (ii) reputation in its markets, (iii) strength of its personnel, (iv) efficiency of its operations, and (v) future cash flows and income growth projections. Goodwill has been assigned to the Canadian and U.K. Operations segment and the U.S. Operations segment in the amounts of $992.4 million and $72.6 million, respectively. None of the goodwill is expected to be tax deductible. The Company incurred acquisition costs related to the purchase of approximately $7.2 million and $17.1 million during the three and six months ended June 30, 2011, respectively. These costs were included in selling, general and administrative expenses in the Company's Condensed Consolidated Statement of Operations and Comprehensive Income.

        The unaudited supplemental pro forma information presented below includes the effects of the Western Coal acquisition as if it had been completed as of January 1, 2010 along with the effects of the recast adjustments described herein. The pro forma results include (i) the impact of certain estimated fair value adjustments, including additional estimated depreciation and depletion expense associated with the acquired mineral interests and property, plant and equipment and (ii) interest expense associated with debt used to fund the acquisition. Accordingly, the following unaudited pro forma financial information should not be considered indicative of either future results or results that might have occurred had the acquisition been consummated as of January 1, 2010 (in thousands):

 
  For the six months ended
June 30, 2011
 

Revenues

  $ 1,403,813  

Net income

  $ 253,926  

11



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 3—Discontinued Operations

        In 2008, the Company announced the permanent closure of the underground coal mine operations of Kodiak Mining Company, LLC ("Kodiak") due to high operational costs, difficult operating conditions and a challenging pricing environment for Kodiak's products. During 2012, the Company divested the Kodiak assets and liabilities for cash proceeds of $9.5 million. The sale resulted in an after tax gain of $5.2 million that is presented as discontinued operations in the Company's Condensed Consolidated Statement of Operations and Comprehensive Income.

Note 4—Inventories

        Inventories are summarized as follows (in thousands):

 
  June 30,
2012
  Recast
December 31,
2011
 

Coal

  $ 235,602   $ 180,537  

Raw materials and supplies

    80,903     59,900  
           

Total inventories

  $ 316,505   $ 240,437  
           

Note 5—Income Taxes

        The Company estimates its annual effective tax rate at the end of each interim reporting period which is used to record the provision for income taxes in the interim financial statements. The tax effect of unusual or infrequently occurring items, including effects of changes in tax laws or rates, are reported in the interim period in which they occur. The Company's interim period's income tax expense is comprised of two key elements: 1) estimated tax expense applying our annual effective tax rate to our year to date earnings, and 2) the tax effect of unusual or infrequent items that occur in the period.

        The Company's income tax provision for continuing operations, excluding discrete items, for the six months ended June 30, 2012 was $12.2 million, or an effective rate of 15.2% of pre-tax income, compared to a tax provision for the six months ended June 30, 2011 of $77.2 million, or an effective rate of 28.2% of pre-tax income. The lower effective tax rate during the first six months of 2012 compared to the same period in 2011 is the result of a larger favorable impact of percentage depletion and the change in the geographical mix of income and losses as a result of the acquisition of Western Coal Corp. The provision for income taxes for the six months ended June 30, 2012 includes a charge for discrete items of $1.0 million due primarily to recording a valuation allowance on U.S. capital losses expected to expire before utilization.

        The Company has not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries as of June 30, 2012 because it intends to indefinitely reinvest such earnings outside the U.S. If this intent changes, additional income tax expense would likely be recorded due to the differential in tax rates between the U.S. and the international jurisdictions. If foreign earnings were to be repatriated in the future, the related U.S. tax liability on such repatriation may be partially reduced by any foreign income taxes previously paid on these earnings. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable.

12



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 6—Debt

        Debt consisted of the following (in thousands):

 
  June 30,
2012
  December 31,
2011
  Weighted
Average
Stated
Interest
Rate At
June 30,
2012
  Final
Maturity

2011 term loan A

  $ 854,674   $ 894,837   3.46%   2016

2011 term loan B

    1,273,326     1,333,163   4.00%   2018

Revolving credit facility

    59,009     10,000   4.22%   2016

Other(1)

    69,747     87,715   Various   Various
                 

Total debt

    2,256,756     2,325,715        

Less current debt

    (49,890 )   (56,695 )      
                 

Total long-term debt

  $ 2,206,866   $ 2,269,020        
                 

(1)
This balance includes capital lease obligations and an equipment financing agreement.

        2011 Credit Agreement    On April 1, 2011, the Company entered into a $2.725 billion credit agreement (the "2011 Credit Agreement") to partially fund the acquisition of Western Coal and to pay off all outstanding loans under the 2005 Credit Agreement. The 2011 Credit Agreement consists of (1) a $950.0 million principal amortizing term loan A facility maturing in April 2016, at which time the remaining outstanding principal is due, (2) a $1.4 billion principal amortizing term loan B facility maturing in April 2018, at which time the remaining outstanding principal is due and (3) a $375.0 million multi-currency revolving credit facility ("Revolver") maturing in April 2016, at which time any remaining balance is due. On June 28, 2012 we prepaid $100 million of the outstanding principal balances of the term loans. Due to the Company making prepayments on both the term loan A and term loan B facilities the remaining balance of the term loan B facility is due upon maturity. The Revolver provides for operational needs and letters of credit. The Company's obligations under the 2011 Credit Agreement are secured by substantially all of the Company's domestic and foreign real, personal and intellectual property. The 2011 Credit Agreement contains customary events of default and covenants, including among other things, covenants that restrict but do not prevent the ability of the Company and its subsidiaries to incur certain additional indebtedness, create or permit liens on assets, pay dividends and repurchase stock, engage in mergers or acquisitions and make investments and loans. The 2011 Credit Agreement also includes certain financial covenants that must be maintained.

        The Revolver, term loan A and term loan B interest rates are tied to LIBOR or the Canadian Dealer Offered Rate ("CDOR"), plus a credit spread ranging from 225 to 300 basis points for the Revolver and term loan A, and 275 to 300 basis points on the term loan B adjusted quarterly based on the Company's total leverage ratio as defined by the 2011 Credit Agreement. The term loan B has a minimum LIBOR floor of 1.0%. The Revolver loans can be denominated in either U.S. dollars or Canadian dollars at the Company's option. The commitment fee on the unused portion of the Revolver is 0.5% per year for all pricing levels. As of June 30, 2012, the Revolver had $59.0 million in

13



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 6—Debt (Continued)

borrowings, with $48.8 million outstanding stand-by letters of credit and $267.2 million of availability for future borrowings.

Note 7—Pension and Other Postretirement Benefits

        The components of net periodic benefit cost are as follows (in thousands):

 
  Pension Benefits   Other Postretirement
Benefits
 
 
  For the three months
ended June 30,
  For the three months
ended June 30,
 
 
  2012   2011   2012   2011  

Components of net periodic benefit cost:

                         

Service cost

  $ 1,498   $ 1,291   $ 2,018   $ 1,253  

Interest cost

    3,129     3,144     7,253     6,278  

Expected return on plan assets

    (4,031 )   (3,929 )        

Amortization of prior service cost (credit)

    64     68     261     (240 )

Amortization of net actuarial loss

    2,313     2,063     3,681     3,052  
                   

Net periodic benefit cost

  $ 2,973   $ 2,637   $ 13,213   $ 10,343  
                   

 

 
  Pension Benefits   Other Postretirement
Benefits
 
 
  For the six months
ended June 30,
  For the six months
ended June 30,
 
 
  2012   2011   2012   2011  

Components of net periodic benefit cost:

                         

Service cost

  $ 2,996   $ 2,582   $ 4,036   $ 2,506  

Interest cost

    6,258     6,288     14,506     12,480  

Expected return on plan assets

    (8,062 )   (7,858 )        

Amortization of prior service cost (credit)

    128     136     522     (480 )

Amortization of net actuarial loss

    4,626     4,126     7,362     6,104  

Settlement loss

        1,716          
                   

Net periodic benefit cost

  $ 5,946   $ 6,990   $ 26,426   $ 20,610  
                   

        The settlement loss shown above is related to the retirement of an executive of the Company and was included in selling, general and administrative expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Note 8—Comprehensive Income

        Comprehensive income is comprised of net income, changes in pension and other postretirement benefit plans, unrealized gains or losses on investments, gains or losses from the effect of cash flow hedges and foreign currency translation adjustments. Foreign currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. The

14



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 8—Comprehensive Income (Continued)

differences between net income and comprehensive income for the three and six months ended June 30, 2012 and 2011 were as follows (in thousands):

 
  For the three months
ended June 30,
 
 
  2012   Recast
2011
 

Net income

  $ 31,936   $ 114,453  

Change in pension and other postretirement benefit plans, net of deferred taxes of $2.4 and $1.8 million, respectively

    3,897     3,085  

Change in foreign currency translation adjustment

    (3,209 )   (1,101 )

Change in unrealized loss on hedges, net of deferred taxes of $1.2 million and $0.4 million, respectively

    (1,987 )   (595 )

Change in unrealized loss on investments, net of deferred taxes of $7.3 million

        (14,120 )
           

Comprehensive income

  $ 30,637   $ 101,722  
           

 

 
  For the six months
ended June 30,
 
 
  2012   Recast
2011
 

Net income

  $ 72,552   $ 196,266  

Change in pension and other postretirement benefit plans, net of deferred taxes of $4.8 and $3.7 million, respectively

    7,795     6,234  

Change in foreign currency translation adjustment

    (790 )   (1,101 )

Change in unrealized loss on hedges, net of deferred taxes of $2.0 million and $0.4 million, respectively

    (3,270 )   (713 )

Change in unrealized loss on investments, net of deferred taxes of $0.0 million and $1.7 million, respectively

    (369 )   (4,494 )
           

Comprehensive income

  $ 75,918   $ 196,192  
           

15



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 9—Net Income Per Share

        A reconciliation of the basic and diluted net income per share computations for the three and six months ended June 30, 2012 and 2011 is as follows (in thousands, except per share data):

 
  For the three months ended June 30,  
 
  2012   Recast 2011  
 
  Basic   Diluted   Basic   Diluted  

Numerator:

                         

Income from continuing operations

  $ 26,756   $ 26,756   $ 114,453   $ 114,453  
                   

Income from discontinued operations

  $ 5,180   $ 5,180          
                   

Denominator:

                         

Average number of common shares outstanding

    62,537     62,537     62,313     62,313  

Effect of dilutive securities:

                         

Stock awards and warrants(1)

        243         393  
                   

    62,537     62,780     62,313     62,706  
                   

Income from continuing operations

  $ 0.43   $ 0.43   $ 1.84   $ 1.83  

Income from discontinued operations

    0.08     0.08          
                   

Net income per share

  $ 0.51   $ 0.51   $ 1.84   $ 1.83  
                   

 

 
  For the six months ended June 30,  
 
  2012   Recast 2011  
 
  Basic   Diluted   Basic   Diluted  

Numerator:

                         

Income from continuing operations

  $ 67,372   $ 67,372   $ 196,266   $ 196,266  
                   

Income from discontinued operations

  $ 5,180   $ 5,180          
                   

Denominator:

                         

Average number of common shares outstanding

    62,503     62,503     58,390     58,390  

Effect of dilutive securities:

                         

Stock awards and warrants(1)

        256         370  
                   

    62,503     62,759     58,390     58,760  
                   

Income from continuing operations

  $ 1.08   $ 1.08   $ 3.36   $ 3.34  

Income from discontinued operations

    0.08     0.08          
                   

Net income per share

  $ 1.16   $ 1.16   $ 3.36   $ 3.34  
                   

(1)
Stock awards represent the weighted average number of shares of common stock issuable on the exercise of dilutive employee stock options and restricted stock units, less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such stock awards. These purchases were assumed to have been made at the average market price of the common stock for the period. The weighted average number of stock options outstanding for the

16



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 9—Net Income Per Share (Continued)

    three months ended June 30, 2012 and 2011 totaling 234,323 and 50,814, respectively, were excluded from the calculation above because their effect would have been anti-dilutive. Additionally, the weighted average number of stock options outstanding for the six months ended June 30, 2012 and 2011 totaling 205,378 and 29,038, respectively, were excluded from the calculation above because their effect would have been anti-dilutive. Outstanding warrants entitle the holder to receive cash and shares of common stock upon exercise. All of the Company's outstanding stock warrants were exercised or expired during the second quarter of 2012.

    Note 10—Commitments and Contingencies

    Income Tax Litigation

            On December 27, 1989, the Company and most of its U.S. subsidiaries each filed a voluntary petition for reorganization under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Proceedings") in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division (the "Bankruptcy Court"). The Company emerged from bankruptcy on March 17, 1995 (the "Effective Date") pursuant to the Amended Joint Plan of Reorganization dated as of December 9, 1994, as modified on March 1, 1995 (as so modified the "Consensual Plan"). Despite the confirmation and effectiveness of the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over, among other things, the resolution of disputed prepetition claims against the Company and other matters that may arise in connection with or related to the Consensual Plan, including claims related to federal income taxes.

            In connection with the U.S. Bankruptcy Proceedings, the Internal Revenue Service ("IRS") filed a proof of claim in the Bankruptcy Court (the "Proof of Claim") for a substantial amount of taxes, interest and penalties with respect to fiscal years ended August 31, 1983 through May 31, 1994. The Company filed an adversary proceeding in the Bankruptcy Court disputing the Proof of Claim (the "Adversary Proceeding") and the various issues have been litigated in the Bankruptcy Court. An opinion was issued by the Bankruptcy Court in June 2010 as to the remaining disputed issues. The Bankruptcy Court instructed both parties to submit a proposed final order addressing all issues that have been litigated for the tax years 1983 through 1995 in the Adversary Proceeding by late August 2010. At the request of both parties, the Bankruptcy Court granted an extension of time of 90 days from the initial submission date to submit the proposed final order. Additional extensions of time to submit the proposed final order were granted in November 2010, February 2011, May 2011, September 2011 and January 2012. At the request of both parties, in May 2012 the Bankruptcy Court granted an additional extension of time until January 8, 2013 to submit the proposed final order.

            The amounts initially asserted by the Proof of Claim do not reflect the subsequent resolution of various issues through settlements or concessions by the parties. The Company believes that any financial exposure with respect to those issues that have not been resolved or settled in the Proof of Claim is limited to interest and possible penalties and the amount of tax assessed has been offset by tax reductions in future years. All of the issues in the Proof of Claim, which have not been settled or conceded, have been litigated before the Bankruptcy Court and are subject to appeal but only at the conclusion of the entire Adversary Proceeding.

17



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 10—Commitments and Contingencies (Continued)

        The Company believes that those portions of the Proof of Claim, which remain in dispute or are subject to appeal, substantially overstate the amount of taxes allegedly owed. However, because of the complexity of the issues presented and the uncertainties associated with litigation, the Company is unable to predict the ultimate outcome of the Adversary Proceeding.

        The IRS completed its audit of the Company's federal income tax returns for the years ended May 31, 2000 through December 31, 2005. The IRS issued 30-Day Letters to the Company in June 2010, proposing changes to tax for these tax years. The Company believes its tax filing positions have substantial merit and filed a formal protest with the IRS within the prescribed 30-day time limit for those issues which have not been previously settled or conceded. The IRS filed a rebuttal to the Company's formal protest and the case was assigned to the Appeals Division of the IRS. The Appeals Division convened a hearing on March 8, 2011 and heard arguments from both parties as to issues not settled or conceded for the 2000 through 2005 audit period. At this time, no final resolution has been reached with the Appeals Division pertaining to these matters. The disputed issues in this audit period are similar to the issues remaining in the Proof of Claim and consequently, should the IRS prevail on its positions, the Company believes its financial exposure is limited to interest and possible penalties.

        During the second quarter of 2012, the IRS completed its audit of the Company's federal income tax returns for the years 2006 through 2008 and has proposed adjustments to tax for these periods. The IRS issued a 30-Day Letter with proposed adjustments and the Company responded to the IRS within the prescribed 30-day time limit. The proposed adjustments are similar to issues in a prior Proof of Claim and include a proposed adjustment to a worthless stock deduction reported in the Company's 2008 federal income tax return. In 2008, the Company recorded a benefit attributable to the worthless stock deduction of $167.0 million as a result of the deemed liquidation of its homebuilding business on December 31, 2008. The Company has evaluated all of the proposed adjustments, including the proposed adjustment related to the worthless stock deduction, and believes the tax filing positions have substantial merit.

        The IRS is conducting an audit of the Company's income tax returns filed for 2009 and 2010. Since the IRS examination is ongoing, any resulting tax deficiency or overpayment cannot be estimated at this time. During 2012, the statute of limitations for assessing additional income tax deficiencies will expire for certain tax years in several state tax jurisdictions. The expiration of the statute of limitations for these years is expected to have an immaterial impact on the total uncertain income tax positions and net income.

        The Company believes that all of its current and prior tax filing positions have substantial merit and intends to defend vigorously any tax claims asserted. While results cannot be predicted with certainty, the Company believes that it has sufficient accruals to address any claims and that the final outcomes of such claims will not have a material adverse effect on the Company's consolidated financial statements.

Environmental Matters

        The Company is subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the construction and operation of its plants, mines and other

18



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 10—Commitments and Contingencies (Continued)

facilities and with respect to remediating environmental conditions that may exist at its own and other properties.

        The Company believes that it is in substantial compliance with federal, state and local environmental laws and regulations. The Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and can be reasonably estimated.

Walter Coke, Inc.

        Walter Coke entered into a decree order in 1989 relative to a Resource Conservation Recovery Act ("RCRA") compliance program mandated by the Environmental Protection Agency ("EPA"). A RCRA Facility Investigation ("RFI") Work Plan was prepared which proposed investigative tasks to assess the presence of contamination at the Walter Coke facility. A work plan was approved in 1994 and the Phase I investigations were conducted and completed between 1995 and 1999. Phase II investigations for the Chemical Plant/Coke Plant and Biological Treatment Facility and Sewers/Land Disposal Areas at the Walter Coke facility were performed in 2000 and 2001 and are complete. At the end of 2004, the EPA re-directed Walter Coke's RFI efforts toward completion of the Environmental Indicator ("EI") determinations for the Current Human Exposures. This EI effort was completed to assist the EPA in meeting goals set by the Government Performance Results Act ("GPRA") for RCRA by 2005. Walter Coke implemented the approved EI sampling plan in April 2005. The EPA approved and finalized the EI determinations for Walter Coke's Birmingham facility in September 2005. In an effort to refocus the RFI, the EPA approved technical comments on the Phase II RFI report and the report submitted as part of the EI effort. A Phase III work plan was submitted to the EPA during the first quarter of 2007. The EPA commented on the Phase III plan and Walter Coke responded. Subsequently, a meeting was held with the EPA during the third quarter of 2007 with the objective of finalization of the Phase III plan. Phase III sampling reports were submitted in March 2009 and June 2009. Beyond the scope of the Phase III activity performed in 2007 through 2009, additional requests by EPA expanded the scope of the project which required additional sampling and testing. In January 2008, as a follow-up to the EI determination, the EPA requested that Walter Coke perform additional soil sampling and testing in the neighborhoods surrounding its facility. Subsequent to EPA's initial request and presentation of a residential sampling plan to EPA by Walter Coke, the plan was finalized and community involvement initiated, with sampling and testing commencing in July 2009. The results of this sampling and testing were submitted to the EPA for review in December 2009. In conjunction with the plan, Walter Coke agreed to remediate portions of 23 properties based on the 2009 sampling and that process was started in July 2011. As of June 30, 2012, Walter Coke had completed soil removal action at portions of 16 residential properties for which access agreements were obtained. In December 2011, the EPA notified Walter Coke in the form of a General Notice Letter that it proposed that the offsite remediation project be classified and managed as a Superfund site under CERCLA, allowing other Potentially Responsible Parties (PRP's) to potentially be held responsible.

        The Company has incurred costs to investigate the presence of contamination at the Walter Coke facility and to define remediation actions to address this environmental liability in accordance with the agreements reached with the EPA under the RFI and the residential soil sampling conducted by Walter Coke in the neighborhoods surrounding its facility. At June 30, 2012, the Company has an amount

19



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 10—Commitments and Contingencies (Continued)

accrued that is probable and can be reasonably estimated for the costs to be incurred to identify and define remediation actions, as well as to perform certain remedial tasks which can be quantified, in accordance with the agreements reached and proposals that continue to be coordinated with the EPA to date. The amount of this accrual is not material to the financial statements. While it is probable that the Company will incur additional future costs to remediate environmental liabilities at the Walter Coke facility, the amount of such additional costs cannot be reasonably estimated at this time. Because the RCRA and CERCLA compliance programs are in the study phase with negotiation of final orders ongoing, until these processes are complete, the Company is unable to fully estimate the cost of remediation activities that will be required. Although no assurances can be given that the Company will not be required in the future to make material expenditures relating to the Walter Coke site or other sites, management does not believe at this time that the cleanup costs, if any, associated with these sites will have a material adverse effect on the financial condition of the Company, but such cleanup costs could be material to results of operations in a future reporting period.

        The Company and Walter Coke were named in a suit filed by Louise Moore on April 26, 2011 (Louise Moore v. Walter Energy, Inc. and Walter Coke, Inc., Case No. 2:11-CV-01391) in the federal District Court for the Northern District of Alabama. This is a putative civil class action alleging state law tort claims arising from the alleged presence on properties of substances, including arsenic, BaP, and other hazardous substances, allegedly as a result of current and/or historic operations in the area conducted by the companies and/or their predecessors. This action is still in the early stages of litigation. On June 6, 2011, the plaintiff filed an amended complaint eliminating Walter Energy as a defendant and amending the claims alleged against Walter Coke to relate to Walter Coke's alleged conduct for the period commencing after March 2, 1995. Based on initial evaluation, management believes that both procedural and substantive defenses are available to the Company and Walter Coke intends to vigorously defend this matter. No specific dollar value has been claimed in the suit's demand for monetary damages. On June 20, 2011, Walter Coke filed a Motion to Dismiss which was heard on October 28, 2011. As of the date of filing this quarterly report on Form 10-Q, a ruling has not been received.

Maple Coal Company

        Maple Coal Company ("Maple") was the subject of a compliance order issued against its water discharge permit in April 2007 by the West Virginia Department of Environmental Protection ("WVDEP"). This order provided that Maple would have until April 5, 2010 to comply with certain water quality-based effluent limitations for selenium concentrations in discharges from its mining operations.

        Maple sought a permit modification to extend the selenium compliance date beyond April 5, 2010. That permit modification application was denied by the WVDEP. Maple appealed that denial to the West Virginia Environmental Quality Board ("EQB"), which issued a stay of those limits, to be effective until it had issued a ruling. The Kanawha County (West Virginia) Circuit Court also issued stay orders, preventing the selenium effluent limits in Maple's National Pollutant Discharge Elimination System ("NPDES") permit from taking effect until the exhaustion of all appeals from the WVDEP denial and the conclusion of the WVDEP's civil enforcement action.

20



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 10—Commitments and Contingencies (Continued)

        The EQB ruled against Maple's appeal. Maple has filed an appeal of these rulings (consolidated into one case) with the Fayette County (West Virginia) Circuit Court. In connection with this administrative appeal, Maple has also obtained a stay order from the Fayette County Circuit Court, suspending the effective date of the selenium limits in its NPDES permit pending the outcome of that appeal. The parties to that appeal agreed to defer briefing, pending negotiation of a comprehensive settlement of all such issues (discussed below) and the Court entered an order suspending the briefing schedule.

        In a related action, in June 2010 the WVDEP instituted a civil enforcement action against Maple seeking to enforce effluent limits for non-selenium parameters found in the Maple permit, asserting violations of various in-stream water quality standards, and alleging a violation of the April 5, 2007 selenium compliance order. Maple has entered into a comprehensive consent decree with the WVDEP with civil penalties of $229,350, resolving that case and the EQB case mentioned above.

        In a second related action, in January 2011 three environmental interest groups filed a Clean Water Act citizen's suit against Maple, seeking more than $14 million in civil penalties for selenium violations since April 2010 and injunctive relief in the form of mandatory treatment plant installations. The plaintiffs filed a motion for partial summary judgment on jurisdiction and liability, and Maple filed a cross-motion for summary judgment. On September 2, 2011, the Court issued a memorandum opinion and order (the "Sept. 2 Order") granting, in part, and denying, in part, both motions. In partially granting Maple's motion, the Court held that the plaintiffs' members had not shown a sufficient connection to establish standing to bring a claim as to discharges from one of the outlets under the Maple NPDES Permit at issue. The Court upheld jurisdiction over claims based on discharges from one of the outlets, and found that the plaintiffs were entitled to summary judgment on liability as to past and continuing selenium discharges from that outlet. The plaintiffs filed a motion to amend judgment, asking the Court to reverse its Sept. 2 Order as to their dismissed claims, that was denied by Order dated October 24, 2011. Maple, in turn, filed a motion seeking the right to file an interlocutory appeal of that part of the Court's Sept. 2 Order that denied its motion to dismiss based on the WVDEP's diligent enforcement against Maple, which the Court denied by order dated December 19, 2011. On June 26, 2012, the Court entered a Consent Decree between the parties to this federal action ("Federal Consent Decree"), resolving all claims asserted against Maple. The Federal Consent Decree requires the payment of approximately $103,000 in attorney's fees and expenses and that Maple complete additional documentation as part of its implementation of the WVDEP Consent Decree.

        In addition, these same plaintiffs in the federal lawsuit described immediately above served a second "Notice of Intent to Sue" under the Clean Water Act on September 23, 2011, alleging that Maple is liable for having caused selenium water quality standard violations authorized under a different NPDES permit. Maple responded to that notice on October 31, 2011, and provisions that address the violations alleged in this second notice were included as a part of the WVDEP Consent Decree. Although the plaintiffs did not amend their earlier suit addressing those threatened claims, they were effectively resolved by the Federal Consent Decree.

21



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 10—Commitments and Contingencies (Continued)

Securities Class Actions and Shareholder Derivative Actions

        On January 26, 2012 and March 15, 2012, putative class actions were filed against Walter Energy, Inc. and some of its current and former senior executive officers in the U.S. District Court for the Northern District of Alabama (Rush v. Walter Energy, Inc., et al.). The three executive officers named in the complaints are: Keith Calder, Walter's former CEO; Walter Scheller, the Company's current CEO and a director; and Neil Winkelmann, former President of Walter's Canadian and European Operations (collectively the "Individual Defendants"). The complaints were filed by Peter Rush and Michael Carney, purported shareholders of Walter Energy who each seek to represent a class of Walter Energy shareholders who purchased common stock between April 20, 2011 and September 21, 2011.

        These complaints allege that Walter Energy and the Individual Defendants made false and misleading statements regarding the Company's operations outlook for the second quarter of 2011. The complaints further allege that the Company and the Individual Defendants knew that these statements were misleading and failed to disclose material facts that were necessary in order to make the statements not misleading. Plaintiffs claim violations of Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder, and Section 20(a) of the 1934 Act. On May 30, 2012, the two actions were consolidated into In re Walter Energy, Inc. Securities Litigation. The court also appointed the Government of Bermuda Contributory and Public Service Superannuation Pension Plans as well as the Stephen C. Beaulieu Revocable Trust to be lead plaintiffs and approved lead plaintiffs' selection of Robbins Geller Rudman & Dowd LLP and Kessler Topaz Meltzer & Check, LLP as lead plaintiffs' counsel for the consolidated action. A consolidated amended complaint has not yet been filed. Walter Energy and the other named defendants believe that there is no merit to the claims alleged and intend to vigorously defend these actions.

        On February 7, 2012, a shareholder derivative lawsuit was filed in the 10th Judicial Circuit of Alabama (Israni v. Clark et al.). On February 10, 2012, a second shareholder derivative suit was filed in the same court (Himmel v. Scheller et al.), and on February 16, 2012 a third derivative suit was filed (Walters v. Scheller et al.). All three complaints name as defendants the Company's current Board of Directors, Keith Calder and Neil Winkelmann. The Company is named as a nominal defendant in each complaint. The three complaints allege similar facts to those alleged in the Rush complaint. The complaints variously assert state law claims for breaches of fiduciary duties for alleged failures to maintain internal controls and to properly manage the Company, unjust enrichment, waste of corporate assets, gross mismanagement and abuse of control. The three derivative actions seek, among other things, recovery for the Company for damages that the Company suffered as a result of alleged wrongful conduct. On April 11, 2012, the Court consolidated these shareholder derivative suits. Walter Energy has entered into a stipulation with the lead plaintiffs in the consolidated derivative suit, pursuant to which, all proceedings in the derivative action are stayed pending the resolution of Walter Energy's anticipated motion to dismiss in the putative securities class action.

        On March 1, 2012, a shareholder derivative lawsuit was filed in the U.S. District Court for the Northern District of Alabama (Makohin v. Clark, et al.). This complaint names as defendants the Company's current Board of Directors and Keith Calder. The Company is named as a nominal defendant. This complaint, like the state court derivative claims, alleges similar facts to those alleged in the Rush complaint. The Makohin complaint asserts state law claims for breaches of fiduciary duties

22



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 10—Commitments and Contingencies (Continued)

and unjust enrichment. The derivative action seeks, among other things, recovery for the Company for damages that the Company suffered as a result of alleged wrongful conduct. This plaintiff has also agreed to temporarily stay the action pending resolution of Walter Energy's anticipated Motion to Dismiss in the putative securities class action.

        Walter Energy and the other named defendants believe that there is no merit to the claims alleged in these shareholder derivative lawsuits and intend to vigorously defend these actions.

        In November 2009, Western Coal was named as a defendant in a statement of claim issued by a plaintiff who seeks leave of the Ontario Courts to proceed with a securities class action. This claim also named Western Coal's former President and director, John Hogg, and two of its non-executive directors, John Brodie and Robert Chase, as defendants.

        The plaintiff subsequently delivered an amended claim that added new allegations that seeks to have the amended claim certified as a class action separately from the proposed securities class action allegations. The new allegations focused on certain transactions the plaintiff claims were oppressive and unfair to the interests of shareholders. The amended claim included additional defendants of Western Coal's former Chairman, John Byrne, its remaining non-executive directors John Conlon and Charles Pitcher, Audley European Opportunities Master Fund Limited, Audley Capital Management Limited, and Audley Advisors LLP.

        The proposed securities claims allege that those persons who acquired or disposed of Western Coal shares between November 14, 2007 and December 10, 2007 should be entitled to recover $200 million for general damages and $20 million in punitive damages. The plaintiff alleges that Western Coal's consolidated financial statements for the second quarter of fiscal 2008 and the accompanying news release issued on November 14, 2007 misrepresented Western Coal's financial condition and that Western Coal failed to make full, plain and true disclosure of all material facts and changes.

        The plaintiff's oppression claims are advanced in respect of security holders in the period between April 26, 2007 and July 13, 2009. The claims are that the defendants caused Western Coal to enter into transactions that had a dilutive effect on the interests of shareholders. The damages associated with these alleged dilutive effects have not been developed or quantified.

        The plaintiff's motions to proceed with securities claims and also to certify the securities and oppression claims as class actions were argued in June. The court has reserved decision, and it is not known when the decision will be rendered.

        Western Coal and the other named defendants will continue to vigorously defend the allegations. They maintain that there is no merit to the claims and that the damages are without foundation and excessive.

Miscellaneous Litigation

        The Company and its subsidiaries are parties to a number of other lawsuits arising in the ordinary course of their businesses. The Company records costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on the Company's future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. While the

23



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 10—Commitments and Contingencies (Continued)

results of litigation cannot be predicted with certainty, the Company believes that the final outcome of such other litigation will not have a material adverse effect on the Company's consolidated financial statements.

Commitments and Contingencies—Other

        In the opinion of management, accruals associated with contingencies incurred in the normal course of business are sufficient. Resolution of existing known contingencies is not expected to significantly affect the Company's financial position and results of operations.

Note 11—Derivative Financial Instruments

Interest Rate Swaps

        On June 27, 2011, the Company entered into an interest rate swap agreement with a notional value of $450.0 million. The objective of the swap is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate related to interest payments required under the 2011 Credit Agreement. The interest rate on the debt is subject to change due to fluctuations in the benchmark interest rate of 3-month LIBOR. The structure of the hedge is a three year amortizing interest rate swap based on a 1.17% fixed rate with quarterly fixed rate and floating rate payment dates beginning on July 18, 2011. The hedge will be settled upon maturity and is being accounted for as a cash flow hedge. Changes in the fair value of the hedge that take place through the date of maturity are reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.

        On December 30, 2008, the Company entered into an interest rate hedge agreement with a notional value of $31.5 million. The objective of the hedge is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate related to 62 of the 64 monthly interest payments required under an equipment financing arrangement for a new longwall shield system entered into on October 21, 2008. The interest rate on the debt is subject to change due to fluctuations in the benchmark interest rate of 1-month LIBOR. The structure of the hedge is a 62 month amortizing interest rate swap based on a 1.84% fixed rate with monthly fixed rate and floating rate payment dates beginning on February 1, 2009. The hedge will be settled upon maturity and is being accounted for as a cash flow hedge. Changes in the fair value of the hedge that take place through the date of maturity are reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.

Interest Rate Cap

        On June 27, 2011, the Company entered into an interest rate cap agreement related to interest payments required under the 2011 Credit Agreement with a notional value of $255.0 million. The objective of the cap is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate above 2.00%. The interest rate on the debt is subject to change due to fluctuations in the benchmark interest rate of 3-month LIBOR. The structure of the hedge is a three year amortizing interest rate cap based on a strike price of 2.00% with quarterly fixed rate and

24



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 11—Derivative Financial Instruments (Continued)

floating rate payment dates beginning on July 7, 2011. The hedge will be settled upon maturity and is being accounted for as a cash flow hedge. Changes in the fair value of the hedge that take place through the date of maturity are reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.

Natural Gas Hedge

        Revenues derived from the sale of natural gas are subject to volatility based on changes in market prices. In order to reduce the risk associated with natural gas price volatility, on June 7, 2011 the Company entered into a one year swap contract to hedge 4.2 million MMBTUs of natural gas sales beginning in July 2011 and ending June 2012, at a price of $5.00 per MMBTU. The swap agreement hedged approximately 35% of anticipated natural gas sales from July 2011 until June 2012. The hedge was settled upon maturity and was accounted for as a cash flow hedge. The Company did not have any commodity hedges outstanding at June 30, 2012.

        The following table presents the fair values of the Company's derivative instruments as well as the classification on the Condensed Consolidated Balance Sheets (in thousands). See Note 12 for additional information related to the fair values of our derivative instruments.

 
  June 30,
2012
  December 31,
2011
 

Asset derivatives designated as cash flow hedging instruments:

             

Natural gas hedge(1)

  $   $ 4,050  

Interest rate cap(2)

    81     432  
           

Total asset derivatives

  $ 81   $ 4,482  
           

Liability derivatives designated as cash flow hedging instruments:

             

Interest rate swaps(3)

  $ 6,594   $ 5,683  
           

(1)
Included in other current assets at December 31, 2011.

(2)
$39,000 and $143,000 is included in other current assets and $42,000 and $289,000 is included in other long-term assets in the Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, respectively.

(3)
$3.1 million and $1.8 million is included in other current liabilities and $3.5 million and $3.9 million is included in other long-term liabilities in the Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, respectively.

25



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 11—Derivative Financial Instruments (Continued)

        The following tables present the gains and losses from derivative instruments for the three and six months ended June 30, 2012 and 2011 and their location within the condensed consolidated financial statements (in thousands). The Company utilizes only cash flow hedges that are considered highly effective.

 
  Gain (loss) recognized
in accumulated other
comprehensive income,
net of tax
  Gain (loss)
reclassified from
accumulated other
comprehensive
income to earnings,
net of tax(1)(2)
  Ineffective
portion of
Gain (loss)
recognized in
earnings
 
 
  Three months
ended
June 30,
  Three months
ended
June 30,
  Three months
ended
June 30,
 
Derivatives designated as cash
flow hedging instruments
  2012   2011   2012   2011   2012   2011  

Natural gas hedges

  $ (3,666 ) $ 948   $ 1,837   $   $   $  

Interest rate swaps

    390     (155 )   (460 )   (48 )        

Interest rate cap

    (88 )   (1,340 )                
                           

Total

  $ (3,364 ) $ (547 ) $ 1,377   $ (48 ) $   $  
                           

 

 
  Gain (loss) recognized
in accumulated other
comprehensive income,
net of tax
  Gain (loss)
reclassified from
accumulated other
comprehensive
income to earnings,
net of tax(1)(2)
  Ineffective
portion of
Gain (loss)
recognized in
earnings
 
 
  Six months
ended
June 30,
  Six months
ended
June 30,
  Six months
ended
June 30,
 
Derivatives designated as cash
flow hedging instruments
  2012   2011   2012   2011   2012   2011  

Natural gas hedges

  $ (5,798 ) $ 781   $ 3,279   $   $   $  

Interest rate swaps

    493     (60 )   (1,025 )   (94 )        

Interest rate cap

    (219 )   (1,340 )                
                           

Total

  $ (5,524 ) $ (619 ) $ 2,254   $ (94 ) $   $  
                           

(1)
Natural gas hedge amounts recorded in miscellaneous income in the Condensed Consolidated Statements of Operations and Comprehensive Income.

(2)
Interest rate swap amounts recorded in interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.

26



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 12—Fair Value of Financial Instruments

        Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy has been established for valuing assets and liabilities based on how transparent (observable) the inputs are that are used to determine fair value, with the inputs considered most observable categorized as Level 1 and those that are the least observable categorized as Level 3. Hierarchy levels are defined as follows:

Level 1:   Quoted prices in active markets for identical assets and liabilities;

Level 2:

 

Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and

Level 3:

 

Unobservable inputs that are supported by little or no market data which require the reporting entity to develop its own assumptions.

        The following table presents information about the Company's assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011 and indicate the fair value hierarchy of the valuation techniques utilized to determine such values. For some assets, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When this is the case, the asset is categorized based on the level of the most significant input to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the assets being valued.

 
  June 30, 2012  
 
  Fair Value Measurements Using    
 
 
  Total Fair
Value
 
(in thousands)
  Level 1   Level 2   Level 3  

Assets:

                         

Interest rate cap

  $   $ 81   $   $ 81  
                   

Total assets

  $   $ 81   $   $ 81  
                   

Liabilities:

                         

Interest rate swaps

  $   $ 6,594   $   $ 6,594  
                   

 

 
  December 31, 2011  
 
  Fair Value Measurements Using    
 
 
  Total Fair
Value
 
(in thousands)
  Level 1   Level 2   Level 3  

Assets:

                         

Equity securities, trading

  $ 12,369   $   $   $ 12,369  

Equity securities, available-for-sale

    12,099             12,099  

Interest rate cap

        432         432  

Natural gas hedge

        4,050         4,050  
                   

Total assets

  $ 24,468   $ 4,482   $   $ 28,950  
                   

Liabilities:

                         

Interest rate swaps

  $   $ 5,683   $   $ 5,683  
                   

27



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 12—Fair Value of Financial Instruments (Continued)

        Below is a summary of the Company's valuation techniques for Level 1 and Level 2 financial assets and liabilities:

        Equity securities—Changes in the fair value of trading securities are recorded in other income (loss) and determined using observable market prices. For the three and six months ended June 30, 2012 a loss of $5.9 million and $12.4 million, respectively was recorded related to trading securities held at the reporting date. Realized losses of $452,000 on the sale of available-for-sale securities were recorded in other income (loss) during the six months ended June 30, 2012 and determined using the specific identification method.

        Interest rate cap—The fair value of the interest rate cap was determined using quoted dealer prices for similar contracts in active over-the-counter markets.

        Natural gas hedge—The fair value of the natural gas hedge was determined using quoted dealer prices for similar contracts in active over-the-counter markets.

        Interest rate swaps—The fair value of interest rate swaps were determined using quoted dealer prices for similar contracts in active over-the-counter markets.

        The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected:

        Cash and cash equivalents, receivables and accounts payable—The carrying amounts reported in the balance sheet approximate fair value.

        Debt—Debt associated with the Company's 2011 term loan A and term loan B in the amount of $854.7 million and $1.273 billion, respectively, at June 30, 2012 and $894.8 million and $1.333 billion, respectively, at December 31, 2011 is carried at cost. Debt associated with the Company's revolving credit facility in the amount of $59.0 million at June 30, 2012 and $10.0 million at December 31, 2011 is carried at cost. The estimated fair value of the Company's term loan A, term loan B and Revolver was $842.7 million, $1.246 billion and $58.0 million at June 30, 2012, respectively, and $880.6 million, $1.319 billion and $9.7 million at December 31, 2011, respectively, based on similar transactions and yields in an active market for similarly rated debt (Level 2).

Note 13—Segment Information

        The Company's reportable segments are strategic business units arranged geographically which have separate management teams. The business units have been aggregated into three reportable segments following the April 1, 2011 Western Coal acquisition described in Note 2. These reportable segments are U.S. Operations, Canadian and U.K. Operations, and Other. Both the U.S. Operations and Canadian and U.K. Operations reportable segments primary business is that of mining and exporting metallurgical coal for the steel industry. The U.S. Operations segment includes Walter Energy's historical operating segments of Underground Mining, Surface Mining and Walter Coke as well as the results of the West Virginia mining operations acquired through the acquisition of Western Coal. The Canadian and U.K. Operations segment includes the results of the mining operations located in Northeast British Columbia (Canada) and South Wales (United Kingdom). The Other segment primarily includes corporate activities and expenditures.

28



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 13—Segment Information (Continued)

        The accounting policies of the segments are the same as those described in Note 2 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011. The Company evaluates performance primarily based on operating income of the respective business segments.

        Summarized financial information of the Company's reportable segments is shown in the following table (in thousands):

 
  For the three months
ended June 30,
 
 
  2012   Recast
2011
 

Revenues:

             

U.S. Operations

  $ 466,761   $ 511,080  

Canadian and U.K. Operations

    209,645     259,218  

Other

    1,168     573  
           

Total Revenues

  $ 677,574   $ 770,871  
           

Segment operating income (loss):

             

U.S. Operations

  $ 107,245   $ 173,133  

Canadian and U.K. Operations

    (24,679 )   18,800  

Other

    (14,593 )   (27,470 )
           

Total operating income

    67,973     164,463  

Less interest expense, net

    (30,763 )   (31,887 )

Other income (loss)

    (5,919 )   24,503  
           

Income from continuing operations before income tax expense

    31,291     157,079  

Income tax expense

    4,535     42,626  
           

Income from continuing operations

  $ 26,756   $ 114,453  
           

Depreciation and depletion:

             

U.S. Operations

  $ 43,704   $ 39,035  

Canadian and U.K. Operations

    30,535     33,243  

Other

    220     192  
           

Total

  $ 74,459   $ 72,470  
           

Capital Expenditures:

             

U.S. Operations

  $ 43,851   $ 40,972  

Canadian and U.K. Operations

    78,177     51,411  

Other

    3,183     (259 )
           

Total

  $ 125,211   $ 92,124  
           

29



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 13—Segment Information (Continued)

 

 
  For the six months
ended June 30,
 
 
  2012   Recast
2011
 

Revenues:

             

U.S. Operations

  $ 918,911   $ 919,016  

Canadian and U.K. Operations

    387,996     259,218  

Other

    2,230     1,371  
           

Total Revenues

  $ 1,309,137   $ 1,179,605  
           

Segment operating income (loss):

             

U.S. Operations

  $ 214,226   $ 312,106  

Canadian and U.K. Operations

    (38,234 )   18,800  

Other

    (23,943 )   (46,676 )
           

Total operating income

    152,049     284,230  

Less interest expense, net

    (58,553 )   (35,287 )

Other income (loss)

    (12,912 )   24,503  
           

Income from continuing operations before income tax expense

    80,584     273,446  

Income tax expense

    13,212     77,180  
           

Income from continuing operations

  $ 67,372   $ 196,266  
           

Depreciation and depletion:

             

U.S. Operations

  $ 85,846   $ 67,204  

Canadian and U.K. Operations

    54,671     33,243  

Other

    435     381  
           

Total

  $ 140,952   $ 100,828  
           

Capital Expenditures:

             

U.S. Operations

  $ 79,963   $ 85,108  

Canadian and U.K. Operations

    162,357     51,411  

Other

    3,736     (102 )
           

Total

  $ 246,056   $ 136,417  
           

 

 
  June 30,
2012
  Recast
December 31,
2011
 

Identifiable Assets:

             

U.S. Operations

  $ 1,039,630   $ 1,118,451  

Canadian and U.K. Operations

    5,150,719     5,021,521  

Other

    664,806     716,536  
           

Total

  $ 6,855,155   $ 6,856,508  
           

30



WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)

Note 14—New Accounting Pronouncements

        In September 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standard update intended to simplify how entities test for goodwill impairment by adding a qualitative review step to assess whether the required quantitative impairment analysis is necessary. The accounting standard permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is concluded that this is not the case, it is not necessary to perform the two-step impairment test described in Accounting Standards Codification Topic 350, Intangibles-Goodwill and Other. The accounting standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The guidance is only intended to simplify goodwill impairment testing and will not have an impact on the Company's results of operations or financial condition.

        In June 2011, the FASB issued an accounting standard update that requires companies to present the components of net income and other comprehensive income either in a single continuous statement or as two separate but consecutive statements. The accounting standard update eliminates the option to present components of other comprehensive income solely as part of the statement of changes in stockholders' equity. The guidance became effective for interim and annual periods beginning after December 15, 2011, with the exception of disclosing reclassification of items from other comprehensive income to net income, which is effective for interim and annual periods beginning after December 15, 2012. The accounting standard update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The Company has reflected the new presentation for interim periods in its condensed consolidated financial statements.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

        This report includes statements of our expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are intended to come within the safe harbor protection provided by those sections. These statements, which involve risks and uncertainties, relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable and may also relate to our future prospects, developments and business strategies. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should" and similar terms and phrases, including references to assumptions, in this report to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to 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. These risks and uncertainties include, but are not limited to:

    Deteriorating conditions in the financial markets;

    Global economic crisis;

    Market conditions beyond our control;

    Prolonged decline in the price of coal;

    Decline in global steel demand;

    Our customer's refusal to honor or renew contracts;

    Title defects preventing us from (or resulting in additional costs for) mining our mineral interests;

    Concentration of our coal and gas producing mineral interests in limited number of areas subjects us to risk;

    Weather patterns and conditions affecting production;

    Geological, equipment and operational risks associated with mining;

    Unavailability of cost-effective transportation for our coal;

    Significant increase in competitive pressures;

    Significant cost increases and delays in the delivery of purchased components;

    Availability of adequate skilled employees and other labor relations matters;

    Greater than anticipated costs incurred for compliance with environmental liabilities;

    Our ability to attract and retain key personnel;

    Future regulations that increase our costs or limit our ability to produce coal;

    New laws and regulations to reduce greenhouse gas emissions that impact the demand for our coal reserves;

    Adverse rulings in current or future litigation;

    Inability to access needed capital;

32


    Downgrade in our credit rating;

    Our ability to identify suitable acquisition candidates to promote growth;

    Our ability to successfully integrate acquisitions, including the acquisition of Western Coal Corp.;

    Volatility in the price of our common stock;

    Our ability to pay regular dividends to stockholders;

    Our exposure to indemnification obligations; and

    Other factors, including the other factors discussed in Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2011 and as updated by any subsequent Form 10-Qs or other documents that are on file with the Securities and Exchange Commission.

        You should keep in mind that any forward-looking statement made by us in this Quarterly Report on Form 10-Q or elsewhere speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this Quarterly Report on Form 10-Q after the date of this Quarterly Report on Form 10-Q, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this Quarterly Report on Form 10-Q or elsewhere might not occur.

ORGANIZATION

        Walter Energy, Inc. ("Walter") is a leading producer and exporter of metallurgical coal for the global steel industry from underground and surface mines located in the United States, Canada and United Kingdom. Walter also produces thermal coal, anthracite coal, metallurgical coke and coal bed methane gas.

        This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto of Walter and its subsidiaries, particularly Note 13 of "Notes to Condensed Consolidated Financial Statements," which provides our revenues and operating income by reportable segment.

        As fully discussed in Note 2 to the "Notes to Condensed Consolidated Financial Statements," on April 1, 2011 we completed the acquisition of Western Coal Corp. ("Western Coal"). The accompanying summary operating results include the results of operations of Western Coal since April 1, 2011.

        Certain previously reported December 31, 2011 Condensed Consolidated Balance Sheet balances, three and six months ended June 30, 2011 Condensed Consolidated Statements of Operations and Comprehensive Income balances and six months ended June 30, 2011 Condensed Consolidated Statements of Cash Flows balances have been recast to include the effects of finalizing the allocation of the Western Coal purchase price. See Note 2 to the "Notes to Condensed Consolidated Financial Statements" for further information.

OUTLOOK AND STRATEGIC INITIATIVES

Industry Overview

        The long-term demand for metallurgical coal within all of our geographic markets is anticipated to be strong over the long term as industry projections indicate that global steelmaking will continue to require increasing amounts of high quality metallurgical coal, which is a limited commodity. As such,

33


we are focused on the long-term metallurgical coal market and anticipate continued strong long-term demand for the high-quality metallurgical coals we produce.

        The macro global economic uncertainty has negatively impacted the outlook for global steel production including potentially lower growth estimates for China. Even in the current uncertain global environment, our low-volatile metallurgical coals continue to be in high demand and command prices at or near the benchmarks. Our mid-volatile metallurgical coals typically command a slight discount to the low-volatile metallurgical coal benchmark and currently there is price pressure for a slightly greater discount for mid-volatile metallurgical coals due partially to the recent influx of high-volatile coal into the market. In the present market, the lower the quality of coal the wider the discount to the benchmark price.

Acquisition of Western Coal

        On April 1, 2011 we completed the acquisition of Western Coal for a total purchase price of approximately $3.7 billion. In connection with the acquisition we acquired high quality metallurgical coal mines in Northeast British Columbia (Canada), high quality metallurgical coal and compliant thermal coal mines located in West Virginia (United States), and a high quality anthracite coal mine in South Wales (United Kingdom). The acquisition of Western Coal transformed the Company into the leading, publicly traded 'pure-play' metallurgical coal producer in the world with strategic access to high-growth steel-producing countries in Asia, South America and Europe. We have significant reserves available for future production, the majority of which is high demand metallurgical coal, with a diverse geographical footprint.

2012 Business Outlook

        We currently expect 2012 metallurgical coal production to be within the range of 11.5 million and 13.0 million metric tons of which an estimated approximately 75% will be hard coking coal and the remainder will be low-volatile pulverized coal injection ("PCI") coal.

RESULTS OF OPERATIONS

Summary Operating Results for the
Three Months Ended June 30, 2012 and 2011

 
  For the three months ended June 30, 2012  
(in thousands)
  U.S.
Operations
  Canadian
and U.K.
Operations
  Other   Total  

Sales

  $ 456,935   $ 211,715   $ (45 ) $ 668,605  

Miscellaneous income (loss)

    9,826     (2,070 )   1,213     8,969  
                   

Revenues

    466,761     209,645     1,168     677,574  

Cost of sales (exclusive of depreciation and depletion)

    290,830     195,255     (1 )   486,084  

Depreciation and depletion

    43,704     30,535     220     74,459  

Selling, general and administrative

    11,656     8,534     15,655     35,845  

Postretirement benefits

    13,326         (113 )   13,213  
                   

Operating income (loss)

  $ 107,245   $ (24,679 ) $ (14,593 )   67,973  
                     

Interest expense, net

                      (30,763 )

Other loss

                      (5,919 )

Income tax expense

                      (4,535 )
                         

Income from continuing operations

                    $ 26,756  
                         

34



 
  For the three months ended June 30, 2011 Recast  
(in thousands)
  U.S.
Operations
  Canadian
and U.K.
Operations
  Other   Total  

Sales

  $ 508,875   $ 255,442   $ 270   $ 764,587  

Miscellaneous income

    2,205     3,776     303     6,284  
                   

Revenues

    511,080     259,218     573     770,871  

Cost of sales (exclusive of depreciation and depletion)

    274,333     190,906     835     466,074  

Depreciation and depletion

    39,035     33,243     192     72,470  

Selling, general and administrative

    13,896     16,269     27,356     57,521  

Postretirement benefits

    10,683         (340 )   10,343  
                   

Operating income (loss)

  $ 173,133   $ 18,800   $ (27,470 )   164,463  
                     

Interest expense, net

                      (31,887 )

Other income

                      24,503  

Income tax expense

                      (42,626 )
                         

Income from continuing operations

                    $ 114,453  
                         

 

 
  Dollar variance for the three months ended June 30,
2012 versus 2011
 
(in thousands)
  U.S.
Operations
  Canadian
and U.K.
Operations
  Other   Total  

Sales

  $ (51,940 ) $ (43,727 ) $ (315 ) $ (95,982 )

Miscellaneous income (loss)

    7,621     (5,846 )   910     2,685  
                   

Revenues

    (44,319 )   (49,573 )   595     (93,297 )

Cost of sales (exclusive of depreciation and depletion)

    16,497     4,349     (836 )   20,010  

Depreciation and depletion

    4,669     (2,708 )   28     1,989  

Selling, general and administrative

    (2,240 )   (7,735 )   (11,701 )   (21,676 )

Postretirement benefits

    2,643         227     2,870  
                   

Operating income (loss)

  $ (65,888 ) $ (43,479 ) $ 12,877     (96,490 )
                     

Interest expense, net

                      1,124  

Other loss

                      (30,422 )

Income tax expense

                      38,091  
                         

Income from continuing operations

                    $ (87,697 )
                         

Summary of Second Quarter Consolidated Results of Continuing Operations

        Our income from continuing operations for the three months ended June 30, 2012 was $26.8 million, or $0.43 per diluted share, which compares to $114.5 million, or $1.83 per diluted share, for the three months ended June 30, 2011. EBITDA from continuing operations for the second quarter of 2012 was $136.5 million compared to $261.4 million in the second quarter of 2011. The decreases in income, diluted earnings per share and EBITDA from continuing operations are primarily due to lower metallurgical coal pricing and the operational factors described below. A reconciliation of net income to EBITDA is presented in Liquidity and Capital Resources section below.

        Revenues for the three months ended June 30, 2012 were $677.6 million, a decrease of $93.3 million from $770.9 million in the same period in 2011. The decrease in revenues was primarily due to a decrease in metallurgical coal pricing reflecting world market trends and lower sales volumes and pricing of thermal coal, partially offset by higher hard coking coal sales volume.

35


        Cost of sales, exclusive of depreciation and depletion, increased $20.0 million to $486.1 million as compared to the second quarter of 2011 and is primarily the result of increased hard coking coal sales volumes.

        Selling, general and administrative expense decreased $21.7 million to $35.8 million, as compared to $57.5 in the second quarter of 2011, primarily attributable to non-recurring professional, legal, and severance expenses incurred with the acquisition of Western Coal as well as lower employee expenses in Canada.

        The $5.9 million other loss for the three months ended June 30, 2012 is attributable to losses on remeasurement to fair value of equity investments. Other income of $24.5 million for the three months ended June 30, 2011 is primarily attributable to a gain of $20.5 million recognized on April 1, 2011 as a result of remeasuring to fair value the Western Coal shares acquired from Audley Capital in January 2011.

        The effective tax rates for the three months ended June 30, 2012 and 2011 were 14.5% and 27.1%, respectively. Our effective tax rate declined as compared to 2011 primarily due to a larger favorable impact of percentage depletion and the change in the geographical mix of foreign income and losses.

        The current and prior year period results also include the impact of factors discussed in the following segment analysis.

Segment Analysis

    U.S. Operations

        Hard coking coal sales totaled 1.8 million metric tons in the second quarter of 2012 as compared to 1.5 million metric tons in the second quarter of 2011 reflecting an increase in production. The average selling price of hard coking coal in the second quarter of 2012 was $194.10 per metric ton, an 18.8% decrease from the average selling price of $239.02 per metric ton for the same period in 2011. The decrease in the average selling price of hard coking coal reflects world market trends and is attributable to pricing pressure being experienced due to rising coal inventories and softening demand. The continued softness in the world steel market and potential lower growth estimates overseas lend uncertainty to the fourth quarter for 2012 pricing. However, preliminary settlements in the third quarter of 2012 have slightly improved as compared to the second quarter. Our hard coking coal production totaled 1.7 million metric tons in the second quarter of 2012, an increase of 4.6% from the same period in the prior year as a result of higher production at the Alabama underground operations resulting from improved mining conditions. Production at our Alabama underground operations was higher despite Mine No. 4 experiencing an extended long wall move for the majority of the 2012 second quarter.

        Thermal coal sales totaled 871,000 metric tons in the second quarter of 2012 compared to 1.0 million metric tons during the same period in 2011. The average selling price of thermal coal in the second quarter of 2012 was $68.11 per metric ton, down 7.7% from the average selling price of $73.80 per metric ton for the same period in 2011. The decrease in thermal coal sales volumes and prices during the 2012 second quarter as compared to the same period last year was attributable to continued softening in demand for thermal coal mitigated by the fact that the majority of our thermal coal is under long term price and volume contracts. Our second quarter 2012 average pricing of thermal coal reflects the full quarter impact of lower prices for additional tons sold by the North River mine acquired in May 2011. Thermal coal production totaled 908,000 metric tons in the second quarter of 2012, as compared to 881,000 metric tons during the same period in 2011. The increase in production was primarily due to the additional tons produced at the North River mining operations partially offset by lower production at our West Virginia operations as we idled a thermal coal surface mine at that operation due to the softening demand and prices.

36


        Statistics for U.S. Operations are presented in the following table:

 
  Three months ended
June 30,
 
 
  2012   2011  

Tons of hard coking coal sold(1) (in thousands)

    1,784     1,546  

Tons of hard coking coal produced (in thousands)

    1,724     1,648  

Average hard coking coal selling price(1) (per metric ton)

  $ 194.10   $ 239.02  

Tons of thermal coal sold (in thousands)

    871     1,014  

Tons of thermal coal produced (in thousands)

    908     881  

Average thermal coal selling price (per metric ton)

  $ 68.11   $ 73.80  

(1)
Includes sales of both produced and purchased coal.

        Our U.S. Operations segment reported revenues of $466.8 million in the second quarter of 2012, a decrease of $44.3 million from the same period last year. The decrease in revenues during the second quarter of 2012 as compared to the 2011 second quarter was primarily attributable to the decline in the average selling price of hard coking coal and lower thermal coal sales volumes, partially offset by higher hard coking coal sales volumes.

        Cost of sales, exclusive of depreciation and depletion, in our U.S. Operations segment increased $16.5 million to $290.8 million as compared to the 2011 second quarter. The increase in cost of sales was primarily attributable to the increase in hard coking coal sales volumes and additional costs incurred due to an extended longwall move at our Alabama Mine No. 4, partially offset by lower cost of sales at our West Virginia operations due to idling a thermal coal surface mine.

        U.S. Operations reported operating income of $107.2 million in the second quarter of 2012, compared to $173.1 million in the same period in 2011. The $65.9 million decrease in operating income was primarily due to the decrease in revenue due to the decrease in average selling prices.

    Canadian and U.K. Operations

        Metallurgical coal sales in the second quarter of 2012 totaled 506,000 metric tons of hard coking coal at an average selling price of $223.06 per metric ton and 552,000 metric tons of low-volatile PCI coal at an average selling price of $163.51 per metric ton. Metallurgical coal sales in the second quarter of 2011 totaled 476,000 metric tons of hard coking coal at an average selling price of $250.92 per metric ton and 645,000 metric tons of low-volatile PCI coal at an average selling price of $206.48. The decline in the average selling price of hard coking coal and low-volatile PCI coal reflect world market trends and the softening of demand in the world steel market. The softness in the world steel market and potentially lower global economic growth estimates create uncertainty for fourth quarter of 2012 metallurgical coal pricing; however, preliminary settlements in the third quarter of 2012 have shown slight improvement as compared to the second quarter.

        The Canadian and U.K. Operations segment produced a total of 466,000 metric tons of hard coking coal and 720,000 metric tons of low-volatile PCI in the second quarter of 2012. During the second quarter of 2011 the Canadian and U.K. Operations segments produced 347,000 metric tons of hard coking coal and 495,000 metric tons of low-volatile PCI. Both hard coking coal and low-volatile PCI coal production in the second quarter of 2011 had been adversely impacted by challenging weather conditions, permit delays at the Willow Creek mine and higher waste removal. Prior to the second quarter of 2012 the Willow Creek mine primarily produced low-volatile PCI coal. During the second quarter of 2012, Willow Creek started mining hard coking coal, and as of June 30, 2012 we had inventory of approximately 65,000 tons. Over its life the mine is projected to produce almost half its remaining production in premium low-volatile hard coking coal, which we believe is similar in quality to

37


Mine No. 7 in Alabama. At our Brule mine, mining of raw coal was significantly lower in the second quarter of 2012 as compared to the second quarter of 2011 due to much higher mining waste removal.

        Statistics for Canadian and U.K. Operations are presented in the following table:

 
  Three months ended
June 30,
 
 
  2012   2011  

Tons of hard coking coal sold (in thousands)

    506     476  

Tons of hard coking coal produced (in thousands)

    466     347  

Average hard coking coal selling price (per metric ton)

  $ 223.06   $ 250.92  

Tons of low-volatile PCI coal sold (in thousands)

    552     645  

Tons of low-volatile PCI coal produced (in thousands)

    720     495  

Average low-volatile PCI coal selling price (per metric ton)

  $ 163.51   $ 206.48  

Tons of thermal coal sold (in thousands)

    20     27  

Tons of thermal coal produced (in thousands)

    17     33  

Average thermal coal selling price (per metric ton)

  $ 126.61   $ 117.45  

        Our Canadian and U.K. Operations segment reported revenues of $209.6 million in the second quarter of 2012, a decrease of $49.6 million from the same period last year. The decrease in revenues during the second quarter of 2012 as compared to the 2011 second quarter was attributable to a decline in the average selling price of hard coking coal and low-volatile PCI coal and lower low-volatile PCI coal sales volumes, partially offset by higher hard coking coal sales volumes.

        Cost of sales, exclusive of depreciation and depletion, in our Canadian and U.K. Operations segment increased $4.3 million to $195.3 million as compared to the 2011 second quarter. The increase in cost of sales was primarily attributable to costs associated with higher waste removal at the Brule mine. The Brule mine is currently operated by an outside contractor and we have accelerated our plans to move to an owner-operated rather than contractor-operated mine to improve productivity.

        Our Canadian and U.K. Operations segment reported an operating loss of $24.7 million in the second quarter of 2012 as compared to operating income of $18.8 million in the same period in 2011. The operating loss for the quarter was primarily due to lower average selling prices for hard coking coal and low-volatile PCI coal, combined with the increase in cost of sales, partially offset by lower selling, general and administrative costs. Our Canadian mines are implementing expansion plans and initiatives designed to improve long-term production, optimize equipment usage and decrease costs.

38



Summary Operating Results for the
Six Months Ended June 30, 2012 and 2011

 
  For the six months ended June 30, 2012  
(in thousands)
  U.S.
Operations
  Canadian
and U.K.
Operations
  Other   Total  

Sales

  $ 903,053   $ 392,545   $ 305   $ 1,295,903  

Miscellaneous income (loss)

    15,858     (4,549 )   1,925     13,234  
                   

Revenues

    918,911     387,996     2,230     1,309,137  

Cost of sales (exclusive of depreciation and depletion)

    567,405     349,659     554     917,618  

Depreciation and depletion

    85,846     54,671     435     140,952  

Selling, general and administrative

    24,783     21,900     25,409     72,092  

Postretirement benefits

    26,651         (225 )   26,426  
                   

Operating income (loss)

  $ 214,226   $ (38,234 ) $ (23,943 )   152,049  
                     

Interest expense, net

                      (58,553 )

Other loss

                      (12,912 )

Income tax expense

                      (13,212 )
                         

Income from continuing operations

                    $ 67,372  
                         

 

 
  For the six months ended June 30, 2011 Recast  
(in thousands)
  U.S.
Operations
  Canadian
and U.K.
Operations
  Other   Total  

Sales

  $ 915,104   $ 255,442   $ 616   $ 1,171,162  

Miscellaneous income

    3,912     3,776     755     8,443  
                   

Revenues

    919,016     259,218     1,371     1,179,605  

Cost of sales (exclusive of depreciation and depletion)

    492,480     190,906     1,148     684,534  

Depreciation and depletion

    67,204     33,243     381     100,828  

Selling, general and administrative

    25,936     16,269     47,198     89,403  

Postretirement benefits

    21,290         (680 )   20,610  
                   

Operating income (loss)

  $ 312,106   $ 18,800   $ (46,676 )   284,230  
                     

Interest expense, net

                      (35,287 )

Other income

                      24,503  

Income tax expense

                      (77,180 )
                         

Income from continuing operations

                    $ 196,266  
                         

39



 
  Dollar variance for the six months ended June 30,
2012 versus 2011
 
(in thousands)
  U.S.
Operations
  Canadian
and U.K.
Operations
  Other   Total  

Sales

  $ (12,051 ) $ 137,103   $ (311 ) $ 124,741  

Miscellaneous income (loss)

    11,946     (8,325 )   1,170     4,791  
                   

Revenues

    (105 )   128,778     859     129,532  

Cost of sales (exclusive of depreciation and depletion)

    74,925     158,753     (594 )   233,084  

Depreciation and depletion

    18,642     21,428     54     40,124  

Selling, general and administrative

    (1,153 )   5,631     (21,789 )   (17,311 )

Postretirement benefits

    5,361         455     5,816  
                   

Operating income (loss)

  $ (97,880 ) $ (57,034 ) $ 22,733     (132,181 )
                     

Interest expense, net

                      (23,266 )

Other loss

                      (37,415 )

Income tax expense

                      63,968  
                         

Income from continuing operations

                    $ (128,894 )
                         

Summary of Year to Date Consolidated Results of Continuing Operations

        Our income from continuing operations for the six months ended June 30, 2012 was $67.4 million, or $1.08 per diluted share, which compares to $196.3 million, or $3.34 per diluted share for the six months ended June 30, 2011. EBITDA from continuing operations for the six months ended June 30, 2012 was $280.1 million compared to $409.6 million for the same period in 2011. The decrease in income from continuing operations, diluted earnings per share and EBITDA are primarily due to lower metallurgical coal pricing and the operational factors described below. In addition, net income from continuing operations and diluted earnings per share for the six months ended June 30, 2012 as compared to the same period in 2011 included additional interest expense of $23.3 million and an other loss of $12.9 million versus other income of $24.5 million. A reconciliation of net income to EBITDA is presented in Liquidity and Capital Resources below.

        Revenues for the six months ended June 30, 2012 were $1.3 billion, an increase of $129.5 million from $1.2 billion for the same period in 2011. The increase in revenues was primarily due to six months of revenue from the Canadian and U.K. Operations segment and the West Virginia mining operations within our U.S. Operations segment as a result of the April 1, 2011 Western Coal acquisition compared to three months in the prior year comparable period. Increased revenues were also due to the acquisition of the North River thermal coal mine in Alabama on May 6, 2011. These acquired operations contributed revenues of $497.6 million and $328.0 million during the six months ended June 30, 2012 and 2011, respectively. Excluding the impact of acquisitions, the decrease in revenues is primarily due to a decrease in metallurgical coal pricing partially offset by higher coal sales volumes.

        Cost of sales, exclusive of depreciation and depletion, for the six months ended June 30, 2012 increased $233.1 million to $917.6 million as compared to the same period in 2011. The increase in cost of sales is primarily due to the impact of a full six months of cost of sales from the addition of the Canadian and U.K. Operations segment and the West Virginia mining operations within our U.S. Operations segment compared to three months in the prior year comparable period. Increased cost of sales were also due to the acquisition of the North River mine. Cost of sales from these acquired operations was $446.9 million and $249.8 million during the six months ended June 30, 2012 and 2011, respectively. Excluding the impact of the acquisitions, the increase in cost of sales was primarily due to increased sales volumes and an increase in production costs incurred at the Canadian operation's Brule mine due to higher waste removal.

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        Depreciation and depletion expense for the six months ended June 30, 2012 was $141.0 million, an increase of $40.1 million compared to the same period in 2011. The increase is primarily attributable to the inclusion of six months for the Canadian and U.K. Operations segment and the West Virginia mining operations within our U.S. Operations segment as compared to three months in the prior year comparable period. The increase is also due to a full six months of the North River mining operation in the U.S. Operations segment compared to two months in the prior year comparable period. Depreciation and depletion expense from these acquired operations was $77.1 million and $42.2 million during the six months ended June 30, 2012 and 2011, respectively.

        Selling, general and administrative expense decreased $17.3 million for the six months ended June 30, 2012 as compared to the same period in 2011 despite a full six months of expenses at our Canadian and U.K. Operations segment and West Virginia operations as compared to three months in the prior year period, primarily attributable to a decrease of $18.9 million in costs associated with the acquisition of Western Coal.

        Interest expense, net of interest income for the six months ended June 30, 2012 was $58.6 million, an increase of $23.3 million compared to the same period in 2011. The increase reflects six months of interest on borrowings with an initial balance of $2.35 billion on April 1, 2011 under the 2011 Credit Agreement. The Company had borrowings of only approximately $161.3 million during the first three months in the prior year comparable period.

        The $12.9 million other loss for the six months ended June 30, 2012 is primarily attributable to losses on the sale and remeasurement to fair value of equity investments. Other income of $24.5 million for the six months ended June 30, 2011 is primarily attributable to a gain of $20.5 million recognized on April 1, 2011 as a result of remeasuring to fair value the Western Coal shares acquired from Audley Capital in January 2011.

        The effective tax rates for the six months ended June 30, 2012 and 2011 were 16.4% and 28.2%, respectively. Our effective tax rate for 2012 is lower than the 2011 tax rate, primarily due to a larger favorable impact of percentage depletion and the change in the geographical mix of foreign income and losses.

        The current and prior year period results also include the impact of factors discussed in the following segment analysis.

Segment Analysis

    U.S. Operations

        Hard coking coal sales totaled 3.3 million metric tons during the six months ended June 30, 2012 as compared to 3.0 million metric tons during the same period in 2011. The average selling price of hard coking coal during the six months ended June 30, 2012 was $206.64 per metric ton, an 8.9% decrease as compared to the average selling price of $226.74 per metric ton for the same period in 2011. The decrease in the average selling price of hard coking coal reflects world market trends and is attributable to pricing pressure being experienced due to rising coal inventories and softening demand. Continued softness in the world steel market and potential lower economic growth estimates overseas creates uncertainty in fourth quarter of 2012 pricing; however, preliminary settlements in the third quarter of 2012 have shown a slight improvement as compared to the second quarter. Our hard coking coal production totaled 3.7 million metric tons during the six months ended June 30, 2012, an increase of 17.3% from the same period in the prior year primarily as a result of higher production at the Alabama underground operations during the first quarter due to improved mining conditions and the operation of a third longwall at Mine No. 7 that replaced the existing second longwall which was decommissioned in late April 2012. Production at our Alabama underground operations was higher despite Mine No. 4 experiencing an extended long wall move for the majority of the 2012 second quarter.

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        Thermal coal sales totaled 1.7 million metric tons for the six months ended June 30, 2012 compared to 1.3 million metric tons during the same period in 2011. The increase in thermal coal sales was attributable to six months results of our West Virginia and North River mining operations which were both acquired during the second quarter of 2011 and contributed three months and two months, respectively, to the prior year comparable period. The average selling price of thermal coal during the first six months of 2012 was $69.60 per metric ton, down 11.0% from the average selling price of $78.20 per metric ton for the same period in 2011. Lower average pricing of thermal coal reflects six months impact of lower prices for tons sold by the North River mine acquired in May 2011 and continued softening demand. Thermal coal production totaled 1.7 million metric tons during the first six months of 2012, as compared to 1.2 million metric tons during the same period in 2011. The increase in production was attributable to six months results of our West Virginia and North River mining operations as compared to just three months and two months, respectively, in the prior year comparable period.

        Statistics for U.S. Operations are presented in the following table:

 
  Six months ended
June 30,
 
 
  2012   2011  

Tons of hard coking coal sold(1) (in thousands)

    3,319     3,033  

Tons of hard coking coal produced (in thousands)

    3,693     3,149  

Average hard coking coal selling price(1) (per metric ton)

  $ 206.64   $ 226.74  

Tons of thermal coal sold (in thousands)

    1,653     1,335  

Tons of thermal coal produced (in thousands)

    1,725     1,150  

Average thermal coal selling price (per metric ton)

  $ 69.60   $ 78.20  

(2)
Includes sales of both produced and purchased coal.

        Our U.S. Operations segment reported revenues of $918.9 million for the six months ended June 30, 2012, which is consistent with revenues reported in the six months ended June 30, 2011 of $919.0 million. Revenues for the six months ended June 30, 2012 includes a full six months of revenue contributed by the West Virginia operations acquired with Western Coal and the North River operations acquired in May 2011. Revenues from these acquired operations were $109.6 million and $68.8 million during the six months ended June 30, 2012 and 2011, respectively. Excluding the impact of the acquisitions, the decrease in revenues is primarily attributable to a decline in the average selling price of hard coking coal from $226.74 to $206.64 reflecting world market trends.

        Cost of sales, exclusive of depreciation and depletion, increased $74.9 million to $567.4 million during the six months ended June 30, 2012 as compared to the same period in 2011. The increase in cost of sales was primarily attributable to an increase in both hard coking coal and thermal coal sales volumes and six months of cost from West Virginia and North River as compared to three months and two months in the prior year comparable period, respectively. Cost of sales from these acquired operations were $97.3 million and $58.9 million during the six months ended June 30, 2012 and 2011, respectively.

        U.S. Operations reported operating income of $214.2 million for the six months ended June 30, 2012, compared to $312.1 million in the same period in 2011. The $97.9 million decrease in operating income was primarily due to lower hard coking coal and thermal coal selling prices.

    Canadian and U.K. Operations

        The Canadian and U.K. Operations segment was acquired during the second quarter of 2011 as part of the Western Coal acquisition and therefore there are no comparable six-month results from the prior year and we have limited our historic comparison to the first quarter of 2012. Metallurgical coal

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sales in the second quarter of 2012 from the Canadian and U.K. Operations segment totaled 506,000 metric tons of hard coking coal at an average selling price of $223.06 per metric ton and 552,000 metric tons of low-volatile PCI coal at an average selling price of $163.51 per metric ton. Metallurgical coal sales in the first quarter of 2012 totaled 322,000 metric tons of hard coking coal at an average selling price of $250.02 per metric ton and 510,000 metric tons of low-volatile PCI coal at an average selling price of $187.91 per metric ton. During the first quarter of 2012 hard coking coal sales volumes were adversely impacted by shipload scheduling and customer preference deferring sales of hard coking coal into the second quarter. The decline in the average selling price of hard coking coal and low-volatile PCI coal reflected world market trends.

        The Canadian and U.K. Operations segment produced a total of 466,000 metric tons of hard coking coal and 720,000 metric tons of low-volatile PCI in the second quarter of 2012. During the first quarter of 2012 the Canadian and U.K. Operations segments produced 408,000 metric tons of hard coking coal and 586,000 metric tons of low-volatile PCI. At the Willow Creek mine in Canada production was limited in the first quarter of 2012 and costs were impacted by the scheduled wash plant outage that was necessary to upgrade its ability to process hard coking coal. This outage resulted in minimal production during January and February of 2012 with the majority of the operating costs directly impacting cost of sales as opposed to being absorbed into inventory which resulted in approximately $20 million of additional expense incurred during the first quarter. The upgrade was successfully completed and during the quarter we saw improving trends on a month to month basis. We also moved the Willow Creek mine from a contractor-operated mine to an owner-operated mine and while we were successful in retaining approximately 90% of the workforce, we did incur some duplicate costs, primarily during the 2012 first quarter. Prior to the second quarter of 2012, the Willow Creek mine primarily produced low-volatile PCI coal; however, the mine is projected to produce half its remaining production in premium low-volatile hard coking coal. During the second quarter of 2012, Willow Creek started mining hard coking coal, and as of June 30, 2012 we had inventory of approximately 65,000 metric tons. This premium low-volatile hard coking coal is expected to be similar in quality to Mine No. 7 in Alabama. We have accelerated our plans to transition the Brule mine from a contractor-operated mine to an owner-operated mine to improve productivity.

        Statistics for Canadian and U.K. Operations are presented in the following table:

 
  Six months ended
June 30,
 
 
  2012   2011  

Tons of hard coking coal sold (in thousands)

    828     476  

Tons of hard coking coal produced (in thousands)

    875     347  

Average hard coking coal selling price (per metric ton)

  $ 233.53   $ 250.92  

Tons of low-volatile PCI coal sold (in thousands)

    1,062     645  

Tons of low-volatile PCI coal produced (in thousands)

    1,306     495  

Average low-volatile PCI coal selling price (per metric ton)

  $ 175.23   $ 206.48  

Tons of thermal coal sold (in thousands)

    44     27  

Tons of thermal coal produced (in thousands)

    47     33  

Average thermal coal selling price (per metric ton)

  $ 123.48   $ 117.45  

        Our Canadian and U.K. Operations segment reported revenues of $388.0 million and an operating loss of $38.2 million during the six months ended June 30, 2012. The operating loss in the Canadian and U.K. Operations segment for the six months was primarily due to low production and high operating costs mentioned above at the Willow Creek mine in Canada related to the wash plant outage and the transition to an owner-operated mine. We also experienced additional costs at the Brule mine in Canada due to higher waste removal during the second quarter as well as lower average selling prices for low-volatile PCI coal, reflecting world market trends. Our Canadian mines are implementing

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expansion plans and initiatives designed to improve long-term production, optimize equipment usage and decrease costs.

FINANCIAL CONDITION

        Net receivables were $194.2 million at June 30, 2012, a decrease of $119.1 million from December 31, 2011 primarily attributable to the timing of collections and a decline in average coal selling prices.

        Inventories increased by $76.1 million at June 30, 2012 as compared to December 31, 2011 primarily due to increased hard coking coal production which exceeded sales volumes during the first six months of 2012.

        Net property, plant and equipment increased by $108.2 million at June 30, 2012 as compared to December 31, 2011, primarily due to capital expenditures of $246.1 million, partially offset by depreciation expense.

LIQUIDITY AND CAPITAL RESOURCES

Overview

        Our principal sources of short-term liquidity are our existing cash balances, operating cash flows and borrowings under our revolving credit facility. Our principal source of long-term liquidity is our credit agreement as discussed below.

        Based on current forecasts and anticipated market conditions, we believe that funds provided by operating cash flows and available sources of liquidity will be sufficient to meet our operating needs, to make planned capital expenditures and to make all required interest and principal payments on indebtedness for the next twelve to eighteen months. Our operating cash flows and liquidity are significantly influenced by numerous factors including prices of coal, coal production, costs of raw materials, interest rates and the general economy. Deterioration of economic conditions or deteriorating mining conditions could adversely affect our operating cash flows. Additionally, although financial market conditions have improved there remains volatility and uncertainty, limited availability of credit, potential counterparty defaults, sovereign credit concerns and commercial and investment bank stress. While we have no indication that the uncertainty in the financial markets would impact our current credit facility or current credit providers, the possibility does exist.

2011 Credit Agreement

        On April 1, 2011, we entered into a $2.725 billion credit agreement (the "2011 Credit Agreement") to partially fund the acquisition of Western Coal and to pay off all outstanding loans under the 2005 Credit Agreement. The 2011 Credit Agreement consists of (1) a $950.0 million principal amortizing term loan A facility maturing in April 2016, at which time the remaining outstanding principal is due, (2) a $1.4 billion principal amortizing term loan B facility maturing in April 2018, at which time the remaining outstanding principal is due and (3) a $375.0 million multi-currency revolving credit facility ("Revolver") maturing in April 2016, at which time any remaining balance is due. The Revolver provides for operational needs and letters of credit. Our obligations under the 2011 Credit Agreement are secured by our domestic and foreign real, personal and intellectual property. The 2011 Credit Agreement contains customary events of default and covenants, including among other things, covenants that do not prevent but restrict us and our subsidiaries' ability to incur certain additional indebtedness, create or permit liens on assets, pay dividends and repurchase stock, and engage in mergers or acquisitions, make investments and loans. The 2011 Credit Agreement also includes certain financial covenants that must be maintained.

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        The Revolver, term loan A and term loan B interest rates are tied to LIBOR or CDOR, plus a credit spread ranging from 225 to 300 basis points for the Revolver and term loan A, and 275 to 300 basis points on the term loan B, adjusted quarterly based on our total leverage ratio as defined by the 2011 Credit Agreement. The term loan B has a minimum LIBOR floor of 1.0%. The Revolver loans can be denominated in either U.S. dollars or Canadian dollars at our option. The commitment fee on the unused portion of the Revolver is 0.5% per year for all pricing levels.

        As of June 30, 2012, borrowings under the 2011 Credit Agreement consisted of a term loan A balance of $854.7 million with a weighted average interest rate of 3.46%, a term loan B balance of $1.273 billion with a weighted average interest rate of 4.00% and, under the Revolver, $59.0 million in borrowings with $48.8 million in outstanding stand-by letters of credit and $267.2 million of availability for future borrowings. On June 28, 2012 we prepaid $100 million of the outstanding principal balances of the term loans; however, borrowings from our revolver increased by approximately $49.0 million during the second quarter.

Statements of Cash Flows

        Cash balances were $128.7 million and $128.4 million at June 30, 2012 and December 31, 2011, respectively. The increase in cash during the six months ended June 30, 2012 of $0.3 million primarily resulted from cash provided by operating activities of $308.6 million offset by retirements of debt of $69.0 million and capital expenditures of $246.1 million.

        The following table sets forth, for the periods indicated, selected consolidated cash flow information (in thousands):

 
  Six months ended June 30,  
 
  2012   2011  

Cash flows provided by operating activities

  $ 308,562   $ 279,359  

Cash flows used in investing activities

    (233,246 )   (2,563,824 )

Cash flows provided by (used in) financing activities

    (84,324 )   2,124,731  

Cash flows provided by discontinued operations

    9,500      

Effect of foreign exchange rates on cash

    (242 )    
           

Net increase (decrease) in cash and cash equivalents

  $ 250   $ (159,734 )
           

        Net cash provided by operating activities of continuing operations was $308.6 million for the six months ended June 30, 2012 as compared to $279.4 million for the same period in 2011, an increase of $29.2 million. The increase is primarily attributable to an increase of $154.8 million from accounts receivable, an increase of $111.3 million from accounts payable, and a $61.0 million increase for non-cash items such as depreciation and depletion. These increases were partially offset by a decrease in income from continuing operations of $128.9 million, a decrease from inventory of $104.3 million and a decrease from accrued expenses and other current liabilities of $42.6 million.

        Cash flows used in investing activities for the six months ended June 30, 2012 were $233.2 million as compared to $2.6 billion for the same period in 2011. The decrease in cash flows used in investing activities of $2.3 billion was primarily attributable to $2.4 billion of cash used in the acquisition of Western Coal during the second quarter of 2011, partially offset by an increase in capital expenditures of $109.6 million.

        Cash flows used in financing activities for the six months ended June 30, 2012 were $84.3 million as compared to cash flows provided by financing activities of $2.1 billion for the same period in 2011. The decrease in cash flows provided by financing activities of $2.2 billion was primarily attributable to $2.4 billion of borrowings under the 2011 Credit Agreement to fund a portion of the Western Coal acquisition.

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Capital Expenditures

        Capital expenditures totaled $246.1 million during the six months ended June 30, 2012. We have re-evaluted our capital projects and currently expect 2012 capital expenditures to total approximately $400 million, reflecting selected reductions of various growth projects including those at our U.K. and West Virginia operations.

EBITDA

        EBITDA is defined as earnings from continuing operations before interest, income taxes, depreciation, depletion and amortization 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 entities.

        Reconciliation of Net Income to EBITDA (in thousands):

 
  For the three months
ended June 30,
  For the six months
ended June 30,
 
 
  2012   2011   2012   2011  

Income from continuing operations

  $ 26,756   $ 114,453   $ 67,372   $ 196,266  

Add: Interest expense

   
31,104
   
32,047
   
59,171
   
35,603
 

Less: Interest income

    (341 )   (160 )   (618 )   (316 )

Add: Income tax expense

    4,535     42,626     13,212     77,180  

Add: Depreciation and depletion expense

    74,459     72,470     140,952     100,828  
                   

Earnings from continuing operations before interest, income taxes, and depreciation and depletion (EBITDA)

  $ 136,513   $ 261,436   $ 280,089   $ 409,561  
                   

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to certain market risks inherent in our operations. These risks generally arise from transactions entered into in the normal course of business. The primary market risk exposures relate to commodity price risk, interest rate risk and foreign currency risks. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

        We have exposure to changes in interest rates under the 2011 Credit Agreement through our term loan A, term loan B and Revolver loans. The interest rates for the term loan A, term loan B and revolver loans are tied to LIBOR or the Canadian Dealer Offered Rate ("CDOR"), plus a credit spread ranging from 225 to 300 basis points for the revolver and term loan A and 275 to 300 basis points on the term loan B adjusted quarterly based on our total leverage ratio as defined by the 2011 Credit Agreement. As of June 30, 2012, our borrowings due under the 2011 Credit Agreement totaled $2.187 billion. As of June 30, 2012 a 100 basis point increase in interest rates would increase our quarterly interest expense by approximately $2.5 million while a 100 basis point decrease in interest rates would decrease our quarterly interest expense by approximately $614 thousand due to the LIBOR floor.

        Our objective in managing exposure to interest rate changes is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate related to interest payments required under the 2011 Credit Agreement. To achieve this objective, we manage a portion of our interest rate exposure through the use of interest rate swaps and an interest rate cap. To reduce

46


our exposure to rising interest rates and the risk that changing interest rates could have on our operations, during June 2011 we entered into an interest rate swap agreement and an interest rate cap agreement. The interest rate swap agreement has a notional value of $450.0 million and is based on a 1.17% fixed rate. The interest rate cap agreement has a notional value of $255.0 million and has a strike price of 2.00%.

ITEM 4.    CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

        An evaluation was performed under the supervision and with the participation of our management (including our principal executive officer and principal financial officer) of the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended ("Exchange Act"), as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of June 30, 2012 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. During the quarter, the Company has transitioned much of the accounting activities for the Canadian operations to the U.S. and migrated from one enterprise resource planning system to another. Management took additional steps during the quarter to help provide assurance that these activities did not weaken overall controls in these areas. Other than changes related to our Canadian operations, there has been no change in our internal control over financial reporting during the three months ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.    Legal Proceedings

        See Note 10 of the "Notes to Condensed Consolidated Financial Statements" in this Form 10-Q for a description of current legal proceedings.

        We and our subsidiaries are parties to a number of other lawsuits arising in the ordinary course of our businesses. Most of these cases are in a preliminary stage and we are unable to predict a range of possible loss, if any. We record costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. While the results of litigation cannot be predicted with certainty, we believe that the final outcome of such litigation will not have a material adverse effect on our consolidated financial statements.

Item 1A.    Risk Factors

        Our business, financial condition, operating results and cash flows can be impacted by a number of factors, any one of which could cause actual results to vary materially from recent results or from anticipated future results. For a discussion of our risk factors, please refer to Part 1, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011.

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Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Purchase of Equity Securities by Us and Affiliated Purchasers

        The following table provides a summary of all repurchases by Walter Energy of its common stock during the six-month period ended June 30, 2012:

Period
  Total
Number of
Shares
Purchased(1)
  Average
Price
Paid per
Share
 

January 1, 2012 - January 31, 2012

         

February 1, 2012 - February 29, 2012

    7,846   $ 66.35  

March 1, 2012 - March 31, 2012

    1,292   $ 63.38  

April 1, 2012 - April 30, 2012

    186   $ 72.89  

May 1, 2012 - May 31, 2012

         

June 1, 2012 - June 30, 2012

         
             

    9,324        
             

(1)
These shares were acquired to satisfy certain employees' tax withholding obligations associated with the lapse of restrictions on certain stock awards granted under the 2002 Long-Term Incentive Award Plan. Upon acquisition, these shares were retired.

Item 4.    Mine Safety Disclosures

        The information concerning mine safety violations and other regulatory matters is filed as Exhibit 95 to this quarterly report on Form 10-Q pursuant to the requirements of Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104).

Item 6.    Exhibits

Exhibit
Number
   
  10.1   Letter Agreement between Walter Energy, Inc. and William G. Harvey, dated May 29, 2012 (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on June 1, 2012)

 

31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002—Chief Executive Officer

 

31.2

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002—Chief Financial Officer

 

32.1

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Session 1350—Chief Executive Officer

 

32.2

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Session 1350—Chief Financial Officer

 

95

 

Mine Safety Disclosures Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 299.104)

 

101

 

XBRL (Extensible Business Reporting Language)—The following materials from Walter Energy, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) the Condensed Consolidated Statement of Changes in Stockholders' Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WALTER ENERGY, INC.


/s/ WALTER J. SCHELLER, III

Chief Executive Officer (Principal Executive Officer)

 

 

Date: August 8, 2012


/s/ WILLIAM G. HARVEY

Chief Financial Officer (Principal Financial Officer)

 

 

Date: August 8, 2012

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WALTER ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
WALTER ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
WALTER ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
WALTER ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2012 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
WALTER ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
WALTER ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2012 (Unaudited)
Summary Operating Results for the Three Months Ended June 30, 2012 and 2011
Summary Operating Results for the Six Months Ended June 30, 2012 and 2011
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XMEX:WLT Walter Energy Inc Quarterly Report 10-Q Filling

Walter Energy Inc XMEX:WLT Stock - Get Quarterly Report SEC Filing of Walter Energy Inc XMEX:WLT stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XMEX:WLT Walter Energy Inc Quarterly Report 10-Q Filing - 6/30/2012
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