Alpha Natural Resources Announces Results for Fourth Quarter and Full Year 2010
- Alpha announced an agreement to acquire Massey Energy Company on January 29th, creating a global leader in metallurgical coal; closing anticipated in mid-year 2011 - Record 2010 Adjusted EBITDA from continuing operations $796 million, up 47% from 2009 - Income from continuing operations rose 46% to $97 million in 2010 - Metallurgical coal revenues increased 70% to a record $1.35 billion in 2010 - Liquidity reaches a record $1.8 billion at year end 2010 - Alpha updates 2011 guidance and introduces 2012 shipment and average realization guidance
ABINGDON, Va., Feb. 9, 2011 /PRNewswire/ -- Alpha Natural Resources, Inc.
, a leading U.S. coal producer, reported fourth quarter net income of $10.8 million or $0.09 per diluted share compared to net income of $17.9 million or $0.15 per diluted share in the fourth quarter of 2009. Alpha reported fourth quarter income from continuing operations of $11.0 million or $0.09 per diluted share compared to income from continuing operations of $20.2 million or $0.17 per diluted share in the fourth quarter of 2009. Excluding merger related expenses, reversal of certain income tax reserves, and amortization of coal supply agreements, fourth quarter 2010 adjusted income from continuing operations was $32.4 million or $0.27 per diluted share.Earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) from continuing operations for the fourth quarter 2010 was $154.7 million, compared to $199.1 million in the year ago period. Excluding merger related expenses, fourth quarter 2010 adjusted EBITDA from continuing operations was $163.4 million.
Quarterly Financial & Operating Highlights
(millions, except per-share and per-ton amounts)
Q4 Q4
2010 2009
$876.0 $787.5
Coal revenues
Income from continuing operations $11.0 $20.2
Income from continuing operations per diluted share $0.09 $0.17
Net income $10.8 $17.9
Net income per diluted share $0.09 $0.15
Adjusted income from continuing operations* $32.4 $62.1
Adjusted income from continuing operations per
diluted share* $0.27 $0.51
EBITDA from continuing operations* $154.7 $199.1
Adjusted EBITDA from continuing operations* $163.4 $193.4
Tons of coal sold 22.1 21.3
Coal margin per ton $9.44 $10.12
*These are non-GAAP financial measures. A reconciliation of
adjusted income from continuing operations to income from
continuing operations, and a reconciliation of both EBITDA from
continuing operations and adjusted EBITDA from continuing
operations to income from continuing operations are included in
tables accompanying the financial schedules.
'Alpha continued its strong focus on safety performance during the fourth quarter and throughout the year,' said Kevin Crutchfield, Alpha's chief executive officer. 'Among our Eastern operations, nine operations in our Southern West Virginia business unit, nine operations in our Virginia/Kentucky business unit, seven operations in our Northern West Virginia business unit, and all of our AMFIRE surface mines completed the year 2010 without a single lost time accident. We are proud of our entire workforce and their dedication to Alpha's Running Right culture that has driven continuous improvements in safety performance throughout our history. On a separate note, it is with great sorrow that I inform our investors of the passing earlier this year of Alpha's long-time board member, John W. (Bill) Fox. As one of our most trusted friends and advisors, he will be deeply missed.
'Alpha announced that it agreed to acquire Massey Energy on January 29th. This transformational combination delivers on Alpha's long-standing strategic objectives, creating a leader in the United States and globally. When the transaction closes, the Company will be the second largest in the United States in terms of reserves, with approximately 5.1 billion tons; third largest in terms of total shipments; and the leading supplier and exporter of metallurgical coal, with approximately 1.7 billion tons of metallurgical reserves and an expected 24 to 26 million tons of metallurgical coal shipments on a combined pro forma basis in 2011. Our primary focus going forward will be maintaining operational excellence within Alpha's core business. At the same time, we are dedicated to closing the Massey acquisition as quickly as practicable, and then executing our detailed plan for integrating our two companies. This combination has obvious and compelling benefits for both companies, their shareholders and their customers, but it will also require intense focus and unflagging commitment in order to integrate and maximize the performance of both organizations, and this is our singular mission for the foreseeable future.
'Looking back over Alpha's fourth quarter and full year 2010 results, the Company achieved record revenue and EBITDA in 2010 despite subpar rail service, severe weather in the East and vessel delays at the ports experienced during the fourth quarter. We are pleased with the relatively consistent performance that Alpha has delivered throughout the year, driven by our scale, diversification and business mix, which balances our position as the leading domestic supplier of metallurgical coal with the substantial margin generation power of our Pittsburgh #8 longwall mines and the stable contribution of our Western operations in the Powder River Basin. After another year of positive free cash flow, Alpha's total liquidity now stands at approximately $1.8 billion, and this strong financial position has enabled us to engage in the transaction with Massey Energy to create a true industry leader.
'Looking forward, on a stand-alone basis Alpha anticipates another record year in 2011. We expect to ship between 13 and 14.5 million tons of metallurgical coal this year, an all-time high for the Company. In light of the devastating flooding recently experienced in Australia, spot prices for coking coal have risen above the recent first quarter benchmark settlement, and tight overseas market conditions are expected to persist throughout the year. As the largest exporter of metallurgical coal among U.S. producers, Alpha is positioned to benefit from our ability to serve the seaborne metallurgical market in 2011, and these market conditions bode well for Alpha's prospects in 2012 with over 90 percent of our 2012 metallurgical coal shipments open to market pricing.'
Financial Performance
The fourth quarter represents the first fully comparable year-
over-year quarter including a full three months of results from
the former Foundation operations following the merger, which
closed on July 31, 2009. Total revenues in the fourth quarter of
2010 were $993.1 million versus $893.3 million in the same period
of 2009, and coal revenues were $876.0 million versus $787.5
million in the fourth quarter of 2009. Metallurgical coal
shipment volumes increased 17 percent and average realizations
increased 18 percent, resulting in a 38 percent year-over-year
increase in revenues from metallurgical coal, which reached
$342.6 million in the fourth quarter of 2010. Freight and
handling revenues and other revenues were $92.2 million and $24.9
million, respectively, during the fourth quarter of 2010 versus
-- $60.8 million and $45.0 million in fourth quarter of 2009.
During the fourth quarter Alpha shipped 13.4 million tons of
Powder River Basin (PRB) coal, up from 12.1 million tons in the
year ago period and 12.3 million tons in the third quarter of
2010. Eastern steam coal shipments were 5.8 million tons
compared with 6.6 million tons last year and flat compared to the
prior quarter. Metallurgical coal shipments during the quarter
were 3.0 million, flat sequentially and up 17 percent compared
with 2.5 million tons in the fourth quarter of 2009. Average per
ton realization for PRB shipments rose to $10.94 compared to
$10.52 in the fourth quarter last year. The per ton average
realization for Eastern steam coal shipments rose to $67.04
compared to $62.57 in the year ago period, and the average per
ton realization for metallurgical coal increased to $114.87 in
the fourth quarter compared to $97.18 last year.
Total costs and expenses during the fourth quarter of 2010 were
$980.3 million compared to $863.6 million in the fourth quarter
of 2009. Cost of coal sales was $669.8 million compared to
$577.4 million in the year-ago period. Cost of coal sales in
the East averaged $64.18 per ton compared with $51.37 in the
fourth quarter last year and $63.04 in the previous quarter. The
higher Eastern cost of coal sales per ton during the fourth
quarter primarily reflects the influence of an increased volume
of higher-cost purchased coal, the operation of a single
longwall at the Emerald mine, and a mix shift with less low-cost
longwall production and more high-cost underground metallurgical
coal production. The fourth quarter 2010 cost of coal sales per
ton in the East also included $0.45 of merger related expenses.
The cost of coal sales per ton for Alpha Coal West's PRB mines
was $7.87 during the fourth quarter of 2010 compared with $8.48
-- in the fourth quarter of 2009.
Selling, general and administrative expense in the fourth quarter
2010 was $45.4 million compared with $52.8 million in the fourth
quarter of 2009. Depreciation, depletion and amortization (DD&A)
during the fourth quarter 2010 was $90.7 million, and
amortization of acquired coal supply agreements resulting from
-- the Foundation merger was $52.8 million.
Alpha recorded net income of $10.8 million or $0.09 per diluted
share during the fourth quarter 2010 compared with $17.9 million
or $0.15 per diluted share during the fourth quarter of 2009.
The fourth quarter 2010 income from continuing operations was
$11.0 million or $0.09 per diluted share compared with $20.2
million or $0.17 per diluted share in the year-ago quarter.
Fourth quarter 2010 net income and income from continuing
operations included $8.7 million of merger-related expenses,
$52.8 million of pre-tax amortization of coal supply agreements,
and a $14.0 million tax benefit resulting from the reversal of
certain income tax reserves. Excluding these items and the tax
impacts of both merger-related expenses and amortization of coal
supply agreements, as well as $18.1 million of other revenue from
a coal supply agreement modification in the fourth quarter of
2009, adjusted income from continuing operations was $32.4
million or $0.27 per diluted share compared with adjusted income
from continuing operations of $62.1 million or $0.51 per diluted
-- share in the fourth quarter of 2009.
EBITDA from continuing operations was $154.7 million in the fourth
quarter 2010 compared with $199.1 million in the prior-year
period. Excluding merger-related expenses and other revenue
from a coal supply agreement modification in 2009, adjusted
EBITDA from continuing operations was $163.4 million in the
fourth quarter of 2010 compared with $193.4 million in the fourth
-- quarter of 2009.
Full Year 2010 Results
For the full year 2010, Alpha reported total revenues of $3.9
billion, including $3.5 billion in coal revenues compared with
total revenues of $2.5 billion and coal revenues of $2.2
billion in 2009, which included only five months of results
from the former Foundation operations. The year-over-year
increase in both total revenues and coal revenues is primarily
attributable to the inclusion of an additional seven months of
the former Foundation operations in 2010 and increased
-- metallurgical coal shipments and average per ton realizations.
During 2010, Alpha's coal shipments totaled 84.8 million tons,
including 65.3 million tons from the former Foundation
operations, compared with 47.2 million tons for the full year
2009, which included 28.2 tons from former Foundation
operations. Metallurgical coal shipments in 2010 rose to 11.9
million tons, up 46 percent from 8.1 million tons shipped
during 2009. Shipments of PRB coal and Eastern steam coal in
2010 were 49.0 million tons and 24.0 million tons,
respectively, compared with 20.8 million tons and 18.3 million
tons in the previous year.
For the full year 2010, the company-wide average per ton
realization was $41.22 and the average cost of coal sales was
$30.08 per ton, resulting in an $11.14 per ton (or 27 percent)
weighted average coal margin. For 2010, Alpha recorded net
income of $95.6 million or $0.79 per diluted share and income
from continuing operations of $97.2 million or $0.80 per
diluted share. Excluding amortization of coal supply
agreements, merger-related expenses, the loss on early
extinguishment of debt, related tax effects of the above
items, the reversal of certain income tax reserves, and the
deferred tax charge arising from a change in the tax treatment
of Medicare Part D deductions, adjusted income from continuing
operations in 2010 was $263.6 million or $2.17 per diluted
share. EBITDA from continuing operations for 2010 was $769.1
million and adjusted EBITDA from continuing operations, which
excludes merger-related expenses and the loss on early
-- extinguishment of debt, was $796.2 million.
Liquidity and Capital Resources
Cash provided by operations for the quarter ended December 31, 2010 was $182.6 million compared to $194.1 million for the fourth quarter of 2009. For the full year 2010, cash provided by operations increased to $693.6 million compared with $356.2 million in 2009.
Capital expenditures for the fourth quarter and full year 2010 were $85.9 million and $308.9 million, respectively, compared to $84.3 million and $187.1 million in the fourth quarter and full year 2009.
At the end of the fourth quarter, Alpha had available liquidity of approximately $1.8 billion, consisting of cash, cash equivalents and marketable securities of an aggregate $832.1 million, plus $932.9 million available under the company's secured credit facility and accounts receivable securitization facility. Total long-term debt, including current portion of long-term debt at December 31, 2010, was $754.2 million compared with $790.3 million at December 31, 2009.
Market Overview
The market for thermal coal continues to improve both within the United States and globally. Utility stockpiles in the United States declined from a peak of greater than 200 million tons in late 2009 to an estimated 166 million tons at the end of 2010. Coal-fired electricity generation in 2010 increased by approximately six percent, while overall generation increased by approximately four percent, although low-cost natural gas led to fuel switching in favor of gas late in the year. Demand is expected to continue to exceed domestic supply in 2011, which is anticipated to result in utility inventories returning to more normal levels by the end of the year. In addition, quoted pricing for seaborne thermal coal bound for Europe has risen on concerns that traditional sources of supply, including coals from South Africa and Colombia, are increasingly being diverted to satisfy rapidly growing Asian demand. These seaborne price levels suggest that U.S. thermal exports to Europe are likely to increase in 2011.
The global market for metallurgical coal strengthened significantly in 2010, and global market conditions appear likely to continue to improve in 2011, driven by increasing demand primarily in Asia. China increased its metallurgical coal imports by 37 percent to an estimated 47 million metric tonnes in 2010. The trend in China is expected to continue with steel production forecast to exceed 650 million metric tonnes in 2011, up from approximately 600 million metric tonnes in 2010. By December, Chinese metallurgical coal imports had reached an annualized run-rate of 64 million metric tonnes. Recent severe flooding in Australia has hampered both coal production and the transportation infrastructure, driving spot prices for high quality metallurgical coal above the recent first quarter benchmark settlement. Given increasing global demand and constrained seaborne supply, producers in the United States should benefit as the United States produces far more metallurgical coal than the domestic steel industry consumes, and the Eastern U.S. is one of the few production regions that has excess export capacity. U.S. metallurgical coal exports exceeded 50 million tons in 2010, and are likely to increase again in 2011 in response to growing global demand.
Strong export demand and global supply disruptions suggest that more coals are likely to cross over from the steam market into the export metallurgical market. When viewed together with the prospect of increasing thermal coal exports to Europe, realizations for thermal coal in the Eastern U.S. should improve in the near-term.
Outlook
On a stand-alone basis, both Alpha's 2011 shipment guidance and Alpha's 2011 cost of coal sales guidance remain unchanged from the Company's update provided on January 14, 2011. As of January 26, 2011, all of Alpha's expected 2011 PRB shipments are committed and priced at an average per ton realization of $11.82. Expected 2011 Eastern steam coal shipments are 94 percent committed and priced at an average per ton realization of $65.44, and one percent of expected Eastern steam coal shipments is committed and unpriced. Expected 2011 Eastern metallurgical coal shipments are 68 percent committed and priced at an average per ton realization of $142.23, and 26 percent of Alpha's expected 2011 metallurgical coal shipments are committed and unpriced. Selling, general and administrative expense is expected to range from $165 million to $175 million on a stand-alone basis in 2011. Interest expense is projected to be between $60 million and $65 million in 2011, and capital expenditures, including the scheduled lease bonus installment payment at the Eagle Butte mine, are forecast to range between $340 million and $440 million for the year 2011.
Alpha is establishing stand-alone guidance on its contracted position and expected shipments in 2012. PRB shipments in 2012 are expected to remain flat with 2011 in a range of 48 million tons to 52 million tons, with 62 percent committed and priced at an average per ton realization of $12.50. Eastern steam coal shipments in 2012 are also expected to remain constant with 2011 shipment levels, ranging from 22 to 25 million tons, with 16 percent committed and priced at an average per ton realization of $69.93, and 36 percent of expected Eastern steam coal shipments are committed and unpriced. Eastern metallurgical coal shipments in 2012 are expected to range from 13 to 14.5 million tons, with only 9 percent committed and priced and 46 percent committed and unpriced. Committed and priced metallurgical tons are contracted at an average realization of $133.74 per ton.
Guidance
(Alpha stand-alone, amounts in millions, except per-ton and
percentage amounts)
2011 2012
Average per Ton Sales Realization
on Committed and Priced Coal
Shipments(1,2)
West $11.82 $12.50
Eastern Steam $65.44 $69.93
Eastern Metallurgical $142.23 $133.74
Coal Shipments(3) 83.0 - 91.5 83.0 - 91.5
West 48.0 - 52.0 48.0 - 52.0
Eastern Steam(4) 22.0 - 25.0 22.0 - 25.0
Eastern Metallurgical 13.0 - 14.5 13.0 - 14.5
Committed and Priced (%)(5) 94% 41%
West 100% 62%
Eastern Steam 94% 16%
Eastern Metallurgical 68% 9%
Committed and Unpriced (%)(6) 4% 17%
West 0% 0%
Eastern Steam 1% 36%
Eastern Metallurgical 26% 46%
West - Cost of Coal Sales per Ton $9.25 - $9.75
East - Cost of Coal Sales per Ton $62.00 - $66.00
Selling, General & Administrative
Expense (excluding merger-
related expenses) $165 - $175
Depletion, Depreciation &
Amortization $390 - $410
Interest Expense $60 - $65
Capital Expenditures(7) $340 - $440
Notes:
Based on committed and priced coal shipments as of January 26,
1. 2011.
Actual average per ton realizations on committed and priced tons
recognized in future periods may vary based on actual freight
expense in future periods relative to assumed freight expense
2. embedded in projected average per ton realizations.
Eastern shipments in 2011 and 2012 include an estimated 3.0 to
3. 4.0 million tons of brokered coal per year.
The 2011 shipment range for Eastern steam coal reflects the
impact of two scheduled longwall moves at the Cumberland mine in
March and December of 2011, and two scheduled longwall moves at
4. the Emerald mine in April and November/December of 2011.
As of January 26, 2011, compared to the midpoint of shipment
5. guidance range.
In 2011, committed and unpriced Eastern tons include
approximately 3.6 million tons of metallurgical coal subject to
market pricing and legacy contracts covering approximately 0.3
million tons of steam coal subject to average indexed pricing
estimated at $78.15 per ton. In 2012, committed and unpriced
Eastern tons include approximately 6.4 million tons of
metallurgical coal subject to market pricing, approximately 3.7
million tons of steam coal subject to market pricing, and
approximately 4.1 million tons of steam coal subject to collared
pricing with an average pricing range of $60 to $73 per ton, as
well as legacy contracts covering 0.6 million tons of steam coal
6. subject to average indexed pricing estimated at $75.45 per ton.
Includes the annual bonus bid payments on the Eagle Butte Federal
Lease by Application (LBA) in the Powder River Basin of $36.1
million in 2011; excludes a potential bonus bid installment on a
7. new LBA at Belle Ayr in 2011.
About Alpha Natural Resources
Alpha Natural Resources is one of America's premier coal suppliers with coal production capacity of greater than 90 million tons a year. Among U.S. producers Alpha is the leading supplier and exporter of metallurgical coal used in the steel-making process and is a major supplier of thermal coal to electric utilities and manufacturing industries across the country. The Company, through its affiliates, employs approximately 6,400 people and operates approximately 60 mines and 14 coal preparation facilities in Appalachia and the Powder River Basin. More information about Alpha can be found on the Company's Web site at http://www.alphanr.com/.
Forward Looking Statements
This news release includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Alpha's expectations and beliefs concerning future events and involve risks and uncertainties that may cause actual results to differ materially from current expectations. These factors are difficult to predict accurately and may be beyond Alpha's control. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:
-- worldwide market demand for coal, electricity and steel;
-- global economic, capital market or political conditions, including a
prolonged economic recession in the markets in which we operate;
-- decline in coal prices;
-- our liquidity, results of operations and financial condition;
-- regulatory and court decisions;
-- competition in coal markets;
-- changes in environmental laws and regulations, including those
directly affecting our coal mining and production, and those affecting
our customers' coal usage, including potential carbon or greenhouse
gas related legislation;
-- changes in safety and health laws and regulations and the ability to
comply with such changes;
-- availability of skilled employees and other employee workforce
factors, such as labor relations;
-- the inability of our third-party coal suppliers to make timely
deliveries and the refusal by our customers to receive coal under
agreed contract terms;
-- potential instability and volatility in worldwide financial markets;
-- future legislation and changes in regulations, governmental policies
or taxes or changes in interpretation thereof;
-- inherent risks of coal mining beyond our control;
-- disruption in coal supplies;
-- the geological characteristics of the Powder River Basin, Central and
Northern Appalachian coal reserves;
-- our production capabilities and costs;
-- our ability to integrate successfully operations that we may acquire
or develop in the future, including those of Massey Energy Company, or
the risk that any such integration could be more difficult,
time-consuming or costly than expected;
-- our plans and objectives for future operations and expansion or
consolidation;
-- the consummation of financing transactions, acquisitions or
dispositions and the related effects on our business, including
financing related to our proposed acquisition of Massey Energy
Company;
-- the adoption of the merger agreement at the Alpha special meeting and
the Massey special meeting;
-- the outcome of pending or potential litigation or governmental
investigations;
-- the ability to obtain governmental approvals of the merger on the
proposed terms and schedule;
-- the timing of the completion of the merger;
-- uncertainty of the expected financial performance of Alpha following
completion of the merger;
-- Alpha's ability to achieve the cost savings and synergies contemplated
by the merger within the expected time frame;
-- disruption from the merger making it more difficult to maintain
relationships with customers, employees or suppliers;
-- the calculations of, and factors that may impact the calculations of,
the acquisition price in connection with the merger and the allocation
of such acquisition price to the net assets acquired in accordance
with applicable accounting rules and methodologies;
-- our relationships with, and other conditions affecting, our customers;
-- reductions or increases in customer coal inventories and the timing of
those changes;
-- changes in and renewal or acquisition of new long-term coal supply
arrangements;
-- railroad, barge, truck and other transportation availability,
performance and costs;
-- availability of mining and processing equipment and parts;
-- disruptions in delivery or changes in pricing from third party vendors
of goods and services that are necessary for our operations, such as
diesel fuel, steel products, explosives and tires;
-- our assumptions concerning economically recoverable coal reserve
estimates;
-- our ability to obtain, maintain or renew any necessary permits or
rights, and our ability to mine properties due to defects in title on
leasehold interest;
-- changes in postretirement benefit obligations, pension obligations and
federal black lung obligations;
-- increased costs and obligations potentially arising from the Patient
Protection and Affordable Care Act;
-- fair value of derivative instruments not accounted for as hedges that
are being marked to market;
-- indemnification of certain obligations not being met;
-- continued funding of the road construction business, related costs,
and profitability estimates;
-- restrictive covenants in our secured credit facility and the
indentures governing the 7.25% notes due 2014 and the 2.375%
convertible senior notes due 2015;
-- certain terms of the 7.25% notes due 2014 and the 2.375% convertible
senior notes due 2015, including any conversions, that may adversely
impact our liquidity;
-- weather conditions or catastrophic weather-related damage; and
-- other factors, including the other factors discussed in the
'Management's Discussion and Analysis of Financial Condition and
Results of Operations', and 'Risk Factors' sections of our Annual
Report on Form 10-K for the year ended December 31, 2009 and Quarterly
Report on Form 10-Q for the quarters ended March 31, 2010, June 30,
2010 and September 30, 2010.
These and other risks and uncertainties are discussed in greater detail in Alpha's Annual Report on Form 10-K and other documents filed with the Securities and Exchange Commission. Forward-looking statements in this news release or elsewhere speak only as of the date made. New uncertainties and risks come up from time to time, and it is impossible for Alpha to predict these events or how they may affect the Company. Alpha has no duty to, and does not intend to, update or revise the forward-looking statements in this news release after the date it is issued. In light of these risks and uncertainties, investors should keep in mind that the results, events or developments disclosed in any forward-looking statement made in this news release may not occur.
Important Additional Information and Where to Find It
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.
In connection with the proposed merger, Alpha will file with the SEC a registration statement on Form S-4 that will include a preliminary joint proxy statement/prospectus regarding the proposed merger. After the registration statement has been declared effective by the SEC, a definitive joint proxy statement/prospectus will be mailed to Alpha and Massey stockholders in connection with the proposed merger. INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) AND OTHER DOCUMENTS RELATING TO THE MERGER FILED WITH THE SEC WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. You may obtain a copy of the joint proxy statement/prospectus (when available) and other related documents filed by Alpha and Massey with the SEC regarding the proposed merger as well as other filings containing information, free of charge, through the web site maintained by the SEC at http://www.sec.gov/, by directing a request to Alpha's Investor Relations department at Alpha Natural Resources, Inc., One Alpha Place, P.O. Box 2345, Abingdon, Virginia 24212, Attn: Investor Relations, to D.F. King & Co., Inc., 48 Wall Street, 22nd Floor, New York, New York 10005 or to Massey's Investor Relations department at, (804) 788 - 1824 or by email to Investor@masseyenergyco.com. Copies of the joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, when available, without charge, from Alpha's website at http://www.alphanr.com/ under the heading 'Investor Relations' and then under the heading 'SEC Filings' and Massey's website at http://www.masseyenergyco.com/ under the heading 'Investors' and then under the heading 'SEC Filings'.
Participants in Solicitation
Alpha, Massey and their respective directors, executive officers and certain other members of management and employees may be deemed to be participants in the solicitation of proxies in favor of the proposed merger. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of proxies in favor of the proposed merger will be set forth in the joint proxy statement/prospectus when it is filed with the SEC. You can find information about Alpha's and Massey's directors and executive officers in their respective definitive proxy statements filed with the SEC on March 30, 2010 and April 16, 2010, respectively. You can obtain free copies of these documents from Alpha or Massey using the contact information above.
FINANCIAL TABLES FOLLOW
Alpha Natural Resources, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands Except Shares and Per Share Data)
(Unaudited)
Three Months Ended
December 31,
------------------
2010 2009
---- ----
Revenues:
Coal revenues $876,042 $787,460
Freight and handling revenues 92,173 60,783
Other revenues 24,900 45,044
------ ------
Total revenues 993,115 893,287
------- -------
Costs and expenses:
Cost of coal sales (exclusive of
items shown separately below) 669,836 577,415
Freight and handling costs 92,173 60,783
Other expenses 29,404 5,366
Depreciation, depletion and
amortization 90,667 97,592
Amortization of acquired coal supply
agreements, net 52,805 69,625
Selling, general and administrative
expenses (exclusive of
depreciation,
depletion and amortization shown
separately above) 45,371 52,783
------ ------
Total costs and expenses 980,256 863,564
------- -------
Income from operations 12,859 29,723
------ ------
Other income (expense):
Interest expense (15,005) (19,971)
Interest income 963 494
Loss on early extinguishment of debt - -
Miscellaneous income (expense) (1,604) 2,149
------ -----
Total other expense, net (15,646) (17,328)
------- -------
Income (loss) from continuing
operations before income taxes (2,787) 12,395
Income tax benefit (expense) 13,792 7,853
------ -----
Income from continuing operations 11,005 20,248
------ ------
Discontinued operations:
Loss from discontinued operations
before income taxes (145) (2,678)
Income tax benefit (expense) (21) 377
--- ---
Loss from discontinued operations (166) (2,301)
---- ------
Net income $10,839 $17,947
======= =======
Earnings (loss) per common share:
Basic earnings (loss) per common
share:
Income from continuing operations $0.09 $0.17
Loss from discontinued operations - (0.02)
-----
Net income $0.09 $0.15
===== =====
Diluted earnings (loss) per common
share:
Income from continuing operations $0.09 $0.17
Loss from discontinued operations - (0.02)
-----
Net income $0.09 $0.15
===== =====
Weighted average shares outstanding:
Weighted average shares--basic 119,648,706 119,175,485
Weighted average shares--diluted 121,731,415 121,550,204
Year Ended December
31,
--------------------
2010 2009
---- ----
Revenues:
Coal revenues $3,497,847 $2,210,629
Freight and handling revenues 332,559 189,874
Other revenues 86,750 95,004
------ ------
Total revenues 3,917,156 2,495,507
--------- ---------
Costs and expenses:
Cost of coal sales (exclusive of
items shown separately below) 2,566,825 1,616,905
Freight and handling costs 332,559 189,874
Other expenses 65,498 21,016
Depreciation, depletion and
amortization 370,895 252,395
Amortization of acquired coal supply
agreements, net 226,793 127,608
Selling, general and administrative
expenses (exclusive of depreciation,
depletion and amortization shown
separately above) 180,975 170,414
------- -------
Total costs and expenses 3,743,545 2,378,212
--------- ---------
Income from operations 173,611 117,295
------- -------
Other income (expense):
Interest expense (73,463) (82,825)
Interest income 3,458 1,769
Loss on early extinguishment of debt (1,349) (5,641)
Miscellaneous income (expense) (821) 3,186
---- -----
Total other expense, net (72,175) (83,511)
------- -------
Income (loss) from continuing
operations before income taxes 101,436 33,784
Income tax benefit (expense) (4,218) 33,023
------ ------
Income from continuing operations 97,218 66,807
------ ------
Discontinued operations:
Loss from discontinued operations
before income taxes (2,719) (14,278)
Income tax benefit (expense) 1,052 5,476
----- -----
Loss from discontinued operations (1,667) (8,802)
------ ------
Net income $95,551 $58,005
======= =======
Earnings (loss) per common share:
Basic earnings (loss) per common
share:
Income from continuing operations $0.81 $0.74
Loss from discontinued operations (0.01) (0.10)
----- -----
Net income $0.80 $0.64
===== =====
Diluted earnings (loss) per common
share:
Income from continuing operations $0.80 $0.73
Loss from discontinued operations (0.01) (0.10)
----- -----
Net income $0.79 $0.63
===== =====
Weighted average shares outstanding:
Weighted average shares--basic 119,808,514 90,662,718
Weighted average shares--diluted 121,757,949 91,702,628
This information is intended to be reviewed in conjunction with the
company's filings with the U.S. Securities and Exchange Commission.
Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Sales, Operations and Financial Data
(In Thousands, Except Per Ton and Percentage Data)
(Unaudited)
Three Months Ended
December 31,
------------------
2010 2009
---- ----
Tons sold from continuing operations(1):
Powder River Basin 13,357 12,134
Eastern steam 5,778 6,591
Eastern metallurgical 2,982 2,546
----- -----
Total 22,117 21,271
====== ======
Average realized price per ton sold from
continuing operations(2)(9):
Powder River Basin $10.94 $10.52
Eastern steam 67.04 62.57
Eastern metallurgical 114.87 97.18
Weighted average total $39.61 $37.02
Coal revenues:
Powder River Basin $146,133 $127,618
Eastern steam 387,354 412,424
Eastern metallurgical 342,555 247,418
------- -------
Total coal revenues $876,042 $787,460
======== ========
Cost of coal sales per ton from
continuing operations(3)(9)(10):
Powder River Basin $7.87 $8.48
East(4) 64.18 51.37
Weighted average total $30.17 $26.90
Weighted average coal margin per ton(5) $9.44 $10.12
Weighted average coal margin
percentage(6) 23.8% 27.3%
Net cash provided by operating activities
including discontinued operations $182,550 $194,103
Capital expenditures including
discontinued operations $85,904 $84,277
Year Ended December
31,
--------------------
2010 2009
---- ----
Tons sold from continuing operations(1):
Powder River Basin 48,977 20,752
Eastern steam 24,001 18,318
Eastern metallurgical 11,871 8,130
------ -----
Total 84,849 47,200
====== ======
Average realized price per ton sold from
continuing operations(2)(9):
Powder River Basin $10.95 $10.47
Eastern steam 67.07 65.30
Eastern metallurgical 113.89 98.08
Weighted average total $41.22 $46.84
Coal revenues:
Powder River Basin $536,064 $217,187
Eastern steam 1,609,832 1,196,121
Eastern metallurgical 1,351,951 797,321
--------- -------
Total coal revenues $3,497,847 $2,210,629
========== ==========
Cost of coal sales per ton from
continuing operations(3)(9)(10):
Powder River Basin $8.56 $8.30
East(4) 59.47 54.50
Weighted average total $30.08 $34.19
Weighted average coal margin per ton(5) $11.14 $12.65
Weighted average coal margin
percentage(6) 27.0% 27.0%
Net cash provided by operating activities
including discontinued operations $693,601 $356,220
Capital expenditures including
discontinued operations $308,864 $187,093
As of
-----
December December
31, 2010 31, 2009
--------- ---------
Liquidity ($ in 000's):
Cash and cash equivalents $554,772 $465,869
Marketable securities with maturities of
less than one year(7) 217,191 29,501
Marketable securities with maturities of
greater than one year(8) 60,159 89,485
Unused revolving credit and A/R
securitization facilities 932,945 536,367
------- -------
Total available liquidity $1,765,067 $1,121,222
========== ==========
(1) Stated in thousands of short tons.
(2) Coal revenues divided by tons sold. This statistic is stated as
free on board (FOB) at the processing plant.
(3) Cost of coal sales divided by tons sold. The cost of coal sales
per ton only includes costs in our Eastern and Western Coal
Operations.
(4) East includes the Company's operations in Central Appalachia
(CAPP) and Northern Appalachia (NAPP).
(5) Weighted average total sales realization per ton less weighted
average total cost of coal sales per ton.
(6) Weighted average coal margin per ton divided by weighted average
total sales realization per ton.
(7) Classified as a current asset on the balance sheet.
(8) Classified as a non-current asset on the balance sheet.
(9) Amounts per ton calculated based on unrounded revenues, cost of
coal sales and tons sold.
(10) Cost of coal sales used in the numerator to this per ton
calculation includes merger related expenses for certain employee
benefits in the amount of approximately $4,050 and $15,518 recorded
in the three and twelve months ended December 31, 2010,
respectively. Excluding these merger related expenses, cost of coal
sales per ton from continuing operations-East was $63.73 and $59.05
per ton in the three and twelve months ended December 31, 2010,
respectively. Excluding these merger related expenses, cost of coal
sales per ton from continuing operations-weighted average total was
$29.99 and $29.90 per ton in the three and twelve months ended
December 31, 2010, respectively. The impact of merger related
expenses on cost of coal sales per ton from continuing operations-
West was de minimis. This is a non-GAAP measure which we are
presenting because we believe it is useful to investors.
This information is intended to be reviewed in conjunction with the
company's filings with the U.S. Securities and Exchange Commission.
Alpha Natural Resources, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
December 31, 2010 December 31, 2009(1)
----------------- --------------------
Cash and cash equivalents $554,772 $465,869
Trade accounts receivable, net 281,138 232,631
Inventories, net 198,172 176,372
Short-term marketable
securities 217,191 29,501
Prepaid expenses and other
current assets 124,564 147,452
------- -------
Total current assets 1,375,837 1,051,825
Property, equipment and mine
development costs, net 1,131,987 1,082,446
Owned and leased mineral
rights, net 1,884,169 1,958,855
Owned lands 98,727 91,262
Goodwill 382,440 382,440
Acquired coal supply
agreements, net 162,397 396,491
Long-term marketable securities 60,159 89,485
Other non-current assets 83,567 67,539
------ ------
Total assets $5,179,283 $5,120,343
========== ==========
Current portion of long-term
debt $11,839 $33,500
Trade accounts payable 121,553 152,662
Accrued expenses and other
current liabilities 313,754 273,260
------- -------
Total current liabilities 447,146 459,422
Long-term debt 742,312 756,753
Pension and postretirement
medical benefit obligations 719,355 682,991
Asset retirement obligations 209,987 190,724
Deferred income taxes 249,408 301,307
Other non-current liabilities 155,039 137,857
------- -------
Total liabilities 2,523,247 2,529,054
Total stockholders' equity 2,656,036 2,591,289
--------- ---------
Total liabilities and
stockholders' equity $5,179,283 $5,120,343
========== ==========
(1) The December 31, 2009 balance sheet was adjusted to reflect an
immaterial correction and the finalized purchase price allocation
for the Foundation merger and a reclassification of the current
portion of interest rate swaps from other non-current liabilities
to accrued expenses and other current liabilities.
This information is intended to be reviewed in conjunction with the
company's filings with the U.S. Securities and Exchange Commission.
Alpha Natural Resources, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Year Ended December
31,
--------------------
2010 2009
---- ----
Operating activities:
Net income $95,551 $58,005
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation, depletion and
amortization 371,103 253,736
Amortization of acquired coal supply
agreements, net 226,793 127,608
Amortization of debt issuance costs
and accretion of debt discount 18,552 16,205
Mark-to-market adjustments for
derivatives 11,316 (3,647)
Accretion of asset retirement
obligations 17,621 12,101
Stock-based compensation 33,255 37,802
Employee benefit plans, net 55,771 30,696
Loss on early extinguishment of debt 1,349 5,641
Deferred income taxes (70,579) (49,754)
Other, net (4,776) 547
Changes in operating assets and
liabilities:
Trade accounts receivable, net (48,507) 14,574
Inventories, net (21,886) (11,609)
Prepaid expenses and other current
assets 59,075 (40,037)
Other non-current assets (7,468) 1,080
Trade accounts payable (21,755) (26,735)
Accrued expenses and other current
liabilities 42,730 (22,384)
Pension and postretirement medical
benefit obligations (70,770) (37,450)
Asset retirement obligations (5,593) (7,298)
Other non-current liabilities 11,819 (2,861)
------ ------
Net cash provided by operating
activities 693,601 356,220
------- -------
Investing activities:
Capital expenditures (308,864) (187,093)
Acquisition of mineral rights under
federal lease (36,108) -
Purchases of marketable securities (372,790) (119,419)
Sales of marketable securities 214,240 -
Purchase of equity-method investment (5,000) -
Cash acquired from merger - 23,505
Proceeds from disposition of property
and equipment 4,025 1,197
Other, net (4,000) -
------
Net cash used in investing activities (508,497) (281,810)
-------- --------
Financing activities:
Principal repayments of note payable - (18,288)
Principal repayments on long-term
debt (56,854) (249,875)
Debt issuance costs (8,594) (13,067)
Excess tax benefit from stock-based
awards 5,505 434
Common stock repurchases (41,664) (8,874)
Proceeds from exercise of stock
options 5,521 5,171
Other (115) (232)
---- ----
Net cash used in financing activities (96,201) (284,731)
------- --------
Net increase (decrease) in cash and
cash equivalents $88,903 $(210,321)
Cash and equivalents at beginning of
period $465,869 $676,190
-------- --------
Cash and equivalents at end of period $554,772 $465,869
======== ========
This information is intended to be reviewed in conjunction with the
company's filings with the U. S. Securities and Exchange Commission.
Alpha Natural Resources, Inc. and Subsidiaries
Reconciliation of EBITDA from Continuing Operations and Adjusted
EBITDA from Continuing Operations to Income from Continuing
Operations
(In Thousands)
(Unaudited)
EBITDA from continuing operations and adjusted EBITDA from continuing
operations are non-GAAP measures used by management to gauge
operating performance and normalized levels of earnings. Alpha
defines EBITDA from continuing operations as income from continuing
operations plus interest expense, income tax expense, depreciation,
depletion and amortization, and amortization of coal supply
agreements less interest income and income tax benefit. Alpha
defines adjusted EBITDA from continuing operations as EBITDA from
continuing operations plus expenses attributable to the merger with
Foundation Coal Holdings, Inc., losses on early extinguishment of
debt, less various gains and losses not expected to recur on a
quarterly basis. The definition of adjusted EBITDA from continuing
operations may be changed periodically by management to adjust for
significant items important to an understanding of operating trends.
Management presents EBITDA from continuing operations and adjusted
EBITDA from continuing operations as supplemental measures of the
company's performance and debt service capacity that may be useful
to securities analysts, investors and others. EBITDA from
continuing operations and adjusted EBITDA from continuing operations
are not, however, measures of financial performance under U.S. GAAP
and should not be considered as an alternative to net income, income
from continuing operations or operating income as determined in
accordance with U.S. GAAP. Moreover, EBITDA from continuing
operations and adjusted EBITDA from continuing operations are not
calculated identically by all companies. A reconciliation of EBITDA
from continuing operations and adjusted EBITDA from continuing
operations to income from continuing operations, the most directly
comparable U.S. GAAP measure is provided in the table below.
Three Months
Ended December Year Ended
31, December 31,
--------------- ------------
2010 2009 2010 2009
---- ---- ---- ----
Income from
continuing
operations $11,005 $20,248 $97,218 $66,807
Interest expense 15,005 19,971 73,463 82,825
Interest income (963) (494) (3,458) (1,769)
Income tax
expense
(benefit) (13,792) (7,853) 4,218 (33,023)
Depreciation,
depletion and
amortization 90,667 97,592 370,895 252,395
Amortization of
acquired coal
supply
agreements, net 52,805 69,625 226,793 127,608
------ ------ ------- -------
EBITDA from
continuing
operations 154,727 199,089 769,129 494,843
Other revenue
from coal supply
agreement
modification - (18,100) - (18,100)
Loss on early
extinguishment
of debt - - 1,349 5,641
Merger related