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Westmoreland Reports Fourth Quarter and Full Year 2017 Results

ENGLEWOOD, Colo., April 02, 2018 (GLOBE NEWSWIRE) -- Westmoreland Coal Company (Nasdaq:WLB) (the "Company") today reported its fourth quarter and full year 2017 financial results and provided an update on its capital structure evaluation. In light of ongoing discussions with Westmoreland's creditors in connection with the Company's capital structure review, Westmoreland will not host a conference call for investors this quarter.

2017 Results and Highlights:

Fourth Quarter:

  • Revenues of $363.8 million from 12.8 million tons sold
  • Net income applicable to common shareholders of $35.1 million, or $1.87 per share
  • Adjusted EBITDA of $86.0 million
  • Cash flow provided by operating activities of $93.0 million;
  • Free cash flow of $83 million;

Full Year:

  • Revenues of $1.4 billion from 49.7 million tons sold
  • Net loss applicable to common shareholders of $71.3 million, or $3.82 per share
  • Adjusted EBITDA of $269.3 million
  • Cash flow provided by operating activities of $114.2 million
  • Free cash flow of $129.6 million

"Cash flow generated by our business exceeded expectations in 2017 as we benefited from our safe and efficient operations and meeting our customer requirements under the long-term sales contracts," said Interim President and Chief Executive Officer, Michael Hutchinson. "As we previously noted, we are working diligently to improve our capital structure so it better matches our cash flow profile."

Gary Kohn, Westmoreland's Chief Financial Officer, stated, "Together with our financial and legal advisers we are designing an improved capital structure for Westmoreland Coal and all of our subsidiaries. Our aim is to create a capital structure that better aligns with our cash flow and allows for an improved balance sheet. During the restructuring process, we have remained focused on safety and on providing our customers with the level of service they have come to expect from Westmoreland."

Safety

Westmoreland’s safety metrics for the year ended December 31, 2017 are shown below:

Year Ended December 31, 2017
Reportable Rate Lost Time Rate
U.S. Surface Operations1.45 0.89
U.S. National Surface Average1.35 0.78
Percentage107% 114%
U.S. Underground Operations1.55 0.97
U.S. National Underground Average4.86 3.78
Percentage32% 26%
Canadian Operations1.49 0.41

Balance Sheet, Cash Flow and Liquidity

Westmoreland finished the year with $103.2 million in cash and cash equivalents, up from $60.1 million at December 31, 2016. At December 31, 2017, the Company had an undrawn $50 million revolving credit facility, of which $28.7 million, net of letters of credit and borrowing base restrictions, was available for borrowing.

Free cash flow generated in 2017 was $129.6 million, which was the result of strong operations, favorable year-end working capital, and a net $13.4 million of released bond collateral. Bond collateral returns were previously included in cash from investing activities, but are now included on several lines of cash from operating activities on the cash flow statement. As a result, bond collateral return is included in free cash flow generation. Capital expenditures totaled $35.0 million, and net cash from loan and lease receivables was $50.5 million. Included in cash flow provided by operations were cash uses for interest expense of $98.1 million and for asset retirement obligations of $43.4 million.

Gross debt plus capital lease obligations at December 31, 2017 totaled $1.1 billion, down $70.7 million from year end 2016. Outstanding gross indebtedness, cash on hand and net debt as of December 31, 2017 were as follows:

Gross Debt Cash on Hand Net Debt
(in millions)
Parent$692.8 $47.2 $645.6
San Juan56.6 19.3 37.3
WMLP326.5 36.7 289.8
Consolidated$1,075.9 $103.2 $972.7

Consolidated and Segment Results

Consolidated Adjusted EBITDA in the fourth quarter was $86.0 million, down 4% from the record high quarterly Adjusted EBITDA of $89.1 million in the same period of the prior year. Full year consolidated Adjusted EBITDA of $269.3 million, which included an incremental $37.1 million from the early Capital Power repayment of loan and lease receivables, was down slightly from the previous year.

The Coal - U.S. segment fourth quarter Adjusted EBITDA was up 18% to $43.9 million. Full year 2017 Adjusted EBITDA was up 2% to $129.3 million. These improvements were driven by high-margin reclamation work at the Jewett mine and performance from the San Juan mine. Also reflected in the year-over-year comparisons are the 2016 coal supply contract expirations at the Jewett and Beulah mines.

The Coal - Canada segment fourth quarter Adjusted EBITDA was down 41% to $18.9 million. Full year 2017 Adjusted EBITDA was up 2% to $90.0 million. The year-over-year fourth quarter comparison was negatively impacted by the accelerated Capital Power receipt in the first quarter of 2017 due to the loss of financing income after the payment was made. Results in the Coal - Canada segment were also affected by the now-resolved dragline issues at the Estevan mine and the cost overruns due to operational issues at the Coal Valley mine earlier in the year.

The Coal - WMLP segment had fourth quarter Adjusted EBITDA of $15.8 million, a 25% decrease from the prior year, and full year Adjusted EBITDA of $68.7 million, a 13% decrease. Operations at the Coal - WMLP segment were negatively impacted by ongoing Ohio open-market pressures and the Kemmerer pit flooding in the first half of 2017.

The Power segment Adjusted EBITDA of $14.4 million in the fourth quarter and $11.3 million for the full year 2017 benefited from the acceleration of non-cash deferred revenue associated with the exit of the power supply contracts at ROVA.

Corporate Update

Westmoreland expects to file its annual report on Form 10-K today containing an audit opinion with an explanatory paragraph referring to Westmoreland's conclusion that substantial doubt exists regarding its ability to continue as a going concern. Delivery of financial statements with such an audit opinion constitutes a breach of certain covenants under the revolver and the San Juan term loan. If accelerated, default under the revolver can cause a cross-default to the Westmoreland term loan and senior notes. Westmoreland has obtained waivers from the specific lender groups with respect to the potential event of default, as well as certain other matters. The waivers provide Westmoreland with additional time to continue negotiations with lenders regarding changes to the capital structure. Substantially all of Westmoreland's debt is now classified as current as of December 31, 2017.

Westmoreland has suspended the search for a permanent Chief Executive Officer until the conclusion of the capital structure negotiations.

Notes

Westmoreland presents certain non-GAAP financial measures, including Adjusted EBITDA and free cash flow, that Westmoreland believes provide meaningful supplemental information and provide meaningful comparability to prior periods. Reconciliations of non-GAAP to GAAP measures are presented in the accompanying tables.

About Westmoreland Coal Company

Westmoreland Coal Company is the oldest independent coal company in the United States. Westmoreland’s coal operations include surface coal mines in the United States and Canada, underground coal mines in Ohio and New Mexico, a char production facility, and a 50% interest in an activated carbon plant. Westmoreland also owns the general partner of and a majority interest in Westmoreland Resource Partners, LP, a publicly traded coal master limited partnership (NYSE:WMLP). For more information, visit www.westmoreland.com.

For further information please contact:

Gary Kohn, Chief Financial Officer
1-720-354-4467
gkohn@westmoreland.com

Cautionary Note Regarding Forward-Looking Statements

Forward-looking statements contained in this news release are based on Westmoreland's current expectations and assumptions regarding its business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results may differ materially from those contemplated by the forward-looking statements. They are statements neither of historical fact nor guarantees or assurances of future performance. Possible events or factors that could cause actual results of performance to differ materially from those anticipated in Westmoreland's forward-looking statements include, but are not limited to, the following:

  • Adverse impacts to Westmoreland's business, financial condition, results of operations and cash flows resulting from the ongoing capital structure review, including the Company's possible filing for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code;
  • Adverse impacts to Westmoreland's business as a result of the audit opinion of its independent auditor containing an explanatory paragraph referencing Westmoreland's conclusion that substantial doubt exists as to its ability to continue as a going concern;
  • The impact of cross-acceleration and cross-default provisions between Westmoreland's debt and debt held by WMLP;
  • Westmoreland's substantial level of indebtedness and its ability to adhere to financial covenants contained within the agreements governing indebtedness;
  • Westmoreland's ability to generate sufficient cash flow;
  • Existing and future environmental legislation and regulation affecting both Westmoreland's coal mining operations and its customers’ coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases;
  • The concentration of revenues Westmoreland derives from a small number of customers, and the creditworthiness of those customers;
  • Changes in Westmoreland's post-retirement medical benefit and pension obligations resulting from market volatility or changes in assumptions regarding Westmoreland's future expenses;
  • Inaccuracies in Westmoreland's estimates of its coal reserves, reclamation and/or mine closure obligations;
  • Potential limitations in obtaining bonding capacity and/or increases in Westmoreland's mining costs as a result of increased bonding expenses;
  • Business interruptions, including unplanned equipment failures, geological, hydrological or other conditions, and competition and/or conflicts with other resource extraction activities, caused by external factors;
  • Natural disasters and events, including blizzards, earthquakes, drought, floods, fire and storms, not all of which are covered by insurance;
  • Potential title defects or loss of leasehold interests in Westmoreland's properties, which could result in unanticipated costs or an inability to mine the properties;
  • Risks associated with cybersecurity and data leakage;
  • Westmoreland's ability to continue to acquire and develop coal reserves through acquisition and to raise the associated capital necessary to fund its expansion;
  • Changes in Westmoreland's tax position resulting from ownership changes, Westmoreland's interest in WMLP, and changes in tax law;
  • Risks associated with Westmoreland's interest in WMLP;
  • The availability and costs of key supplies or commodities, such as transportation, key equipment and materials;
  • Competition within Westmoreland's industry and with producers of competing energy sources;
  • Westmoreland's relationships with, and other conditions affecting, Westmoreland's customers, including how power prices and consumption patterns affect Westmoreland's customers’ decisions to run their plants;
  • Changes in the export and import markets for coal products;
  • Extensive government regulations both in the US. and Canada, including existing and potential future legislation, treaties and regulatory requirements;
  • The impacts of climate change concerns;
  • Westmoreland's ability to obtain and/or renew operating permits;
  • The failure to meet the continued listing requirements of the Nasdaq Global Market and the potential inability to regain compliance with Nasdaq's continued listing requirements;
  • Westmoreland's ability to effectively manage and integrate acquisitions;
  • Risks associated with Westmoreland's business outside the United States;
  • Other factors that are described under the heading “Risk Factors” found in Westmoreland's reports filed with the Securities and Exchange Commission, including Westmoreland's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Any forward-looking statements made by Westmoreland in this news release speak only as of the date on which it was made. Westmoreland undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.

Westmoreland Coal Company and Subsidiaries
Summary Consolidated and Operating Segment Data (Unaudited)

Three Months Ended December 31,
Increase / (Decrease)
2017 2016 $ %
(In thousands, except tons sold data)
Westmoreland Consolidated
Revenues$363,796 $392,737 $(28,941) (7.4)%
Operating income57,112 22,641 34,471 152.3%
Adjusted EBITDA85,963 89,115 (3,152) (3.5)%
Tons sold - millions of equivalent tons12.8 15.0 (2.2) (14.7)%
Coal - U.S.
Revenues$153,252 $173,029 $(19,777) (11.4)%
Operating income (loss)35,137 (25,537) 60,674 *
Adjusted EBITDA43,904 37,345 6,559 17.6%
Tons sold - millions of equivalent tons5.6 6.5 (0.9) (13.8)%
Coal - Canada
Revenues$124,222 $116,257 $7,965 6.9%
Operating income26,530 18,185 8,345 45.9%
Adjusted EBITDA18,855 32,194 (13,339) (41.4)%
Tons sold - millions of equivalent tons5.6 6.3 (0.7) (11.1)%
Coal - WMLP
Revenues$74,141 $86,072 $(11,931) (13.9)%
Operating (loss) income(8,499) 6,376 (14,875) *
Adjusted EBITDA15,805 21,034 (5,229) (24.9)%
Tons sold - millions of equivalent tons1.8 1.9 (0.1) (5.3)%
Power
Revenues$16,012 $21,084 $(5,072) (24.1)%
Operating income11,066 32,301 (21,235) (65.7)%
Adjusted EBITDA14,350 5,853 8,497 145.2%

___________________
* Not meaningful

Westmoreland Coal Company and Subsidiaries
Summary Consolidated and Operating Segment Data (Unaudited)

Years Ended December 31,
Increase / (Decrease)
2017 2016 $ %
(In thousands, except tons sold data)
Westmoreland Consolidated
Revenues$1,384,568 $1,477,960 $(93,392) (6.3)%
Operating income39,212 38,130 1,082 2.8%
Adjusted EBITDA269,332 271,855 (2,523) (0.9)%
Tons sold - millions of equivalent tons49.7 54.7 (5.0) (9.1)%
Coal - U.S.
Revenues$573,697 $651,713 $(78,016) (12.0)%
Operating income (loss)40,063 (8,063) 48,126 *
Adjusted EBITDA129,325 126,563 2,762 2.2%
Tons sold - millions of equivalent tons20.0 24.1 (4.1) (17.0)%
Coal - Canada
Revenues$438,273 $415,593 $22,680 5.5%
Operating income8,898 39,104 (30,206) (77.2)%
Adjusted EBITDA90,031 88,423 1,608 1.8%
Tons sold - millions of equivalent tons22.8 22.8 %
Coal - WMLP
Revenues$315,605 $349,341 $(33,736) (9.7)%
Operating income9,822 8,873 949 10.7%
Adjusted EBITDA68,701 79,303 (10,602) (13.4)%
Tons sold - millions of equivalent tons7.4 7.8 (0.4) (5.1)%
Power
Revenues$77,189 $86,578 $(9,389) (10.8)%
Operating income15,274 28,535 (13,261) (46.5)%
Adjusted EBITDA11,274 3,626 7,648 210.9%

___________________
* Not meaningful

Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Operations (Unaudited)

Three Months Ended December 31, Years Ended December 31,
2017 2016 2017 2016
(In thousands, except per share data) (In thousands, except per share data)
Revenues$363,796 $392,737 $1,384,568 $1,477,960
Cost, expenses and other:
Cost of sales (exclusive of depreciation, depletion and amortization, shown separately)259,573 291,952 1,096,098 1,156,687
Depreciation, depletion and amortization6,923 72,170 121,054 185,267
Selling and administrative31,478 27,893 120,184 108,560
Heritage health benefit expenses2,680 2,275 12,633 11,777
(Gain) loss on sale/disposal of assets(2,873) 245 (2,671) (1,124)
Loss on impairment5,872 5,872
Derivative loss (gain)4,642 (26,219) (1,929) (24,055)
Income from equity affiliates(1,611) (1,464) (5,885) (5,591)
Other operating loss 3,244 8,309
306,684 370,096 1,345,356 1,439,830
Operating income57,112 22,641 39,212 38,130
Other (expense) income:
Interest expense(29,269) (31,150) (118,657) (121,819)
Interest income1,159 1,914 4,101 7,435
Gain (loss) on foreign exchange283 816 (3,108) (715)
Other income (loss)220 (397) (573) 38
(27,607) (28,817) (118,237) (115,061)
Income (loss) before income taxes29,505 (6,176) (79,025) (76,931)
Income tax (benefit) expense(4,484) 1,601 (5,890) (48,059)
Net income (loss)33,989 (7,777) (73,135) (28,872)
Less net loss attributable to noncontrolling interest(1,080) (226) (1,795) (1,771)
Net income (loss) applicable to common shareholders$35,069 $(7,551) $(71,340) $(27,101)
Net income (loss) per share applicable to common shareholders:
Basic and diluted$1.87 $(0.41) $(3.82) $(1.47)
Weighted average number of common shares outstanding:
Basic and diluted18,759 18,571 18,694 18,486


Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Unaudited)

December 31, 2017 December 31, 2016
Assets(In thousands)
Current assets:
Cash and cash equivalents$103,247 $60,082
Receivables:
Trade103,611 140,731
Loan and lease receivables 5,867
Other17,697 13,261
Total receivables121,308 159,859
Inventories106,795 125,515
Other current assets11,517 32,258
Total current assets342,867 377,714
Land, mineral rights, property, plant and equipment1,665,740 1,617,938
Less accumulated depreciation, depletion and amortization923,905 782,417
Net land, mineral rights, property, plant and equipment741,835 835,521
Loan and lease receivables, less current portion 44,474
Advanced coal royalties21,404 18,722
Restricted investments, reclamation deposits and bond collateral
200,194 219,275
Investment in joint venture27,763 26,951
Other assets55,036 62,252
Total Assets$1,389,099 $1,584,909
Liabilities and Shareholders’ Deficit
Current liabilities:
Current installments of long-term debt$983,427 $86,272
Accounts payable and accrued expenses:
Trade and other accrued liabilities121,489 142,233
Interest payable22,840 22,458
Production taxes41,688 44,995
Postretirement medical benefits14,734 14,892
Deferred revenue5,068 15,253
Asset retirement obligations48,429 32,207
Other current liabilities9,401 20,964
Total current liabilities1,247,076 379,274
Long-term debt, less current installments64,980 1,022,794
Postretirement medical benefits, less current portion317,407 308,709
Pension and SERP obligations, less current portion43,585 43,982
Deferred revenue, less current portion1,984 16,251
Asset retirement obligations, less current portion426,038 451,834
Other liabilities31,477 52,182
Total liabilities2,132,547 2,275,026
Shareholders’ deficit:
Common stock of $0.01 par value: Authorized 30,000,000 shares; Issued and
outstanding 18,771,643 shares at December 31, 2017 and 18,570,642 shares at
December 31, 2016
188 186
Other paid-in capital250,494 248,143
Accumulated other comprehensive loss(160,525) (179,072)
Accumulated deficit(829,107) (757,367)
Total shareholders’ deficit(738,950) (688,110)
Noncontrolling interests in consolidated subsidiaries(4,498) (2,007)
Total deficit(743,448) (690,117)
Total Liabilities and Shareholders’ Deficit$1,389,099 $1,584,909


Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)

Years Ended December 31,
2017 2016
(In thousands)
Cash flows from operating activities:
Net loss$(73,135) $(28,872)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization121,054 185,267
Accretion of asset retirement obligation45,132 40,423
Share-based compensation3,200 7,584
Non-cash interest expense9,344 9,215
Amortization of deferred financing costs10,778 11,537
(Gain) on derivative instruments(1,929) (24,055)
Loss on foreign exchange3,108 715
Loss on impairment5,872
Income from equity affiliates(5,885) (5,591)
Distributions from equity affiliates6,977 6,914
Deferred income taxes benefit(5,909) (46,142)
Other560 (2,705)
Changes in operating assets and liabilities:
Receivables35,636 (4,430)
Inventories20,309 13,033
Accounts payable and accrued expenses(20,180) 10,505
Interest payable471 5,131
Deferred revenue(24,462) (7,370)
Other assets and liabilities20,467 13,227
Asset retirement obligations(43,403) (32,452)
Return of derivative collateral6,158
Net cash provided by operating activities114,163 151,934
Cash flows from investing activities:
Additions to property, plant and equipment(35,016) (46,132)
Proceeds from sales of restricted investments50,226 34,814
Purchases of restricted investments(54,281) (36,052)
Cash payments related to acquisitions and other(3,580) (120,992)
Proceeds from sales of assets4,990 7,695
Receipts from loan and lease receivables50,488 8,987
Payments related to loan and lease receivables (2,164)
Other(2,166) (1,850)
Net cash provided by (used in) investing activities10,661 (155,694)
Cash flows from financing activities:
Borrowings from long-term debt, net of debt discount 122,250
Repayments of long-term debt(82,091) (70,370)
Borrowings on revolving lines of credit275,300 423,500
Repayments on revolving lines of credit(275,300) (425,500)
Debt issuance costs and other refinancing costs (8,784)
Other(711) (974)
Net cash (used in) provided by financing activities(82,802) 40,122
Effect of exchange rate changes on cash1,143 784
Net increase in cash and cash equivalents43,165 37,146
Cash and cash equivalents, beginning of year60,082 22,936
Cash and cash equivalents, end of year$103,247 $60,082
Supplemental disclosures of cash flow information:
Cash paid for interest$98,139 $96,290
Cash paid for income taxes 1,316
Non-cash transactions:
Accrued purchases of property and equipment$4,019 $6,496
Capital leases and other financing sources1,333 27,355


Westmoreland Coal Company and Subsidiaries
Non-GAAP Reconciliations (Unaudited)

The tables below show how Westmoreland calculates and reconciles to the most directly comparable GAAP financial measures EBITDA, Adjusted EBITDA (including a breakdown by segment), and free cash flow.

EBITDA, Adjusted EBITDA, and free cash flow are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. EBITDA, Adjusted EBITDA, and free cash flow are included in this news release because they are key metrics used by management to assess Westmoreland’s operating performance and as a basis for strategic planning and forecasting. Westmoreland believes that EBITDA, Adjusted EBITDA, and free cash flow are useful to an investor in evaluating the Company’s operating performance because these measures:

  • are used widely by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
  • are used by rating agencies, lenders and other parties to evaluate creditworthiness; and
  • help investors to more meaningfully evaluate and compare the results of Westmoreland’s operations from period to period by removing the effect of the Company’s capital structure and asset base from the Company’s operating results.

Neither EBITDA, Adjusted EBITDA, nor free cash flow are measures calculated in accordance with GAAP. The items excluded from EBITDA, Adjusted EBITDA, and free cash flow are significant in assessing Westmoreland’s operating results. EBITDA, Adjusted EBITDA, and free cash flow have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, analysis of the Company’s results as reported under GAAP.

Other companies in Westmoreland’s industry and in other industries may calculate EBITDA, Adjusted EBITDA, and free cash flow differently from the way that Westmoreland does, limiting their usefulness as comparative measures. Because of these limitations, EBITDA, Adjusted EBITDA, and free cash flow should not be considered as measures of discretionary cash available to the Company to invest in the growth of its business. Westmoreland compensates for these limitations by relying primarily on its GAAP results and using EBITDA, Adjusted EBITDA, and free cash flow only as supplemental data.

EBITDA and Adjusted EBITDA

EBITDA (earnings before interest expense, interest income, income taxes, depreciation, depletion, amortization and accretion expense) and Adjusted EBITDA are non-GAAP measures that do not reflect the Company’s cash expenditures, or future requirements for capital and major maintenance expenditures or contractual commitments; do not reflect income tax expenses or the cash requirements necessary to pay income taxes; do not reflect changes in, or cash requirements for, the Company’s working capital needs; and do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on certain of the Company’s debt obligations. In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. Westmoreland considers Adjusted EBITDA to be useful because it reflects operating performance before the effects of certain non-cash items and other items that it believes are not indicative of core operations. The Company uses Adjusted EBITDA to assess operating performance.

Three Months Ended December 31, Years Ended December 31,
2017 2016 2017 2016
(In thousands)
Adjusted EBITDA by Segment
Coal - U.S.$43,904 $37,347 $129,325 $126,563
Coal - Canada18,855 32,181 90,031 88,423
Coal - WMLP15,805 21,044 68,701 79,303
Power14,350 5,854 11,274 3,626
Heritage(3,187) (3,083) (14,242) (13,409)
Corporate(3,764) (4,228) (15,757) (12,651)
Total$85,963 $89,115 $269,332 $271,855


Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
(In thousands)
Reconciliation of Adjusted EBITDA to Net Loss
Net income (loss)$33,989 $(7,777) $(73,135) $(28,872)
Income tax (benefit) expense(4,484) 1,601 (5,890) (48,059)
Interest income(1,159) (1,914) (4,101) (7,435)
Interest expense29,269 31,150 118,657 121,819
Depreciation, depletion and amortization6,923 72,170 121,054 185,267
Accretion of asset retirement obligation11,337 10,193 45,132 40,423
Amortization of intangible assets and liabilities (1)(89) (158) (890) (810)
EBITDA$75,786 $105,265 $200,827 $262,333
Advisory fees (2)2,649 5,423
(Gain) loss on foreign exchange(283) (816) 3,108 715
Loss on impairment5,872 5,872
Acquisition-related costs (3) 568
Customer payments received under loan and lease receivables (4) 5,095 50,489 13,064
Derivative loss (gain)4,642 (26,219) (1,929) (24,055)
(Gain) loss on sale/disposal of assets and other adjustments(2,057) 4,131 2,342 11,646
Share-based compensation(646) 1,659 3,200 7,584
Adjusted EBITDA$85,963 $89,115 $269,332 $271,855

_________________
(1) Represents amortization of intangible assets and liabilities not included in Depreciation, depletion and amortization.
(2) Amount represents fees paid to financial and legal advisers related to the assessment of Westmoreland's capital structure. These advisers, together with Westmoreland's management and board of directors, are developing and evaluating options to optimize Westmoreland's overall capital structure.
(3) Includes acquisition and transition costs and the impact of cost of sales related to the sale of inventory written up to fair value in the acquisition of the Canadian mines.
(4) Represents a return of and on capital. These amounts are not included in operating income or operating cash flows, as the capital outlays are treated as loan and lease receivables; however, they are included within Adjusted EBITDA so that the cash received by Westmoreland is treated consistently with Westmoreland's other contracts that do not result in loan and lease receivable accounting. During 2017, Westmoreland received $52.5 million from its customer at the Genesee mine, representing an accelerated repayment of all outstanding loan and lease receivables. Accordingly, there will be no additional payments from the customer at the Genesee mine in the form of loan and lease repayments. Westmoreland will continue to manage the Genesee mine and earn a management fee pursuant to the contract mining arrangement, but has no further obligation to make capital expenditures at the mine. All future capital expenditures at the Genesee mine will be funded by the customer.

Free Cash Flow

Free cash flow represents net cash provided by (used in) operating activities less additions to property, plant and equipment (“CAPEX” or “capital expenditures”) plus net customer payments received under loan and lease receivables. Free cash flow is a non-GAAP measure and should not be considered as an alternative to cash and cash equivalents, cash flow from operations, cash flow from investing activities, cash flow from financing activities, net income (loss) or any other measure of performance presented in accordance with GAAP. Free cash flow is intended to represent cash flow available to satisfy the Company's debts, after giving consideration to those expenses required to maintain the Company's assets and infrastructure. Accordingly, although free cash flow is not a measure of performance calculated in accordance with GAAP, Westmoreland believes free cash flow is useful to investors because it allows analysts and others in the industry to assess the Company's performance, liquidity and ability to satisfy debt requirements.

Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities
Three Months Ended December 31, Years Ended December 31,
2017 2016 2017 2016
(In thousands)
Net cash provided by operating activities$93,009 $66,831 $114,163 $151,934
Less cash paid for property, plant and equipment(9,651) (15,513) (35,016) (46,132)
Plus net customer payments received under loan and lease receivables 4,112 50,488 6,823
Free cash flow$83,358 $55,430 $129,635 $112,625


Source:Westmoreland Coal Company

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