Walter Energy's CEO Hosts Annual Meeting of Stockholders (Transcript)

Apr.19.12 | About: Walter Energy, (WLT)

Walter Energy, Inc. (NYSE:WLT)

Annual Meeting of Stockholders

April 19, 2012 11:00 am ET

Executives

Michael Theodore Tokarz - Non-Executive Chairman, Chairman of Executive Committee, Member of Nominating & Corporate Governance Committee and Member of Compensation & Human Resources Committee

Unknown Executive -

Earl H. Doppelt - Senior Vice President, General Counsel and Secretary

Walter J. Scheller - Chief Executive Officer, Member of The Board of Directors, President of Jim Walter Resources and Chief Operating Officer of Jim Walter Resources

Michael Theodore Tokarz

Okay. Good morning, everyone, and welcome to Walter Energy's Annual Meeting of Stockholders. It is exactly 10:00 a.m. I hereby call our meeting to order.

Before I begin, I see 2 former CEOs of Walter Resources here. I'd like to welcome Mr. Calder and Mr. Richmond. Thank you very much for coming. It's always good to see you, gentlemen. And we are a little short of personnel helping in some of the mines, so we've reactivated you to duty whether you know it or not.

Unknown Executive

Small fee.

Michael Theodore Tokarz

Yes, a small fee. Yes, I was reminded, no job is too tough if the pay is right. So since you're on the former payroll, we'll see if we can get you back in somehow.

To my right is seated Earl Doppelt, the Senior Vice President and General Counsel and Secretary of the company, who was going to act as secretary of the meeting. Also seated at the podium is Walt Scheller, Chief Executive Officer of the company; and Robert Kerley, Vice President, Corporate Controller and Chief Accounting Officer and Interim Principal Financial Officer of the company.

Each of you should have signed in on the sign in sheet and should have received a copy of the agenda and the meeting procedures for today's meeting. If you've not signed in or did not receive a copy of the agenda or meeting procedures, please do so at this time, raise your hand. Please hold any questions or comments until that designated question-and-answer portion of the meeting begins.

Before proceeding, I wanted to note that today's meeting may include some forward-looking statements about the company's future performance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is summarized in our recent SEC filings.

I would now like to acknowledge James Ray [ph], who has been appointed to serve as the inspector of election in this annual meeting. Mr. Ray [ph] has taken the oath of an inspector. Mr. Ray [ph], will you please stand. Mr. Ray [ph] will provide the report on the results of our stockholders' voting at the conclusion of this meeting. Thank you, Jim.

I would also like to introduce the affidavit of mailing from Broadridge Financial Solutions, Inc. Broadridge has certified the mailing of the notice of this meeting, the former proxy, the proxy statement and the annual report. It certified the list of all registered stockholders of the record entitled to vote at this meeting is available for inspection by our stockholders at any time and during this meeting. The list indicates that on February 28, 2012, 62,471,054 shares of the company's common stock were outstanding and entitled to vote at this meeting. The inspector of election has reported that there are present at this meeting in person or by proxy and entitled to vote 51,188,989 shares or 81.94% of the total outstanding voter power -- voting power of the corporation. Thus, a quorum is present for the transaction of business, and the meeting is duly convened.

You will notice on the agenda that there are 3 matters for consideration today. These matters are: the election of directors, an advisory vote on an executive compensation and the proposal ratifying the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for fiscal 2012.

If you'd like to vote with respect to any of these matters, please raise your hand if you intend to do so in person, and the inspector will provide you with a ballot. Only persons holding a ballot proxy for such shares or with proper evidence of stock ownership may vote at this meeting. Your name and your status as a stockholder or proxy holder need to be verified. If you have previously voted either as a record holder or by proxy and do not wish to change your vote, you need not complete a ballot at this time. If you wish to revoke a previously submitted vote, and vote at this meeting, or if you have not previously voted and wish to vote at this meeting, the inspector of election will give you a ballot at this time. Please raise your hand. I see no hands raised. I declare the polls are opened at 10:06 a.m. Central Time, on this April 19, 2012.

First item of business is the election of directors. At this time, I'd like to introduce the nominees for election as directors of the company as set forth in the Proposal 1 of the proxy statement. Board of Directors of the company recommends the following nominees. Nominees, please stand as I call your name and remain standing until all the nominees are introduced. Mr. David R. Beatty, Conway Director for the Clarkson Centre for Business Ethics & Board Effectiveness and the Professor of Strategic Management at the University of Toronto's Rotman School of Management; Howard L. Clark, Jr., retired Vice Chairman of the Investment Banking Division of Barclays Capital; Jerry W. Kolb, retired General Partner and Vice Chairman of Deloitte & Touche LLP; Patrick A. Kriegshauser, Executive Vice President, Chief Financial Officer and Principal of Sachs Electric Company; Joseph B. Leonard, former Interim Chief Executive Officer of this company and former Chairman and CEO of AirTran Holdings, Inc.; Graham Mascall, Chief Executive Officer of Ncondezi Coal Company Ltd; Bernie G. Rethore, Chairman Emeritus of Flowserve Corporation; Walter J. Scheller, III, Chief Executive Officer of the company; A.J. Wagner, President and Chief Executive Officer of AJ Wagner & Associates, LLC; and I am Michael T. Tokarz, member of the Tokarz Group, LLC and Chairman of the company's Board of Directors.

Is there any discussion on this proposal? If there is no discussion, I'd direct that a vote of the stockholders be taken for the election of directors in connection with this proposal. Each stockholder is entitled to cast all or any portion of his votes for each of the 10 nominees. At this time, please fill in your ballots for election of directors if you haven't already done so.

The next item of business is consideration of a resolution to approve, in a nonbinding vote, the composition pay to the company's named executive officers, as disclosed on Pages 30 through 66 of the proxy statement. The guiding principle of our executive compensation policies and practices continues to be pay for performance. We believe our compensation program is aligned with the long-term interest of our shareholders. Because this vote is advisory and not binding, the voting results, as well as other considerations, will be taken into account in future determinations concerning our executive compensation program.

Is there any discussion on this proposal? If there's no discussion, I'd direct an advisory vote on executive compensation be taken at this time.

The next item of business is consideration of a proposal to ratify the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year 2012. Before proceeding, I'd like to acknowledge Mr. Jeff Blankenship and Mike Arthur from Ernst & Young LLP. Ernst & Young has served as the company's independent registered public accounting firm for the fiscal year 2011 and has been selected to serve in the same capacity for fiscal 2012. Did I miss somebody?

Unknown Executive

Nicole [ph] [indiscernible] .

Michael Theodore Tokarz

Nicole [ph], would you please stand? Thank you. There will be a question-and-answer period later in the meeting, during which our stockholders can ask you questions if you wish. Thank you. That's 3 of you. Nicole [ph], you'll probably get a question.

Is there any discussion of this proposal? If there's no discussion, I direct that a vote of the stockholders be taken on the ratification of the selection of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year 2012.

There are being no other business to come before the meeting, we will now collect the ballots for each of the proposals before the meeting and have you completed the ballots if you were going to pass any in, which no one has elected to do so. I hereby declare the polls are now closed as of 10:11 a.m. Central Time, this 19th day of April 2012.

While the inspector of election completes the tabulation of the votes, I'd like to say a few words about the state of your company. I'm pleased to report today that Walter Energy has transformed its focus and is growing. In 2011, the company completed the acquisition of Western Coal and is now more diversified in its production profile and customer reach.

The company's momentum for strong production growth is helping to realize its potential as the largest pure-play provider of metallurgical coal to the global steel industry. With the addition of new mines and the significant potential to increase net production, we believe the company has a long runway for growth. The company's met production is currently poised to more than double by the end of the decade from current production levels, estimated to reach more than 20 million metric tons by 2020. This transformation in the company's focus was planned several years ago and is now positively showing progress in expanded output with a focus on reducing costs and providing strong stockholder return. The new management team is executing the company's plans to stay in this sweet spot of met coal profitability and serve the needs its present and future customers have for our essential, high-quality metallurgical products.

Since 2009, revenue has grown over 2.5x, from the approximately $1 billion to approximately $2.6 billion in 2011. EBITDA is almost up threefold, from $275 million in 2009 to $822 million in 2011. And met coal sales of 5.5 million metric tons in 2009 are estimated to more than double between -- to between 11.5 million and 13.0 million metric tons for 2012.

Under Walt's leadership, we are committed to strong execution in 2012, and recently announced that first quarter production is estimated to be in the 2.8-million to 2.9-million-metric-ton range, up 16% to 21% from the 2.4 million metric tons produced in the fourth quarter of last year.

Over the last few years, our focus on met coal, through divesting non-core assets and expanding our met coal operations, has provided value for stockholders. And we believe that Walter Energy is now well positioned for long-term growth for many years into the future.

On behalf of the entire Walter Energy team, we thank you for your continued confidence in us. It now appears that our inspector has finished the report, so we'll return to the formal business portion of our meeting. Mr. Doppelt, do you have the report of the inspector?

Earl H. Doppelt

Yes sir, Mr. Chairman. The inspector reports that more than the majority of the shares represented at the meeting in person or by proxy have been voted for the election at each of the director nominees listed in the proxy statement and introduced at the beginning of this meeting. Extensions and broker non-votes have no effect on this proposal because such shares are not considered votes cast.

The inspector further reports the majority of shares represented at this meeting by person or by proxy voted for the resolution to improve the compensation paid to the company's named executive officers as disclosed in the proxy statement. With respect to the advisory vote on executive compensation, 39,426,048 votes have been cast to approve the proposal, and 3,270,323 votes have been cast against the proposal, including holders of shares entitled to 87,890 votes who abstained from voting, as such abstentions count against this proposal. Broker non-votes have no effect on this proposal because brokers may not vote on the proposal without specific instructions from the customers and are therefore not considered votes cast.

The inspector further reports that the majority of shares represented in this meeting in person or by proxy have voted for the proposal to ratify the appointment of Ernst & Young as the company's independent registered public accounting firm for fiscal 2012. With respect to the selection of Ernst & Young, 50,961,724 votes have been cast to ratify the selection, and 158,986 votes have been cast against ratification. Abstentions have no effect on this proposal because such shares are not considered votes cast.

Michael Theodore Tokarz

Thank you, Mr. Doppelt. That means that Ernst & Young got 99.55% of the vote. Good job. I declare that the report of the inspectors is approved, and that Messrs. Clark, Kolb, Krieghauser, Leonard, Rethore, Scheller and Wagner and I have been duly elected, and -- pardon? Yes, and David Beatty and Graham Mascall as well have been duly elected to the board. Congratulations on your elections, gentlemen. And also, congratulations to Ernst & Young.

We'll now begin the question-and-answer period. If you have any questions, please raise your hand, and we'll bring you a microphone. We ask that you state your name, and if you represent an institutional owner, state the name of your firm. [Operator Instructions]

Question-and-Answer Session

Michael Theodore Tokarz

Yes, Mr. Calder has a question.

Keith Calder

Mr. Chairman, recently, the Environmental Protection Agency began promulgating rules to classify CO2 as a pollutant. The Wall Street Journal pronounced the death of the coal industry as a result of this. I recognize that we're somewhat protected by the fact that we do produce the metallurgical side of the coal industry. But do you see any spillover effects that would be negative to Walter Industries?

Michael Theodore Tokarz

Well, I'm going to give you my quick response to that, and I'm going to ask Walt to answer that. We do produce a small amount of thermal coal, which I suppose would be affected by it. Generally, metallurgical coal that we produce is sold on these seaborne worldwide markets, and we do sell some domestically, but not much. At the end of the day, that observation has damaged the coal industry's stock prices as we observed over the last several weeks since that announcement was made. As we all know, approximately 53% of the electric power in the United States is produced by coal resources. And although we're not a major contributor to that, our fellow coal peers are. I think that at the end of the day, if I read the release on that particular statement, the application of the rule is applied to new power plants that are coal driven. So the existing production of electricity by existing power plants, I believe, is exempted from that. But nevertheless, the energy policy of this company is, in my humble opinion, poorly designed. We have quite a bit of a challenge with respect to this matter in the U.S. to declare carbon dioxide a pollutant, I guess has ramifications legally. It would be awfully nice if we have substitutes or other ideas with respect to coal, but as I recently spoke in a speech, the United States' single most voluminous source of fuel and power is coal. At current consumption rates, the United States of America, within the 50 states, has 1,100 years of supply. It would be a shame if we didn't find a way to be self-sustaining from such a magnificent resource. By the way, the rest of the world uses coal to supply their energy needs as well. And at the moment, I know of no other country that's burdened by such regulation. But, Walt, do you have any observations on this matter regarding Walter Energy?

Walter J. Scheller

Well, I’ll just to mirror your comments, Mr. Chairman, but as Mr. Calder acknowledged upfront, we're primarily metallurgical coal, so while we will be -- all companies will be impacted, and the impacts for that are going to be widespread, the mining industry is going to fight for its life in this country. And the people that are ultimately going to bear the brunt of that are going to be all of the consumers, all of us that use electricity, all of us that depend on coal for low energy prices today. So I think the mining industry under the National Mining Association and the mining industry are going to do everything they can to combat this, but it's going to be a real uphill battle.

Michael Theodore Tokarz

Yes, Mr. Calder?

Keith Calder

You mentioned the alternatives. I'll just remind you that there's always algae.

Michael Theodore Tokarz

There's always algae?

Keith Calder

Yes.

Michael Theodore Tokarz

I have a lot of that in some of my ponds at home, but maybe I should get into the business. Look, this is -- look, the United States of America is the biggest consumer of energy by far. We all know that the U.S. government has not settled on a defined energy policy, whether its oil, coal, gas. It seems to focus on polluting effects without providing resources for remediating pollution. You can burn coal and not produce pollutants, including sequestering carbon dioxide if you so choose. There are technologies to do that. The question is whether or not they're efficient and whether or not they're cost effective. Look, we need electricity, and you just can't shut things off because they pollute at the moment, particularly carbon dioxide. I'm one for wanting to do all the right things when it comes to environmental friendliness as I'm sure everyone in the room is. But practical application of rules, I think, is an appropriate and worthy goal for the leaders of our country to focus upon. Other questions? Mr. Calder, I'll allow you a third question, if you wish.

Keith Calder

Well, I don't want to be political, Mr. Chairman, and I don't want to get into the politics of the situation.

Michael Theodore Tokarz

Okay. We'll spare you then speaking about a political question. How about someone else? While those -- I don't think we're taking questions on the webcast, are we? No, okay. So I see no other questions. And thank you, all, for attending the meeting, and thank you for participating in the webcast to those of you that are. Thank you for your confidence in us, in your company and your support. I hereby declare the Annual Meeting of the Stockholders of Walter Energy, Inc. adjourned at 10:24 a.m. this day, April 19, 2012. Thank you.

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