Alpha Natural Resources Announces Results for Fourth Quarter and Full Year 2011
- Record full year 2011 revenue and adjusted EBITDA from continuing operations of $7.1 billion and $1.21 billion, up 81% and 50%, respectively, from 2010
- Committed & priced met coal for 2012 increased by approximately 8 million tons since last update
- On track to achieve recurring synergies of $220 million to 260 million annually by mid-year 2013
- Announced plans on February 3, 2012 to adjust Eastern production to match anticipated demand
- Goodwill impairment charge of $745 million in the fourth quarter of 2011
- Available liquidity at December 31st of approximately $1.8 billion
BRISTOL, Va., Feb. 24, 2012 /PRNewswire/ -- Alpha Natural Resources, Inc.
, a leading U.S. coal producer, reported a fourth quarter 2011 net loss of $733.3 million or $3.34 per diluted share compared to net income of $10.8 million or $0.09 per diluted share in the fourth quarter of 2010. Alpha also reported a fourth quarter loss from continuing operations of $733.3 million, or $3.34 per diluted share, compared to income from continuing operations of $11.0 million, or $0.09 per diluted share, in the fourth quarter of 2010. Excluding goodwill impairment and other adjustments described in our 'Reconciliation of Adjusted Income (Loss) from Continuing Operations to Income (Loss) from Continuing Operations,' the fourth quarter 2011 adjusted loss from continuing operations was $16.0 million, or $0.07 per diluted share.The Company recorded a $745 million goodwill impairment charge in the fourth quarter of 2011. This non-cash charge resulted from the Company's annual goodwill impairment testing required under generally accepted accounting principles and related to the Company's Eastern Coal Operations reporting segment. During the fourth quarter, domestic and international coal markets declined as a result of slowing economic activity, fuel switching for electricity generation due to low priced natural gas, and recently effective and anticipated U.S. environmental regulations that discourage the use of coal. As a result of these changes to the near-term market outlook as well as updated projections of production volumes and cash operating costs, and the Company's market valuation as of the goodwill testing date, the implied fair value of goodwill at several reporting units was determined to be less than its carrying value, thereby necessitating the impairment charge. This non-cash charge will not impact the Company's ongoing business operations nor will it affect liquidity, cash flow from operations or financial covenant compliance for any of the Company's outstanding debt.
Earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) from continuing operations for the fourth quarter 2011 was a loss of $493.7 million, compared to positive EBITDA of $154.7 million in the year ago period. Excluding goodwill impairment and other adjustments described in our 'Reconciliation of EBITDA from Continuing Operations and Adjusted EBITDA from Continuing Operations to Income (Loss) from Continuing Operations,' the fourth quarter Adjusted EBITDA from continuing operations was $260.8 million.
Quarterly Financial & Operating Highlights
(millions, except per-share and per-ton amounts)
Q4 Q3 Q4
2011 2011(1) 2010
$1,793.6 $1,997.9 $876.0
Coal revenues
Income (loss) from continuing operations ($733.3) $61.1 $11.0
Income (loss) from continuing operations
per diluted share ($3.34) $0.27 $0.09
Net income (loss) ($733.3) $61.1 $10.8
Net income (loss) per diluted share ($3.34) $0.27 $0.09
Adjusted income (loss) from continuing
operations(2) ($16.0) $73.7 $32.6
Adjusted income (loss) from continuing
operations per diluted share(2) ($0.07) $0.33 $0.27
EBITDA from continuing operations(2) ($493.7) $275.6 $154.7
Adjusted EBITDA from continuing
operations(2) $260.8 $368.6 $162.9
Tons of coal sold 31.1 31.2 22.1
Coal margin per ton $8.49 $10.86 $9.44
Adjusted coal margin per ton(2) $9.95 $14.40 $9.62
The results for the third quarter have been adjusted to reflect the
impact of retrospective adjustments made as result of applying
(1) acquisition accounting for Massey.
These are non-GAAP financial measures. A reconciliation of
adjusted income (loss) from continuing operations to income (loss)
from continuing operations, and a reconciliation of both EBITDA
from continuing operations and adjusted EBITDA from continuing
operations to income (loss) from continuing operations are
(2) included in tables accompanying the financial schedules.
'In early February, Alpha announced cutbacks that are expected to reduce 2012 shipments by approximately four million tons,' said Kevin Crutchfield, Alpha's chief executive officer. 'This decision, which affects several hundred employees in Kentucky and West Virginia, was not made lightly. We will do everything in our power to ensure that all affected employees are treated fairly, with dignity and respect. A variety of market conditions, including competition from natural gas which recently hit decade low prices, regulatory-driven plant retirements, unusually mild winter weather, and weak demand for certain coal products, all led to the conclusion that these actions were necessary.'
'Since our last earnings announcement, Alpha continued to make significant progress in safety, Running Right and the integration of the legacy Massey operations. Alpha finished the year with 84 operations reporting zero lost time accidents and 65 operations with zero reportable injuries. In addition, six of our operations were honored with the 2011 Mountaineer Guardian safety award. One of the most notable accomplishments was the removal of two legacy Massey mines, Randolph and Revolution, from MSHA's potential pattern of violation (PPOV) list. The incident rate at the legacy Massey operations in the fourth quarter showed about a 20 percent improvement compared to the third quarter of 2011. Compliance also improved, as the number of elevated MSHA enforcement actions at the legacy Massey operations decreased by approximately 45 percent compared to the previous quarter. As the integration proceeds, employee engagement at the legacy Massey operations, as measured by the number of Running Right observation cards, has been exceptional. Finally, reducing the annualized voluntary turnover rate at the legacy Massey operations is expected to be the largest driver of operations synergies from the acquisition. The turnover rate has improved steadily for several months and is now in the mid-single digits. Overall the integration has been successful, and we remain on track to achieve our targeted recurring annual synergies of $220 million to $260 million by mid-year 2013.'
'For the full year 2011, the Company achieved record revenue and adjusted EBITDA from continuing operations driven in large part by the acquisition of Massey, which propelled Alpha into the position of the world's third largest metallurgical coal supplier. However, market conditions have changed rapidly during the last few months, and the fourth quarter 2011 adjusted EBITDA from continuing operations of $261 million fell short of our expectations. The changing market environment, coupled with revised expectations of future operating costs at our Eastern operations, resulted in a goodwill impairment charge in the fourth quarter. In response to these changing market conditions, we moved swiftly to adjust our production levels in order to match anticipated demand for our products going forward. Alpha will remain focused on execution in the most critical areas: completing the successful integration of the legacy Massey operations; setting the industry standard for compliance and safety performance; and continuing our unbroken history of generating positive free cash flow every year. In order to maximize free cash flow and therefore shareholder value, we will follow a three-pronged approach by: supporting and augmenting our metallurgical coal franchise; creating a sustainable steam coal portfolio; and taking appropriate actions to address operations that are unable to contribute to a sustainable portfolio.'
Matching Production with Anticipated Demand
On February 3, 2012 Alpha announced that subsidiaries in Kentucky and West Virginia planned to idle four mines immediately and two others between the date of announcement and early 2013, while several other mines altered work schedules or reduced the number of production crews. Altogether 10 mining operations are affected, four in eastern Kentucky and six in southern West Virginia. The adjustments are expected to reduce 2012 coal production by approximately 4.0 million tons. The total includes approximately 2.5 million tons of thermal coal and 1.5 million tons of lower quality, high-volatility metallurgical coal.
Financial Performance
Total revenues in the fourth quarter of 2011 were $2.1 billion,
up 108 percent compared to the fourth quarter of 2010, and
coal revenues were $1.8 billion, a 105 percent year-over-
year increase. The large increases in total revenues and coal
revenues were primarily attributable to the inclusion of the
legacy Massey operations, which contributed coal revenues of
$739 million during the quarter, as well as a greater revenue
contribution from metallurgical coal shipments compared to
last year. Metallurgical coal shipments rose 78 percent, or
2.3 million tons, of which legacy Massey operations
contributed 2.0 million tons. Average per-ton realizations
on metallurgical coal shipments in the fourth quarter
increased 36 percent to $156.48. Higher volumes and average
realizations resulted in a 142 percent year-over-year
increase in revenues from metallurgical coal, which reached
$828 million in the fourth quarter of 2011. Freight and
handling revenues and other revenues were $181 million and $96
million, respectively, during the fourth quarter of 2011
versus $92 million and $25 million, respectively, in fourth
-- quarter of 2010.
During the fourth quarter of 2011, Alpha shipped 13.9 million tons
of Powder River Basin (PRB) coal, up from 13.4 million tons in the
year-ago period and 12.6 million tons in the third quarter of
2011. Eastern steam coal shipments were 11.9 million tons,
compared with 5.8 million tons last year and 12.7 million tons in
the prior quarter. Metallurgical coal shipments during the fourth
quarter were 5.3 million tons compared with 3.0 million tons in
the fourth quarter of 2010 and 5.9 million tons in the third
quarter of 2011. Average per-ton realization for PRB shipments
rose to $11.96, compared to $10.94 in the fourth quarter last
year. The per-ton average realization for Eastern steam coal
shipments was $66.93, compared to $67.04 in the year ago period,
and the average per-ton realization for metallurgical coal
increased to $156.48 in the fourth quarter, compared to $114.87 in
the fourth quarter of 2010.
Total costs and expenses during the fourth quarter of 2011 were
$2.8 billion, compared to $1.0 billion in the fourth quarter
of 2010. Cost of coal sales was $1.6 billion, compared to
$0.7 billion in the year-ago period. The cost of coal sales
in the East averaged $81.14 per ton, compared with $64.18 in
the fourth quarter last year and $82.13 in the previous
quarter. Excluding merger-related and UBB-related expenses,
the adjusted cost of coal sales in the East averaged $78.50
per ton, compared with $63.73 in the fourth quarter last year
and $76.20 in the previous quarter. The higher adjusted
Eastern cost of coal sales per ton during the fourth quarter
compared to the year-ago period primarily reflects a
combination of higher variable costs driven by higher average
realizations on metallurgical coal sales; increased volume of
higher-cost purchased coal; a mix shift with more high-cost
underground metallurgical coal production; and low-cost
Pennsylvania longwalls contributing a smaller percentage of
overall Eastern production, as well as increases to input
costs and the effects of an increasingly stringent regulatory
environment. The cost of coal sales per ton for Alpha Coal
West's PRB mines was $9.44 during the fourth quarter of 2011,
compared with $7.87 in the fourth quarter of 2010, as the
effect of higher shipments on fixed costs was more than offset
by higher expenses for mining inputs, equipment repairs and
-- variable costs tied to sales revenues.
Selling, general and administrative expense in the fourth
quarter of 2011 was $49 million and included $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 $45 million in the fourth quarter of
2010. Depreciation, depletion and amortization (DD&A) during
the fourth quarter of 2011 was $285 million, compared with $91
million in the year-ago period. Amortization of acquired
intangibles, net, was a benefit of $51 million, compared with
-- a net expense of $53 million last year.
Alpha recorded a net loss of $733 million, or $3.34 per diluted
share, during the fourth quarter of 2011, compared with net
income of $11 million, or $0.09 per diluted share, during the
fourth quarter of 2010. Fourth quarter 2011 net income and
income from continuing operations included the following
-- items.
($ in
Merger-related and other adjustments millions)
$745.3
Goodwill impairment
Merger-related expenses 29.9
UBB expenses 24.5
Mineral lease terminations expense 8.0
Change in fair value and settlement of
derivative instruments (53.4)
Amortization of acquired intangibles, net (50.5)
Loss on early extinguishment of debt 0.2
Income tax effect of above items 12.2
Discrete tax charge from non-deductible
transaction costs 2.3
Reversal of certain tax reserves (1.1)
----
After-tax total of above items $717.4
Note: merger-related and other adjustments pertaining to the
comparable year-ago period are detailed in the Reconciliation of
Adjusted Income (Loss) from Continuing Operations to Income (Loss)
from Continuing Operations.
Excluding these items, the adjusted loss from continuing
operations was $16 million, or $0.07 per diluted share, compared
with adjusted income from continuing operations of $33 million,
or $0.27 per diluted share, in the fourth quarter of 2010.
EBITDA from continuing operations was a loss of $494 million in the
fourth quarter of 2011, compared with positive EBITDA of $155 million
in the prior-year period. Excluding goodwill impairment, merger-
related expenses, UBB-related expenses, change in fair value and
settlement of derivative instruments, mineral lease terminations
expense, and loss on early extinguishment of debt, adjusted EBITDA
from continuing operations was $261 million in the fourth quarter of
-- 2011, compared with $163 million in the fourth quarter of 2010.
Full Year 2011 Results
For the full year 2011, Alpha reported total revenues of $7.1 billion,
including $6.2 billion in coal revenues, compared with total revenues
of $3.9 billion and coal revenues of $3.5 billion in 2010. The year-
over-year increase in both total revenues and coal revenues is
primarily attributable to the inclusion of the legacy Massey
operations for seven months in 2011, as well as increased average
-- per-ton realizations on metallurgical coal shipments.
During 2011, Alpha's coal shipments totaled 106.3 million tons,
including 20.9 million tons from the legacy Massey operations,
compared with 84.8 million tons for the full year 2010.
Metallurgical coal shipments in 2011 rose to 19.2 million tons,
up 62 percent from 11.9 million tons shipped during 2010.
Shipments of PRB coal and Eastern steam coal in 2011 were 49.9
million tons and 37.2 million tons, respectively, compared with
49.0 million tons and 24.0 million tons in the previous year.
For the full year 2011, the company-wide average per-ton realization
was $58.22 and the adjusted average cost of coal sales was $44.57 per
ton, resulting in an adjusted weighted average coal margin of $13.65
per ton, or 23 percent. For 2011, Alpha recorded a net loss and a
loss from continuing operations of $677 million, or $3.76 per diluted
share. Excluding various items detailed in the attached
Reconciliation of Adjusted Income (Loss) from Continuing Operations
to Income (Loss) from Continuing Operations, adjusted income from
continuing operations in 2011 was $287 million, or $1.57 per diluted
share. EBITDA from continuing operations for 2011 was $77 million
and adjusted EBITDA from continuing operations, which excludes
goodwill impairment, merger and UBB-related expenses, change in fair
value and settlement of derivative instruments, closed-mine asset
retirement obligation-related charges, mineral lease terminations
expense, and loss on early extinguishment of debt, was $1.21 billion.
EBITDA from continuing operations for 2010 was $769 million and
adjusted EBITDA from continuing operations, which excludes merger-
related expenses, change in fair value and settlement of derivative
instruments, and loss on early extinguishment of debt, was $808
-- million.
Liquidity and Capital Resources
Cash provided by operations for the quarter ended December 31, 2011 was $149 million, compared to $183 million for the fourth quarter of 2010. For the full year 2011, cash provided by operations was $687 million, compared with $694 million in 2010. Cash provided by operations in 2011 was net of approximately $198 million of merger-related and UBB-related expenditures.
Capital expenditures for the fourth quarter and full year 2011 were $214 million and $529 million, respectively, compared to $86 million and $309 million in the fourth quarter and full year 2010.
At the end of the fourth quarter of 2011, Alpha had available liquidity of approximately $1.8 billion, consisting of cash, cash equivalents and marketable securities of $687 million, plus $1.1 billion available under the company's secured credit facility and accounts receivable securitization facility. Total long-term debt, including the current portion of long-term debt at December 31, 2011, was $3.0 billion, compared with $754 million at December 31, 2010.
Market Overview
After achieving record high pricing early in 2011, metallurgical coal has experienced three successive quarters of decreasing benchmark prices due to a number of factors, including: the recovery of Australian exports following severe flooding events early in 2011; ramping Mongolian production which is becoming a leading source of supply to the Chinese steel industry; concerns over the prospect of slowing growth in China; and the ongoing European financial crisis. In the current environment, demand for higher quality coking coals remains robust; however, demand for lower quality, high-volatility metallurgical coals has waned, and margins for these coals have compressed. In response, Alpha acted swiftly by announcing its plan to reduce production of lower quality metallurgical coal by 1.5 million tons in 2012 in order to match production with anticipated demand. While the seaborne market for coking coal has experienced some downward pricing pressure in the near-term, domestic steel mills continue to run at capacity utilizations in the upper 70 percent range, and domestic demand for steel and coking coal remains stable.
In the short-run, the market for thermal coal in the United States also faces a number of challenges. Unusually mild winter weather has reduced electricity generation and thus both coal burn and gas burn, resulting in a rapid build in coal inventories that now stand at greater than 180 million tons nationwide, an increase of more than 30 million tons from just three months ago. The mild weather, burgeoning inventories and prolific production of natural gas has recently driven the price of natural gas to decade lows, which has increased fuel switching in favor of gas and forced the price of thermal coals lower across all production basins. Regulatory uncertainties, particularly surrounding the recently delayed Cross-state Air Pollution Rule (CSAPR), and Maximum Achievable Control Technology (MACT), are causing utilities to defer coal purchasing decisions, and in some cases to retire coal-fired generating facilities. To address these challenges, on February 3, Alpha announced its plan to further curtail 2012 production of its Central Appalachian thermal coal by 2.5 million tons, with the long-term goal of creating a sustainable thermal coal portfolio that will be able to economically dispatch for the foreseeable future.
While the near-term environment is marked by headwinds for both met and thermal coals, the long-term fundamentals remain constructive. With few regions in the world capable of producing high quality coking coal and long-range growth in global steel production fueled by emerging economies in Asia, the best quality metallurgical coals are anticipated to remain relatively supply-constrained for the foreseeable future. Likewise, the Eastern Hemisphere is projected to drive long-term growth in thermal coal demand. According to the Energy Information Administration, by 2030 the world is projected to consume approximately 9.7 billion tons of coal annually, approximately a 30 percent (or greater than two billion tons) increase over annual global consumption in 2011. The majority of the growth is expected to come from developing economies, particularly China and India. Powerful and permanent shifts in the world's seaborne trading patterns are already evident as this Asian demand grows over time. South African thermal coal exports, which historically served the European utility market, are now primarily moving east into India and China. Thermal coal from the Americas is filling the void in Europe, with Colombian exports to Europe up 41 percent during the first 11 months of 2011, alone. Given the shifting seaborne trading patterns, Alpha will be poised to leverage its leading U.S. export terminal position, with 25 million to 30 million tons of capacity, to further access seaborne markets for both metallurgical and thermal coal in response to expected seaborne demand growth in the coming years.
Outlook
In order to reflect recent production cutbacks and the current market environment, Alpha is revising its 2012 shipment guidance ranges. The Company now expects to ship between 20.0 million tons and 25.0 million tons of Eastern metallurgical coal, compared to the previous range of 23.5 million tons to 26.5 million tons. Eastern steam coal shipments in 2012 are now expected to range from 42.0 million tons to 48.0 million tons, compared to the previous range of 46.0 million tons to 52.0 million tons. Western steam coal shipments out of the Powder River Basin in 2012 are anticipated to be in the range of 45.0 million tons to 51.0 million tons, compared to the previous range of 49.0 million tons to 53.0 million tons. As of February 8, 2012, 50 percent of the midpoint of anticipated met coal shipments were committed and priced at an average per ton realization of $152.91; 92 percent of the midpoint of anticipated Eastern steam coal shipments were committed and priced at an average per ton realization of $68.17; and 100 percent of the midpoint of anticipated PRB shipments were committed and priced at an average per ton realization of $12.78. The Company's 2012 cost of coal sales is expected to range between $72 and $77 per ton in the East and between $10.50 and $11.50 per ton in the West. Selling, general and administrative expenses are anticipated to range from $220 million to $240 million for 2012, compared to prior guidance of $230 million to $270 million. Guidance for DD&A and interest expense remain unchanged at ranges of $1.05 billion to $1.15 billion and $175 million to $185 million, respectively. Capital expenditures for 2012 are expected to fall within the range of $550 million to $750 million, compared to prior guidance of $650 million to $850 million.
Guidance
(in millions, except per-ton and percentage
amounts)
2012
Average per Ton Sales Realization
on Committed and Priced Coal
Shipments(1,2)
West $12.78
Eastern Steam $68.17
Eastern Met $152.91
107.0 -
Coal Shipments(3) 124.0
West 45.0 - 51.0
Eastern Steam(4) 42.0 - 48.0
Eastern Met 20.0 - 25.0
Committed and Priced (%)(5) 89%
West 100%
Eastern Steam 92%
Eastern Met 50%
Committed and Unpriced (%)(5,6) 8%
West 0%
Eastern Steam 3%
Eastern Met 33%
West - Cost of Coal Sales per Ton $10.50 - $11.50
East - Cost of Coal Sales per
Ton(7) $72.00 - $77.00
Selling, General & Administrative
Expense(8) $220 - $240
Depletion, Depreciation &
Amortization Expense $1,050 - $1,150
Interest Expense $175 - $185
Capital Expenditures(9) $550 - $750
Notes:
1. Based on committed and priced coal shipments as of February 8, 2012.
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 2012 include an estimated 3.0 to 4.0 million tons of
brokered coal per year.
4. 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 March and
November of 2012.
5. As of February 8, 2012, compared to the midpoint of shipment guidance
range.
6. In 2012, committed and unpriced Eastern tons include approximately 7.4
million tons of metallurgical coal subject to market pricing,
approximately 0.3 million tons of steam coal subject to market pricing,
approximately 0.3 million tons of steam coal subject to collared pricing
with an average pricing range of $58.50 to $71.50 per ton, as well as
approximately 0.9 million tons of steam coal subject to indexed pricing
estimated at $65.18 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.
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.
9. Includes the annual bonus bid payments on the Federal Lease by
Applications (LBAs) for the Eagle Butte and Belle Ayr mines of $36.1
million and $28.9 million, respectively.
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. 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;
-- 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;
-- inherent risks of coal mining beyond our control;
-- 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;
-- the geological characteristics of the Powder River Basin, Central and
Northern Appalachian coal reserves;
-- competition in coal markets;
-- our assumptions concerning economically recoverable coal reserve
estimates;
-- 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;
-- our ability to negotiate new UMWA wage agreements on terms acceptable to
us, increased unionization of our workforce in the future, and any
strikes by our workforce;
-- availability of skilled employees and other employee workforce factors,
such as labor relations;
-- potential instability and volatility in worldwide financial markets;
-- future legislation and changes in regulations, governmental policies or
taxes or changes in interpretation thereof;
-- disruption in coal supplies;
-- 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;
-- our 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 final 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;
-- 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;
-- 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;
-- fair value of derivative instruments not accounted for as hedges that
are being marked to market;
-- our ability to obtain or renew surety bonds on acceptable terms or
maintain self bonding status;
-- 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 our outstanding debt securities;
-- certain terms of our outstanding debt securities, including any
conversions of our convertible debt securities, that may adversely
impact our liquidity;
-- our substantial indebtedness and potential future indebtedness;
-- significant or rapid increases in commodity prices;
-- 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 September 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
Use of Non-GAAP Measures
In addition to the results prepared in accordance with generally accepted accounting principles in the United States (GAAP) provided throughout this press release, Alpha has presented the following non-GAAP financial measures, which management uses to gauge operating performance: EBITDA from continuing operations, adjusted EBITDA from continuing operations, adjusted income (loss) from continuing operations, adjusted diluted earnings per common share from continuing operations, adjusted cost of coal sales per ton from continuing operations, adjusted coal margin per ton and adjusted weighted average coal margin per ton.
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, goodwill impairment, losses on early extinguishment of debt, UBB expenses, mineral lease terminations expense, losses from changes in fair value and settlements of derivative instruments, and changes in estimated future costs of water treatment at closed mines less gains from changes in fair value and settlements of derivative instruments and various gains and losses not expected to recur on a quarterly basis. Alpha defines adjusted income (loss) from continuing operations as income (loss) from continuing operations plus expenses attributable to mergers, goodwill impairment, losses on early extinguishment of debt, losses from changes in fair value and settlements of derivative instruments, changes in estimated future costs of water treatment at closed mines, amortization of acquired intangibles, UBB expenses, mineral lease terminations expense, less gains from changes in fair value and settlements of 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 (loss) per common share from continuing operations is adjusted income (loss) from continuing operations divided by weighted average diluted shares.
Alpha defines adjusted cost of coal sales per ton from continuing operations as the cost of coal sales per ton from continuing operations less per ton expenses attributable to mergers, UBB expenses, mineral lease terminations expense, changes in estimated future costs of water treatment at closed mines and various expenses that are not expected to recur on a quarterly basis. Alpha defines adjusted coal margin per ton as the average realized price per ton sold from continuing operations less the adjusted cost of coal sales per ton from continuing operations. Alpha defines adjusted weighted average coal margin per ton as the weighted average realized price per ton sold from continuing operations less the adjusted weighted average total cost of coal sales per ton from continuing operations.
The definition of these non-GAAP measures may be changed periodically by management to adjust for significant items important to an understanding of operating trends. These measures are not intended to replace financial performance measures determined in accordance with GAAP. Rather, they are presented as supplemental measures of the company's performance that management believes are useful to securities analysts, investors and others in assessing the company's performance over time. Moreover, these measures are not calculated identically by all companies and therefore may not be comparable to similarly titled measures used by other companies. A reconciliation of each of these measures to its most directly comparable GAAP measure is provided in the tables below.
Alpha Natural Resources, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands Except Shares and Per Share Data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- --------------------
2011 2010 2011 2010
---- ---- ---- ----
Revenues:
Coal
revenues $1,793,630 $876,042 $6,189,434 $3,497,847
Freight and
handling
revenues 181,478 92,173 662,238 332,559
Other
revenues 95,535 24,900 257,514 86,750
------ ------ ------- ------
Total
revenues 2,070,643 993,115 7,109,186 3,917,156
--------- ------- --------- ---------
Costs and
expenses:
Cost of coal
sales
(exclusive
of items
shown
separately
below) 1,553,897 669,836 5,081,671 2,566,825
Freight and
handling
costs 181,478 92,173 662,238 332,559
Other
expenses 34,268 29,404 152,370 65,498
Depreciation,
depletion
and
amortization 285,452 90,667 769,527 370,895
Amortization
of acquired
intangibles,
net (50,537) 52,805 (113,746) 226,793
Selling,
general and
administrative
expenses
(exclusive
of
depreciation,
depletion
and
amortization
shown
separately
above) 49,411 45,371 380,791 180,975
Goodwill
impairment 745,325 - 745,325 -
------- --- ------- ---
Total costs
and
expenses 2,799,294 980,256 7,678,176 3,743,545
--------- ------- --------- ---------
Income
(loss) from
operations (728,651) 12,859 (568,990) 173,611
-------- ------ -------- -------
Other income
(expense):
Interest
expense (47,188) (15,005) (141,914) (73,463)
Interest
income 991 963 3,978 3,458
Loss on
early
extinguishment
of debt (258) - (10,026) (1,349)
Miscellaneous
income, net 302 (1,604) 635 (821)
--- ------ --- ----
Total other
expense,
net (46,153) (15,646) (147,327) (72,175)
------- ------- -------- -------
Income
(loss) from
continuing
operations
before
income
taxes (774,804) (2,787) (716,317) 101,436
Income tax
benefit
(expense) 41,470 13,792 38,927 (4,218)
------ ------ ------ ------
Income
(loss) from
continuing
operations (733,334) 11,005 (677,390) 97,218
-------- ------ -------- ------
Discontinued
operations:
Loss from
discontinued
operations
before
income
taxes - (145) - (2,719)
Income tax
benefit
(expense) - (21) - 1,052
--- --- --- -----
Loss from
discontinued
operations - (166) - (1,667)
--- ---- --- ------
Net income
(loss) $(733,334) $10,839 $(677,390) $95,551
========= ======= ========= =======
Earnings
(loss) per
common
share:
Basic
earnings
(loss) per
common
share:
Income
(loss) from
continuing
operations $(3.34) $0.09 $(3.76) $0.81
Loss from
discontinued
operations - - - (0.01)
--- --- --- -----
Net income
(loss) $(3.34) $0.09 $(3.76) $0.80
====== ===== ====== =====
Diluted
earnings
(loss) per
common
share:
Income
(loss) from
continuing
operations $(3.34) $0.09 $(3.76) $0.80
Loss from
discontinued
operations - - - (0.01)
--- --- --- -----
Net income
(loss) $(3.34) $0.09 $(3.76) $0.79
====== ===== ====== =====
Weighted
average
shares
outstanding:
Weighted
average
shares--
basic 219,280,297 119,648,706 180,126,226 119,808,514
Weighted
average
shares--
diluted 219,280,297 121,731,415 180,126,226 121,757,949
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 Twelve Months Ended
December 31, December 31,
------------------- --------------------
2011 2010 2011 2010
---- ---- ---- ----
Tons
sold
from
continuing
operations(1):
Powder
River
Basin 13,895 13,357 49,949 48,977
Eastern
steam 11,937 5,778 37,192 24,001
Eastern
metallurgical 5,294 2,982 19,177 11,871
----- ----- ------ ------
Total 31,126 22,117 106,318 84,849
====== ====== ======= ======
Average
realized
price
per
ton
sold
from
continuing
operations
(2)(9):
Powder
River
Basin $11.96 $10.94 $11.95 $10.95
Eastern
steam 66.93 67.04 66.92 67.07
Eastern
metallurgical 156.48 114.87 161.85 113.89
Weighted
average
total $57.63 $39.61 $58.22 $41.22
Coal
revenues:
Powder
River
Basin $166,238 $146,133 $596,724 $536,064
Eastern
steam 798,927 387,354 2,488,729 1,609,832
Eastern
metallurgical 828,465 342,555 3,103,981 1,351,951
------- ------- --------- ---------
Total
coal
revenues $1,793,630 $876,042 $6,189,434 $3,497,847
Adjusted
cost
of
coal
sales
per
ton
from
continuing
operations
(3)(7)(8)(11):
Powder
River
Basin $9.44 $7.87 $9.99 $8.56
East
(4) $78.50 $63.73 $75.22 $59.04
Adjusted
weighted
average
total $47.68 $29.99 $44.57 $29.90
Adjusted
weighted
average
coal
margin
per
ton
(9) $9.95 $9.62 $13.65 $11.32
Adjusted
weighted
average
coal
margin
percentage
(10) 17.3% 24.3% 23.4% 27.5%
Cost
of
coal
sales
per
ton
from
continuing
operations
(3)(7)(11):
Powder
River
Basin $9.44 $7.87 $9.99 $8.56
East
(4) $81.14 $64.18 $80.09 $59.47
Weighted
average
total $49.14 $30.17 $47.15 $30.08
Weighted
average
coal
margin
per
ton
(9) $8.49 $9.44 $11.07 $11.14
Weighted
average
coal
margin
percentage
(10) 14.7% 23.8% 19.0% 27.0%
Net
cash
provided
by
operating
activities
including
discontinued
operations $149,409 $182,550 $686,641 $693,601
Capital
expenditures
including
discontinued
operations $213,657 $85,904 $528,586 $308,864
(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) Amounts per ton calculated based on
unrounded revenues, cost of coal sales and
tons sold.
(8) For the three and twelve months ended
December 31, 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. For
the three and twelve months ended December
31, 2010, adjusted
cost of sales per ton for East includes
adjustments to exclude the impact of certain
merger-related expenses from the merger
with Foundation Coal related to
employee benefits.
(9) Weighted average total sales realization
per ton less adjusted weighted average total
cost of coal sales per ton.
(10) Adjusted weighted average coal margin
per ton divided by weighted average total
sales realization per ton.
(11) 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 Twelve Twelve
months months Three months months
ended ended ended ended
December December December 31, December
31, 2011 31, 2011 2010 31, 2010
--------- -------- ------------- ---------
Adjusted
cost
of
coal
sales
per
ton
from
continuing
operations-
East $78.50 $75.22 $63.73 $59.04
Impact
of
merger-
related
stock
compensation
and
severance
expenses 0.05 0.10 - -
Impact
of
merger-
related
inventory
expenses 0.27 2.71 - -
Impact
of
UBB
expenses 1.42 0.73 - -
Impact
of
mineral
lease
terminations 0.46 0.14 - -
Impact
of
merger-
related
benefits
alignment
expense 0.44 0.53 0.45 0.43
Impact
of
changes
in
estimated
future
costs
of
water
treatment
at
closed
mines - 0.66 - -
Cost
of
coal
sales
per
ton
from
continuing
operations-
East $81.14 $80.09 $64.18 $59.47
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 and Supplemental
Liquidity Data
(In Thousands)
(Unaudited)
December 31, 2011 December 31, 2010
----------------- -----------------
Cash and
cash
equivalents $585,882 $554,772
Trade
accounts
receivable,
net 645,034 281,138
Inventories,
net 492,022 198,172
Short-
term
marketable
securities 80,342 217,191
Prepaid
expenses
and
other
current
assets 677,213 124,564
------- -------
Total
current
assets 2,480,493 1,375,837
Property,
equipment
and
mine
development
costs,
net 2,821,225 1,129,222
Owned
and
leased
mineral
rights
and
land,
net 8,285,023 1,985,661
Goodwill,
net 2,250,557 382,440
Long-
term
marketable
securities 20,489 60,159
Other
non-
current
assets 653,027 245,964
------- -------
Total
assets $16,510,814 $5,179,283
=========== ==========
Current
portion
of
long-
term
debt $46,029 $11,839
Trade
accounts
payable 503,911 121,553
Accrued
expenses
and
other
current
liabilities 1,216,109 313,754
--------- -------
Total
current
liabilities 1,766,049 447,146
Long-
term
debt 2,922,052 742,312
Pension
and
postretirement
medical
benefit
obligations 1,214,724 719,355
Asset
retirement
obligations 724,672 209,987
Deferred
income
taxes 1,528,304 249,408
Other
non-
current
liabilities 926,815 155,039
------- -------
Total
liabilities 9,082,616 2,523,247
Total
stockholders'
equity 7,428,198 2,656,036
--------- ---------
Total
liabilities
and
stockholders'
equity $16,510,814 $5,179,283
=========== ==========
As of
-----
December 31, 2011 December 31, 2010
----------------- -----------------
Liquidity
($ in
000's):
Cash and
cash
equivalents $585,882 $554,772
Marketable
securities
with
maturities
of less
than
one
year 80,342 217,191
Marketable
securities
with
maturities
of
greater
than
one
year 20,489 60,159
------ ------
Total
cash,
cash
equivalents
and
marketable
securities 686,713 832,122
Unused
revolving
credit
and A/
R
securitization
facilities 1,114,700 932,945
--------- -------
Total
available
liquidity $1,801,413 $1,765,067
========== ==========
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)
Twelve Months Ended
December 31,
--------------------
2011 2010
---- ----
Operating activities:
Net income (loss) $(677,390) $95,551
Adjustments to reconcile net
income (loss) to net cash
provided by
operating activities:
Depreciation, depletion, and
amortization 769,527 371,103
Amortization of acquired
intangibles, net (113,746) 226,793
Amortization of debt issue
costs and accretion of debt
discount 30,263 18,552
Change in fair value of
derivative instruments (125,391) 11,316
Accretion of asset
retirement obligations 42,402 17,621
Stock-based compensation 53,685 33,255
Employee benefit plans, net 68,157 55,771
Loss on early extinguishment
of debt 10,026 1,349
Deferred income taxes (19,853) (70,579)
Goodwill impairment 745,325 -
Other, net 14,443 (4,776)
Changes in operating assets
and liabilities:
Trade accounts receivable,
net (178,704) (48,507)
Inventories, net 120,460 (21,886)
Prepaid expenses and other
current assets 36,355 59,075
Other non-current assets (30,191) (7,468)
Trade accounts payable 84,784 (21,755)
Accrued expenses and other
current liabilities (42,064) 42,730
Pension and postretirement
medical benefit obligations (105,584) (70,770)
Asset retirement obligations (22,833) (5,593)
Other non-current
liabilities 26,970 11,819
------ ------
Net cash provided by
operating activities 686,641 693,601
------- -------
Investing activities:
Cash paid for merger, net of
cash acquired (711,387) -
Capital expenditures (528,586) (308,864)
Acquisition of mineral
rights under federal leases (64,900) (36,108)
Purchases of marketable
securities (374,048) (372,790)
Sales of marketable
securities 547,249 214,240
Purchase of equity-method
investments (14,800) (5,000)
Other, net (535) 25
---- ---
Net cash used in investing
activities (1,147,007) (508,497)
---------- --------
Financing activities:
Principal repayments on
long-term debt (1,315,357) (56,854)
Proceeds from borrowings on
long-term debt 2,100,000 -
Debt issuance costs (85,226) (8,594)
Excess tax benefit from
stock-based awards - 5,505
Common stock repurchases (212,257) (41,664)
Proceeds from exercise of
stock options 4,316 5,521
Other - (115)
----
Net cash provided by (used
in) financing activities 491,476 (96,201)
------- -------
Net increase in cash and
cash equivalents $31,110 $88,903
Cash and equivalents at
beginning of period $554,772 $465,869
-------- --------
Cash and equivalents at end
of period $585,882 $554,772
======== ========
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 (Loss) from Continuing Operations
(In Thousands)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- --------------------
2011 2010 2011 2010
---- ---- ---- ----
Income
(loss)
from
continuing
operations $(733,334) $11,005 $(677,390) $97,218
Interest
expense 47,188 15,005 141,914 73,463
Interest
income (991) (963) (3,978) (3,458)
Income
tax
expense
(benefit) (41,470) (13,792) (38,927) 4,218
Depreciation,
depletion
and
amortization 285,452 90,667 769,527 370,895
Amortization
of
acquired
intangibles,
net (50,537) 52,805 (113,746) 226,793
------- ------ -------- -------
EBITDA
from
continuing
operations (493,692) 154,727 77,400 769,129
Goodwill
impairment 745,325 - 745,325 -
Loss
on
early
extinguishment
of
debt 258 - 10,026 1,349
Merger
related
expenses 29,912 8,701 402,099 25,708
UBB
expenses 24,503 - 40,920 -
Mineral
lease
terminations
expense 7,955 - 7,955 -
Change
in
fair
value
and
settlement
of
derivative
instruments (53,441) (564) (106,310) 11,316
Changes
in
estimated
future
costs
of
water
treatment
at
closed
mines - - 37,137 -
--- --- ------ ---
Adjusted
EBITDA
from
continuing
operations $260,820 $162,864 $1,214,552 $807,502
======== ======== ========== ========
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 (Loss) from Continuing Operations
to Income (Loss) from Continuing Operations
(In Thousands Except Shares and Per Share Data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- --------------------
2011 2010 2011 2010
---- ---- ---- ----
Income
(loss)
from
continuing
operations $(733,334) $11,005 $(677,390) $97,218
Goodwill
impairment 745,325 - 745,325 -
Merger
related
expenses 29,912 8,701 402,099 25,708
UBB
expenses 24,503 - 40,920 -
Mineral
lease
terminations
expense 7,955 7,955
Change in
fair value
and
settlement
of
derivative
instruments (53,441) (564) (106,310) 11,316
Changes in
estimated
future
costs of
water
treatment
at closed
mines - - 37,137 -
Amortization
of
acquired
intangibles,
net (50,537) 52,805 (113,746) 226,793
Loss on
early
extinguishment
of debt 258 - 10,026 1,349
Estimated
income tax
effect of
above
adjustments 12,184 (25,310) (66,635) (102,784)
Discrete
tax charge
from non-
deductible
transaction
costs 2,268 - 8,230 -
Reversal of
certain
tax
reserves (1,057) (14,018) (1,057) (14,018)
Deferred
tax charge
from
change in
tax
treatment
of
Medicare
Part D
deductions - - - 25,566
--- --- --- ------
Adjusted
income
(loss)
from
continuing
operations $(15,964) $32,619 $286,554 $271,148
======== ======= ======== ========
Weighted
average
shares--
diluted 219,280,297 121,731,415 182,012,022 121,757,949
=========== =========== =========== ===========
Adjusted
diluted
earnings
(loss) per
common
share from
continuing
operations $(0.07) $0.27 $1.57 $2.23
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/
