Alpha Natural Resources Announces Results for Third Quarter 2011
- Record revenue of $2.3 billion due in part to the inclusion of a full quarter of legacy Massey results
- Coking coal shipments and average per ton realizations increased 98% and 38%, respectively, YOY
- Integration on track with significant improvement in workforce turnover already achieved
- Alpha updates 2011 contracted position and provides updated 2012 guidance
ABINGDON, Va., Nov. 3, 2011/PRNewswire/ --Alpha Natural Resources, Inc.
, a leading U.S. coal producer, reported third quarter net income of $66.4 million or $0.29 per diluted share compared to net income of $31.9 million or $0.27 per diluted share for the third quarter last year. Income from continuing operations for the third quarter was $66.4 million or $0.29 per diluted share compared to income from continuing operations of $32.4 million or $0.27 per diluted share for the third quarter of 2010. Excluding certain merger-related and other unusual items described in our 'Reconciliation of Adjusted Income from Continuing Operations to Income from Continuing Operations,' third quarter 2011 adjusted income from continuing operations was $79.9 million or $0.35 per diluted share.Earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) from continuing operations for the third quarter 2011 was $280.1 million, compared to $197.3 million in the year ago period. Excluding certain merger-related and other unusual items described in our 'Reconciliation of EBITDA from Continuing Operations and Adjusted EBITDA from Continuing Operations to Income from Continuing Operations,' Adjusted EBITDA from continuing operations was $373.1 million.
Quarterly Financial & Operating Highlights
(millions, except per-share and per-ton amounts)
Q3 Q3
2011 2010
Coal revenues $1997.9 $896.4
Income from continuing operations $66.4 $32.4
Income from continuing operations per diluted
share $0.29 $0.27
Net income $66.4 $31.9
Net income per diluted share $0.29 $0.27
Adjusted income from continuing operations* $79.9 $69.2
Adjusted income from continuing operations per
diluted share* $0.35 $0.57
EBITDA from continuing operations* $280.1 $197.3
Adjusted EBITDA from continuing operations* $373.1 $205.3
Tons of coal sold 31.2 21.2
Adjusted coal margin per ton* $14.63 $11.12
*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 again demonstrated the success of its 'Running Right' approach to safety during the third quarter,' said Kevin Crutchfield, Alpha's chief executive officer. 'Both our Love Branch South and Enterprise operations were recognized with underground mine safety awards in Kentucky, and both operations had no lost-time accidents during 2010. We have completed 'Running Right' training for the entire hourly workforce at all legacy Massey operations, and we have begun a training program directed at supervisory personnel. The benefits are already becoming clear: incident rates at the legacy Massey operations are declining; employee feedback is overwhelmingly positive; and the annualized voluntary turnover rate for legacy Massey declined to single digits in the month of September, down from more than 20 percent earlier in the year. At Alpha, we understand that having an empowered workforce working together within the 'Running Right' culture is inextricably linked to our ability to operate safely, maintain strong employee morale, minimize turnover, and thereby deliver operational excellence.
'Alpha generated adjusted EBITDA from continuing operations of $373 million during the third quarter of 2011. Alpha's financial results were impacted by the ongoing geological challenges at our Emerald longwall mine, a notice of force majeure from a steelmaking customer in the Middle East, and protracted quarterly price negotiations with some Asian customers that led to delayed shipments of metallurgical coal, as well as lower than expected production at several legacy Massey mines. Taking a longer view, Alpha is now well positioned for success as the third largest supplier of metallurgical coal globally, with the largest export capacity of any U.S. producer. The integration of the legacy Massey operations remains on track, and over time we anticipate continued improvement in safety performance, enhanced productivity and meaningful synergies from fostering a unified 'Running Right' culture throughout our organization, all of which will drive value and accrue to the benefit of Alpha's shareholders.
'In August, Alpha announced a $600 million share repurchase authorization, in addition to the $125 million authorization announced in 2010. So far this year we have repurchased approximately $200 million of Alpha's common stock, including $179 million since the beginning of the third quarter with which we repurchased approximately 6.7 million shares at an average price of $26.74 per share. The repurchases in the third quarter fully exhausted the remaining amount available under the authorization that Alpha announced in 2010 and utilized $100 million of the new $600 million authorization. We believe that shares of ANR currently represent outstanding value, and we will continue to seek opportunities to repurchase shares at attractive valuations.'
Financial Performance
Total revenues were $2.3 billion compared to $1.0 billion for Alpha
stand-alone in the third quarter of 2010, and coal revenues were
$2.0 billion compared to $0.9 billion for Alpha stand-alone in the
third quarter last year. Coal revenues were significantly higher
than the year-ago period due primarily to the inclusion of the first
full quarter of shipments from legacy Massey operations, which
contributed $805.4 million of coal revenues for the quarter, combined
with a 38 percent increase in average per ton realizations on
metallurgical coal compared with Alpha stand-alone in the third
quarter of 2010. Freight and handling revenues and other revenues
were $213.8 million and $93.0 million, respectively, during the third
quarter versus $85.3 million and $19.9 million, respectively, for
-- Alpha stand-alone in the third quarter of 2010.
During the third quarter of 2011, Alpha shipped 12.6 million tons of
Powder River Basin (PRB) coal, 12.7 million tons of Eastern steam
coal including 7.0 million tons from the legacy Massey operations,
and 5.9 million tons of metallurgical coal including 2.1 million tons
from the legacy Massey operations. Average per ton realization for
PRB shipments rose to $11.98 in the third quarter of 2011 compared
with $11.10 in the year-ago period. The average per ton realization
for Eastern steam coal shipments was $67.07 compared with $67.72 last
year, and the average per ton realization for metallurgical coal
shipments increased to $168.49 in the third quarter of 2011 compared
-- with $122.24 in the third quarter of 2010.
Total costs and expenses during the third quarter of 2011 were $2.2
billion compared to $952 million for Alpha stand-alone in the third
quarter of 2010. Cost of coal sales in the third quarter was $1.7
billion, which included $770 million from legacy Massey operations.
Adjusted cost of coal sales in the East averaged $75.81 per ton
compared with $63.04 for Alpha stand-alone in the third quarter last
year. The 2011 per ton cost of coal sales in the East has been
adjusted to exclude UBB charges of $10.6 million and closed-mine
asset retirement obligation charges of $37.1 million primarily
related to changes in estimated future costs of water treatment, as
well as merger-related expenses of $62.6 million, including a $39.7
million non-cash charge from selling acquired coal inventories
written up to fair value in acquisition accounting and $22.9 million
related to retention, severance and employee benefit alignment
expenses. The higher cost of coal sales per ton in the East compared
to the year-ago quarter is primarily the result of the following
factors: reduced production and shipments from our Emerald longwall
mine due to geological challenges; lower than expected thermal coal
production and shipments from Central Appalachia; more metallurgical
coal production; higher variable costs due to the increased volumes
and higher per ton realizations on metallurgical coal shipments;
increased per ton cost of purchased coal; higher diesel fuel costs;
and general inflationary pressures. Cost of coal sales in the West
averaged $10.34 per ton in the third quarter of 2011 compared with
$8.57 last year. The year-over-year increase was primarily
attributable to a mix shift with proportionally more production
coming from Alpha's Belle Ayr mine which has higher production costs
due to its higher strip ratio, higher diesel fuel expense, the
absence of capitalized development expense at Eagle Butte in 2011 and
-- higher variable costs driven by higher average per ton realizations.
Selling, general and administrative expense in the third quarter of
2011 was $72.7 million and included $7.8 million of pre-tax
merger-related expenses attributable to professional fees and
various retention, severance and benefit alignment expenses. This
compares with selling, general and administrative expense of $43.6
million in the third quarter last year. Depreciation, depletion
and amortization (DD&A) during the quarter was $242.7 million, and
net amortization of acquired intangibles was a benefit of $73.3
million in the third quarter of 2011. DD&A included $150.7
million for the acquired legacy Massey operations whose owned and
leased mineral reserves, property and equipment were written up to
fair value in acquisition accounting. In addition to amortization
expense arising from acquired coal supply agreements for the
legacy Foundation Coal in the amount of $24.2 million,
amortization of acquired intangibles includes a $97.5 million net
benefit from amortization of coal supply agreements and
transportation contracts that were acquired in the Massey
transaction and recorded at fair value.
Alpha recorded net income of $66.4 million or $0.29 per diluted share
during the third quarter of 2011 compared to net income of $31.9
million or $0.27 per diluted share during the third quarter of 2010.
Income from continuing operations in the third quarter was also $66.4
million or $0.29 per diluted share compared with net income from
continuing operations of $32.4 million or $0.27 per diluted share in
the year-ago quarter. The third quarter of 2011 net income and
income from continuing operations included the following merger-
-- related charges and other unusual items:
($ in
Merger-related and other unusual items millions)
$101.7
Merger-related expenses
UBB charges 10.6
Closed-mine asset retirement obligation-
related charges 37.1
Unrealized mark-to-market gains on derivative
instruments (61.7)
Amortization of acquired intangibles, net (73.3)
Loss on early extinguishment of debt 5.2
------------------------------------ --
Pre-tax subtotal (net expense) 19.6
Income tax effect of above items (6.1)
================================ ====
After-tax total of above items $13.5
Excluding the after-tax total of these items, adjusted income from
continuing operations was $79.9 million or $0.35 per diluted share
compared to adjusted income from continuing operations of $69.2
million or $0.57 per diluted share for Alpha stand-alone in the
third quarter of 2010.
EBITDA from continuing operations was $280.1 million in the third
quarter of 2011 compared to $197.3 million for Alpha stand-alone in
the prior-year period. Excluding merger-related expenses, UBB
charges, net unrealized mark-to-market impacts of derivative
instruments, closed mine asset retirement obligation-related
charges, and the loss on early extinguishment of debt, Adjusted
EBITDA from continuing operations was $373.1 million in the third
quarter of 2011 compared to $205.3 million in the third quarter of
-- 2010.
Year-to-Date Results
For the first nine months of this year, Alpha reported total revenues
of $5.0 billion, including $4.4 billion in coal revenues compared
with total revenues of $2.9 billion and coal revenues of $2.6 billion
during the first nine months of 2010 for Alpha stand-alone. The
year-over-year increase in both total revenues and coal revenues is
primarily attributable to the inclusion of the legacy Massey
operations and increased average per ton realizations for
-- metallurgical coal.
During the first three quarters of 2011, Alpha's coal shipments
totaled 75.2 million tons, including 12.5 million tons from the
legacy Massey operations since the acquisition closed on June 1st,
compared with 62.7 million tons in the first three quarters of
2010 for Alpha stand-alone. Metallurgical coal shipments were
13.9 million tons year-to-date, up 56 percent compared to the
8.9 million tons during the first nine months of 2010. Shipments
of PRB coal and Eastern steam coal were 36.1 million tons and 25.3
million tons, respectively, during the first nine months of 2011.
Year-to-date, Alpha's overall average realization was $58.46 per ton
and the adjusted average cost of coal sales was $43.06 per ton,
resulting in a $15.40 per ton (or 26.3 percent) adjusted coal margin.
For the first three quarters of 2011 Alpha recorded net income and
income from continuing operations of $62.9 million or $0.37 per
diluted share. Excluding merger-related expenses, UBB charges, net
unrealized mark-to-market impacts of derivative instruments,
closed-mine asset retirement obligation-related charges, net
amortization of acquired intangibles, the loss on early
extinguishment of debt, related tax effects of the foregoing items
and discrete income tax charges, Alpha's adjusted income from
continuing operations was $310.4 million or $1.84 per diluted share.
EBITDA from continuing operations for the first nine months of 2011
was $575.5 million, and Adjusted EBITDA from continuing operations
for the first nine months of 2011, which excludes merger-related
expenses, UBB charges, net unrealized mark-to-market impacts of
derivative instruments, closed-mine asset retirement obligation-
related charges, and the loss on early extinguishment of debt, was
-- $953.5 million.
Liquidity and Capital Resources
Cash provided by operations for the quarter ended September 30, 2011 was $253.1 million compared with $173.1 million for Alpha stand-alone in the third quarter of 2010.
Capital expenditures for the third quarter of 2011 were $142.3 million, versus $87.1 million in the comparable period last year. Investing activities during the third quarter included $28.9 million for the first of five annual installment payments pertaining to a Caballo West federal coal lease in the PRB.
On August 18, 2011, Alpha completed the previously announced redemption of the 7.25% senior notes due 2014 of Foundation PA Coal Company, a subsidiary of the Company for $302 million. At the end of the third quarter, Alpha had available liquidity of approximately $1.8 billion, consisting of cash, cash equivalents and marketable securities of an aggregate $0.8 billion plus approximately $1 billion available under the Company's secured credit and accounts receivable facilities. Total long-term debt, including current portion of long-term debt at September 30, 2011, was approximately $3.0 billion, compared with $0.8 billion at December 31, 2010. Other than scheduled principal amortization of its bank term loan, Alpha does not have any debt maturities until 2015.
Market Overview
Global demand for metallurgical coal remains robust driven primarily by growth in Asia. Chinese raw steel production increased 18 percent year-over-year in September and reached an annualized pace of approximately 750 million metric tonnes, up from an annualized run rate of approximately 720 million metric tonnes earlier this year. Driven by continued demand growth and limited new sources of supply in the near-term, the market for metallurgical coal remains strong, although pricing has declined somewhat from the record highs achieved earlier this year as Australia has largely recovered from severe flooding earlier in the year and the European debt crisis has created some uncertainty in the near-term. As the third largest supplier of metallurgical coal in the world, Alpha is well positioned to benefit from the Asia-driven demand growth for metallurgical coal for the foreseeable future.
The seaborne thermal market continues to demonstrate consistent demand growth, driven primarily by emerging economies in Asia. China set a new record for coal imports in September, increasing 25 percent year-over-year to just over 19 million metric tons, and the country is expected to import nearly 120 million metric tonnes of thermal coal for the full year 2011. Indian imports have more than doubled since 2008 and are expected to reach nearly 80 million metric tons in 2011. Indian imports are projected to exceed 200 million tons per year later this decade. With greater than 25 million tons of export terminal capacity annually, Alpha is the clear leader among coal U.S. producers and plans to leverage this competitive advantage to benefit from a strengthening seaborne thermal coal market.
Unlike the rapidly growing markets in Asia, the United States market for thermal coal remains muted due to slow economic growth, an uncertain regulatory environment and competition from low-priced natural gas. Thermal coal's share in the electricity generation mix has gradually lost ground relative to natural gas, and the EIA forecasts a further decrease in thermal coal consumption in 2012. The Cross State Air Pollution Rule (CSAPR), which is scheduled to go into effect in January of 2012 and would mandate substantial decreases in SO2 and NOx emission from utilities in 27 states, has been the subject of several state-level lawsuits, as well as congressional proposals seeking to alter or delay its implementation. In light of these legal and legislative challenges, the timing and ultimate requirements of CSAPR remain in question. However, if the rule is ultimately implemented, it would likely mean decreased reliance on Central Appalachian thermal coals on the margin, and a shift toward gas-fired generation and increased utilization of lower sulfur coals from other basins, including the PRB. In this uncertain environment, utilities have been slow to enter into thermal coal contracts, and utility inventories have fallen to below 150 million tons nationwide, dipping below the 5-year average, which should be positive for the domestic thermal coal markets once the regulatory environment is clarified.
Outlook
Alpha is fine tuning its 2011 guidance ranges for depletion, depreciation and amortization (DD&A) and interest expense to $700-$750 million and $135-$140 million, respectively, compared to the previous guidance ranges of $750-$780 million and $125-$140 million, respectively, and adjusting Western cost of coal sales to a range of $9.80-$10.20 per ton compared to the previous range of $9.60-$10.00 per ton, while leaving all other guidance ranges for 2011 unchanged. Alpha is revising its 2012 guidance ranges, and updating its contracted position for both 2011 and 2012 to reflect sales activity through October 24, 2011. Guidance for 2011 includes the contribution of legacy Massey operations for the seven month period from June to December. Guidance for 2011 and 2012 for East and West cost of coal sales per ton and selling, general and administrative expenses exclude any impacts from merger-related expenses, UBB charges, and closed-mine asset retirement obligation charges.
Based on the midpoint of the shipment guidance ranges, Alpha is essentially sold out in 2011, with 100 percent of Western steam coal committed and priced at average realizations of $11.93 per ton and 100 percent of Eastern steam coal committed and priced at average realizations of $66.75 per ton. Metallurgical coal is 98 percent committed and priced at average realizations of $162.00 per ton.
For the year 2012 Alpha has increased its Eastern metallurgical coal shipment guidance to a range of 23.5-26.5 million tons compared to the previous range of 23.0-26.0 million tons. Based on the midpoint of the current guidance range, approximately 89 percent of Alpha's anticipated 2012 met coal shipments remains unpriced, with approximately 11 percent committed and priced at an average per ton realization of $143.59 and 39 percent committed and unpriced. As metallurgical coal shipments increase and the Company continues to optimize its asset portfolio in the East, Alpha has reduced its Eastern steam coal shipment guidance to a range of 46-52 million tons compared to the previous range of 49-54 million tons. Based on the midpoint of current guidance, 62 percent of Alpha's anticipated 2012 Eastern steam coal shipment volume is committed and priced at an average per ton realization of $67.92 and 17 percent is committed and unpriced. Alpha has also adjusted its Western steam coal shipment guidance to a range of 49-53 million tons compared to the previous range of 48-52 million tons, and based on the midpoint of the current range, 92 percent of Alpha's 2012 Western steam coal shipment volume is committed and priced at an average per ton realization of $12.68. Adjusted cost of coal sales in 2012 are anticipated to range from $70.00 to $75.00 per ton in the East and $10.50 to $11.50 per ton in the West. Ranges for selling, general and administrative expense and depletion, depreciation and amortization expense in 2012 are expected to be $230 million to $270 million, and $1.05 billion to $1.15 billion, respectively. Interest expense is expected to be between $175 million and $185 million, and capital expenditures for the year are anticipated to range from $650 million to $850 million.
Guidance
(in millions, except per-ton and percentage amounts)
2011 2012
Average per Ton Sales Realization
on Committed and Priced Coal
Shipments(1,2)
West $11.93 $12.68
Eastern Steam $66.75 $67.92
Eastern Met $162.00 $143.59
102.5 - 118.5 -
Coal Shipments(3) 109.5 131.5
West 48.0 - 50.0 49.0 - 53.0
Eastern Steam(4) 36.0 - 39.0 46.0 - 52.0
Eastern Met 18.5 - 20.5 23.5 - 26.5
Committed and Priced (%)(5) 100% 64%
West 100% 92%
Eastern Steam 100% 62%
Eastern Met 98% 11%
Committed and Unpriced (%)(5),(6) 0% 14%
West 0% 0%
Eastern Steam 0% 17%
Eastern Met 2% 39%
West - Cost of Coal Sales per Ton $9.80 - $10.20 $10.50 - $11.50
East -Cost of Coal Sales per
Ton(7) $73.00 - $76.00 $70.00 - $75.00
Selling, General & Administrative
Expense(8) $250 - $270 $230 - $270
Depletion, Depreciation &
Amortization Expense $700 - $750 $1,050 - $1,150
Interest Expense $135 - $140 $175 - $185
Capital Expenditures(9) $575 - $650 $650 - $850
NOTES:
1. Based on committed and priced coal shipments as of October 24, 2011.
2. 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 embedded in projected
average per ton realizations.
3. Eastern shipments in 2011 and 2012 include an estimated 3.0 to 4.0
million tons of brokered coal per year.
4. The 2011 shipment range for Eastern steam coal reflects the impact of a
scheduled longwall move at the Cumberland mine in December of 2011. The
2012 shipment range for Eastern steam coal reflects the impact of
scheduled longwall moves at the Cumberland mine in April and August of
2012, and scheduled longwall moves at the Emerald mine in January and
October of 2012.
5. As of October 24, 2011, compared to the midpoint of shipment guidance
range.
6. In 2011, committed and unpriced Eastern tons include approximately 0.3
million tons of metallurgical coal subject to market pricing. In 2012,
committed and unpriced Eastern tons include approximately 8.6 million
tons of metallurgical coal subject to market pricing, approximately 6.3
million tons of steam coal subject to market pricing, approximately 1.2
million tons of metallurgical coal subject to collared pricing with an
average pricing range of $126 to $192 per ton, and approximately 0.4
million tons of steam coal subject to collared pricing with an average
pricing range of $69 to $81 per ton, as well as approximately 1.5 million
tons of steam coal subject to indexed pricing estimated at $78.47 per ton
on average.
7. Excludes merger-related expenses, non-cash charges for write-up of
acquired coal inventory, closed-mine asset retirement obligation charges
and UBB charges. Alpha has not reconciled the adjusted Eastern cost of
coal sales per ton to Eastern cost of coal sales per ton because
merger-related expenses, a necessary reconciling item, cannot be
reasonably predicted and Alpha is unable to provide guidance for such
expenses. Accordingly, reconciliation to Eastern cost of coal sales per
ton is not available without unreasonable effort.
8. Alpha has not reconciled the adjusted selling, general & administrative
expense to selling, general & administrative expense because
merger-related expenses, a necessary reconciling item, cannot be
reasonably predicted and Alpha is unable to provide guidance for such
expenses. Accordingly, reconciliation to selling, general &
administrative expense is not available without unreasonable effort.
9. Includes the annual bonus bid payments on the Eagle Butte Federal Lease
by Application (LBA) and the Caballo West LBA of $36.1 million and $28.9
million, respectively, in 2011 and 2012.
About Alpha Natural Resources
Alpha Natural Resources is one of America's premier coal suppliers with coal production capacity of greater than 120 million tons a year. Alpha is the nation's 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 14,000 people and operates more than 150 mines and 40 coal preparation facilities in Appalachia and the Powder River Basin. More information about Alpha can be found on the Company's Web site at 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 have acquired
or developed with our existing operations, including those of Massey
Energy Company ('Massey'), as well as those operations that we may
acquire or develop in the future, 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;
-- uncertainty of the expected financial performance of Alpha following the
acquisition of Massey;
-- Alpha's ability to achieve the cost savings and synergies contemplated
by the acquisition of Massey within the expected time frame;
-- disruption from the acquisition of Massey making it more difficult to
maintain relationships with customers, employees or suppliers;
-- the allocation of the acquisition price in connection with the
acquisition of Massey to the net assets acquired in accordance with
applicable accounting rules and methodologies;
-- the outcome of pending or potential litigation or governmental
investigations, including with respect to the Upper Big Branch
explosion;
-- our relationships with, and other conditions affecting, our customers,
including the inability to collect payments from our customers if their
creditworthiness declines;
-- 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 interests;
-- our ability to negotiate new UMWA wage agreements on terms acceptable to
us;
-- changes in postretirement benefit obligations, pension obligations and
federal and state 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 6% senior notes due 2019, the 6.25% senior notes due 2021,
the 2.375% convertible senior notes due 2015 and the 3.25% convertible
senior notes due 2015;
-- certain terms of the 6% senior notes due 2019, the 6.25% senior notes
due 2021, the 2.375% convertible senior notes due 2015 and the 3.25%
convertible senior notes due 2015, including any conversions, that may
adversely impact our liquidity;
-- our substantial indebtedness following the completed acquisition of
Massey and potential future indebtedness;
-- our work force could become increasingly unionized in the future and our
unionized or union-free hourly work force could strike;
-- significant or rapid increases in commodity prices;
-- our ability to obtain or renew surety bonds on acceptable terms or
maintain self bonding status;
-- reclamation and mine closure obligations;
-- terrorist attacks and threats, and escalation of military activity in
response to such attacks;
-- inflationary pressures on supplies and labor;
-- 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, 2010 and Quarterly Report on Form
10-Q for the quarter ended June 30, 2011.
These and other risks and uncertainties are discussed in greater detail in Alpha's and Massey's Annual Reports 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.
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 Nine Months Ended September
September 30, 30,
------------------- ----------------------------
2011 2010 2011 2010
---- ---- ---- ----
Revenues:
Coal revenues $1,997,934 $896,435 $4,395,804 $2,621,805
Freight and handling revenues 213,834 85,330 480,760 240,386
Other revenues 93,010 19,867 155,419 61,850
------ ------ ------- ------
Total revenues 2,304,778 1,001,632 5,031,983 2,924,041
--------- --------- --------- ---------
Costs and expenses:
Cost of coal sales (exclusive of
items shown separately below) 1,675,209 664,723 3,517,796 1,896,989
Freight and handling costs 213,834 85,330 480,760 240,386
Other expenses 58,063 11,967 118,792 36,094
Depreciation, depletion and
amortization 242,699 94,003 475,762 280,228
Amortization of acquired
intangibles, net (73,274) 52,398 (57,023) 173,988
Selling, general and administrative
expenses (exclusive of
depreciation,
depletion and amortization shown
separately above) 72,701 43,584 329,656 135,604
------ ------ ------- -------
Total costs and expenses 2,189,232 952,005 4,865,743 2,763,289
--------- ------- --------- ---------
Income from operations 115,546 49,627 166,240 160,752
------- ------ ------- -------
Other income (expense):
Interest expense (49,148) (17,834) (94,726) (58,458)
Interest income 931 967 2,988 2,495
Loss on early extinguishment of
debt (5,212) - (9,768) (1,349)
Miscellaneous income, net 309 1,261 333 783
--- ----- --- ---
Total other expense, net (53,120) (15,606) (101,173) (56,529)
------- ------- -------- -------
Income from continuing operations
before income taxes 62,426 34,021 65,067 104,223
Income tax benefit (expense) 4,002 (1,660) (2,178) (18,010)
----- ------ ------ -------
Income from continuing operations 66,428 32,361 62,889 86,213
------ ------ ------ ------
Discontinued operations:
Loss from discontinued operations
before income taxes - (911) - (2,574)
Income tax benefit - 424 - 1,073
--- --- --- -----
Loss from discontinued operations - (487) - (1,501)
--- ---- --- ------
Net income $66,428 $31,874 $62,889 $84,712
Earnings per common share:
Basic earnings per common share:
Income from continuing operations $0.30 $0.27 $0.38 $0.72
Loss from discontinued operations - - - (0.01)
--- --- --- -----
Net income $0.30 $0.27 $0.38 $0.71
Diluted earnings per common share:
Income from continuing operations $0.29 $0.27 $0.37 $0.71
Loss from discontinued operations - - - (0.01)
--- --- --- -----
Net income $0.29 $0.27 $0.37 $0.70
Weighted average shares
outstanding:
Weighted average shares--basic 224,394,487 119,623,075 166,931,448 119,862,369
Weighted average shares--diluted 226,281,985 121,498,825 168,833,010 121,767,294
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)
Nine Months Ended September
Three Months Ended September 30, 30,
-------------------------------- ----------------------------
2011 2010 2011 2010
---- ---- ---- ----
Tons sold from continuing
operations(1):
Powder River Basin 12,556 12,349 36,054 35,620
Eastern steam 12,723 5,823 25,255 18,223
Eastern metallurgical 5,900 2,986 13,883 8,889
----- ----- ------ -----
Total 31,179 21,158 75,192 62,732
====== ====== ====== ======
Average realized price per ton sold
from continuing operations (2)(9):
Powder River Basin $11.98 $11.10 $11.94 $10.95
Eastern steam 67.07 67.72 66.91 67.08
Eastern metallurgical 168.49 122.24 163.90 113.56
Weighted average total $64.08 $42.37 $58.46 $41.79
Coal revenues:
Powder River Basin $150,484 $137,111 $430,486 $389,931
Eastern steam 853,361 394,342 1,689,802 1,222,478
Eastern metallurgical 994,089 364,982 2,275,516 1,009,396
------- ------- --------- ---------
Total coal revenues $1,997,934 $896,435 $4,395,804 $2,621,805
Adjusted cost of coal sales per ton
from continuing operations
(3)(9)(10)(13):
Powder River Basin $10.34 $8.57 $10.20 $8.81
East (4) $75.81 $63.04 $73.33 $57.96
Weighted average total $49.45 $31.25 $43.06 $30.05
Adjusted weighted average coal
margin per ton (11) $14.63 $11.12 $15.40 $11.74
Adjusted weighted average coal margin
percentage (12) 22.8% 26.2% 26.3% 28.1%
Net cash provided by operating
activities including discontinued
operations $253,094 $173,120 $537,232 $511,051
Capital expenditures including
discontinued operations $142,261 $87,065 $314,929 $222,960
As of
-----
September 30, December 31,
------------- ------------
2011 2010
---- ----
Liquidity ($ in 000's):
Cash and cash equivalents $575,298 $554,772
Marketable securities with maturities
of less than one year (7) 173,087 217,191
Marketable securities with maturities
of greater than one year (8) 17,672 60,159
------ ------
Total cash, cash equivalents and
marketable securities 766,057 832,122
Unused revolving credit and A/R
securitization facilities 1,023,600 932,945
--------- -------
Total available liquidity $1,789,657 $1,765,067
========== ==========
(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) For the three and nine months ended September 30, 2011, adjusted cost of coal sales per ton for East
includes adjustments to exclude the impact of
certain non-cash charges that resulted from recording Massey's beginning inventory at fair value, stock
compensation and severance expenses, changes in
estimated future costs of water treatment at closed mines and costs related to UBB.
(11) Weighted average total sales realization per ton less adjusted weighted average total cost of coal
sales per ton.
(12) Adjusted weighted average coal margin per ton divided by weighted average total sales realization per
ton.
(13) Adjusted cost of coal sales per ton, adjusted weighted average coal margin per ton and adjusted
weighted average coal margin percentage for our Eastern Operations are reconciled to their unadjusted
amounts as follows
:
Three months
ended Nine months ended
September 30, September 30,
2011 2011
------------- -------------
Adjusted cost of coal sales per ton
from continuing operations $75.81 $73.33
Impact of merger-related stock
compensation and severance expenses 0.02 0.25
Impact of merger-related inventory
expenses 2.13 3.78
Impact of UBB expenses 0.57 0.42
Impact of merger-related benefits
alignment expense 1.22 0.57
Impact of changes in estimated future
costs of water treatment at closed
mines 1.99 0.95
Cost of coal sales per ton from
continuing operations $81.74 $79.30
Total weighted average coal margin
per ton (5) $11.09 $12.29
Total weighted average coal margin
percentage (6) 17.3% 21.0%
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)
September 30,
2011 December 31, 2010
------------- -----------------
Cash and cash
equivalents $575,298 $554,772
Trade accounts
receivable, net 635,840 281,138
Inventories, net 496,105 198,172
Short-term marketable
securities 173,087 217,191
Prepaid expenses and
other current assets 507,585 124,564
------- -------
Total current assets 2,387,915 1,375,837
Property, equipment
and mine development
costs, net 2,847,355 1,129,222
Owned and leased
mineral rights and
land, net 8,553,211 1,985,661
Goodwill 2,675,497 382,440
Long-term marketable
securities 17,672 60,159
Other non-current
assets 700,078 245,964
------- -------
Total assets $17,181,728 $5,179,283
=========== ==========
Current portion of
long-term debt $38,529 $11,839
Trade accounts payable 513,416 121,553
Accrued expenses and
other current
liabilities 1,008,100 313,754
--------- -------
Total current
liabilities 1,560,045 447,146
Long-term debt 2,931,272 742,312
Pension and
postretirement
medical benefit
obligations 1,103,170 719,355
Asset retirement
obligations 743,282 209,987
Deferred income taxes 1,570,096 249,408
Other non-current
liabilities 1,023,482 155,039
--------- -------
Total liabilities 8,931,347 2,523,247
Total stockholders'
equity 8,250,381 2,656,036
--------- ---------
Total liabilities and
stockholders' equity $17,181,728 $5,179,283
=========== ==========
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)
Nine Months Ended September
30,
----------------------------
2011 2010
---- ----
Operating activities:
Net income $62,889 $84,712
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Depreciation, depletion,
accretion and
amortization 520,585 307,563
Amortization of acquired
intangibles, net (57,023) 173,988
Change in fair value of
derivative instruments (57,392) 11,880
Stock-based
compensation 55,856 24,403
Employee benefit plans,
net 45,305 40,786
Loss on early
extinguishment of debt 9,768 1,349
Deferred income taxes (5,801) (41,668)
Other, net 16,064 (3,367)
Changes in operating
assets and liabilities:
Trade accounts
receivable, net (169,509) (85,342)
Inventories, net 122,530 (20,766)
Prepaid expenses and
other current assets 27,238 31,692
Other non-current
assets (23,528) (2,684)
Trade accounts payable 82,222 11,029
Accrued expenses and
other current
liabilities (97,020) 30,464
Pension and
postretirement medical
benefit obligations (89,530) (53,840)
Asset retirement
obligations (13,457) (4,255)
Other non-current
liabilities 108,035 5,107
------- -----
Net cash provided by
operating activities 537,232 511,051
------- -------
Investing activities:
Cash paid for merger,
net of cash acquired (713,382) -
Capital expenditures (314,929) (222,960)
Acquisition of mineral
rights under federal
lease (65,013) (36,108)
Purchases of marketable
securities (350,617) (322,492)
Sales of marketable
securities 434,349 141,180
Purchase of equity-
method investments (8,000) (3,000)
Other, net (4,672) (1,957)
------ ------
Net cash used in
investing activities (1,022,264) (445,337)
---------- --------
Financing activities:
Principal repayments on
long-term debt (1,307,834) (50,934)
Proceeds from borrowings
on long-term debt 2,100,000 -
Debt issuance costs (84,306) (8,710)
Excess tax benefit from
stock-based awards - 8,112
Common stock repurchases (206,381) (41,580)
Proceeds from exercise
of stock options 4,079 4,292
----- -----
Net cash provided by
(used in) financing
activities 505,558 (88,820)
------- -------
Net increase (decrease)
in cash and cash
equivalents $20,526 $(23,106)
Cash and equivalents at
beginning of period $554,772 $465,869
-------- --------
Cash and equivalents at
end of period $575,298 $442,763
======== ========
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 acquired intangibles less interest income and income tax
benefit. Alpha defines adjusted EBITDA from continuing operations as EBITDA from continuing
operations plus expenses attributable to mergers, losses on early extinguishment of debt,
UBB expenses, mark-to-market losses on derivative instruments, changes in estimated future
costs of water treatment at closed mines less mark-to-market gains on derivative
instruments and 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 Nine Months Ended September
September 30, 30,
------------------ ----------------------------
2011 2010 2011 2010
---- ---- ---- ----
Income from continuing
operations $66,428 $32,361 $62,889 $86,213
Interest expense 49,148 17,834 94,726 58,458
Interest income (931) (967) (2,988) (2,495)
Income tax expense (benefit) (4,002) 1,660 2,178 18,010
Depreciation, depletion and
amortization 242,699 94,003 475,762 280,228
Amortization of acquired
intangibles, net (73,274) 52,398 (57,023) 173,988
------- ------ ------- -------
EBITDA from continuing
operations 280,068 197,289 575,544 614,402
Loss on early extinguishment of
debt 5,212 - 9,768 1,349
Merger related expenses 101,698 10,439 372,037 17,007
UBB expenses 10,636 - 16,417 -
Change in fair value of
derivative instruments (61,701) (2,459) (57,392) (11,880)
Changes in estimated future
costs of water treatment at
closed mines 37,137 - 37,137 -
------ --- ------ ---
Adjusted EBITDA from
continuing operations $373,050 $205,269 $953,511 $620,878
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 Adjusted Income from Continuing Operations to Income from Continuing
Operations
(In Thousands Except Shares and Per Share Data)
(Unaudited)
Adjusted income from continuing operations and adjusted diluted earnings per common share from
continuing operations are non-GAAP measures used by management to gauge performance and
normalized earnings levels. Alpha defines adjusted income from continuing operations as
income from continuing operations plus expenses attributable to mergers, losses on early
extinguishment of debt, mark-to-market losses on derivative instruments, changes in
estimated future costs of water treatment at closed mines, amortization of acquired
intangibles, UBB expenses, less mark-to-market gains on derivative instruments and various
gains and losses that are not expected to recur on a quarterly basis, discrete income tax
benefits from reversal of valuation allowances for deferred tax assets and reversal of
reserves for uncertain tax positions, adjustments to deferred taxes due to significant law
changes and estimated income tax effects of the pre-tax adjustments. Adjusted diluted
earnings per common share from continuing operations is adjusted income from continuing
operations divided by weighted average diluted shares. The definition of adjusted income
from continuing operations may be changed periodically by management to adjust for
significant items important to an understanding of operating trends. Management presents
adjusted income from continuing operations and adjusted earnings per share from continuing
operations as supplemental measures of the company's performance that it believes are useful
to securities analysts, investors and others in assessing the company's performance over
time. Adjusted income from continuing operations and adjusted diluted earnings per common
share 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, operating income or diluted earnings per share from continuing
operations as determined in accordance with U.S. GAAP. Moreover, adjusted income from
continuing operations and adjusted diluted earnings per common share from continuing
operations are not calculated identically by all companies. A reconciliation of adjusted
income from continuing operations to income from continuing operations, the most directly
comparable U.S. GAAP measure, and the weighted average diluted shares used to calculate
adjusted diluted earnings per common share from continuing operations are provided in the
table below.
Three Months Ended Nine Months Ended September
September 30, 30,
------------------ ----------------------------
2011 2010 2011 2010
---- ---- ---- ----
Income from continuing
operations $66,428 $32,361 $62,889 $86,213
Merger related expenses 101,698 10,439 372,037 17,007
UBB expenses 10,636 - 16,417 -
Change in fair value of
derivative instruments (61,701) (2,459) (57,392) (11,880)
Changes in estimated future
costs of water treatment at
closed mines 37,137 - 37,137 -
Amortization of acquired
intangibles, net (73,274) 52,398 (57,023) 173,988
Loss on early extinguishment of
debt 5,212 - 9,768 1,349
Estimated income tax effect of
above adjustments (6,195) (23,531) (79,366) (68,409)
Discrete tax charge from non-
deductible transaction costs - - 5,961 -
Deferred tax charge from change
in tax treatment of Medicare
Part D deductions - - - 25,566
--- --- --- ------
Adjusted income from
continuing operations $79,941 $69,208 $310,428 $223,834
Weighted average shares--
diluted 226,281,985 121,498,825 168,833,010 121,767,294
=========== =========== =========== ===========
Adjusted diluted earnings per
common share from continuing
operations $0.35 $0.57 $1.84 $1.84
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.
CONTACT: Investors, Todd Allen, CFA, Vice President, Investor Relations,
1-276-739-5328, tallen@alphanr.com, or Media, Ted Pile, Vice President,
Corporate Communications, 1-276-623-2920, tpile@alphanr.com
Web site: http://www.alphanr.com/
