þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
02-0733940
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
Number)
|
|
One
Alpha Place, P.O. Box 2345, Abingdon, VA
|
24212
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Page
|
||||
PART
I
|
||||
2
|
||||
3
|
||||
4
|
||||
6
|
||||
16
|
||||
29
|
||||
31
|
||||
PART
II
|
||||
32
|
||||
32
|
||||
33
|
||||
33
|
||||
33
|
||||
Signature | ||||
Condensed
Consolidated Statements of Income (Unaudited)
|
|||||||||||||
(In
thousands, except share and per share amounts)
|
|||||||||||||
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Revenues:
|
|||||||||||||
Coal
revenues
|
$ | 631,876 | $ | 387,212 | $ | 1,077,555 | $ | 767,362 | |||||
Freight
and handling revenues
|
86,015 | 41,588 | 145,187 | 84,799 | |||||||||
Other
revenues
|
14,330 | 6,548 | 26,385 | 13,778 | |||||||||
Total
revenues
|
732,221 | 435,348 | 1,249,127 | 865,939 | |||||||||
Costs
and expenses:
|
|||||||||||||
Cost
of coal sales (exclusive of items shown
|
|||||||||||||
separately
below)
|
462,424 | 322,279 | 824,635 | 635,204 | |||||||||
Increase
in fair value of derivative instruments, net
|
(6,516 | ) | (390 | ) | (23,200 | ) | (840 | ) | |||||
Freight
and handling costs
|
86,015 | 41,588 | 145,187 | 84,799 | |||||||||
Cost
of other revenues
|
13,110 | 4,768 | 23,125 | 10,396 | |||||||||
Depreciation,
depletion and amortization
|
44,910 | 37,855 | 89,170 | 73,644 | |||||||||
Selling,
general and administrative expenses
|
|||||||||||||
(exclusive
of depreciation and amortization shown separately above)
|
20,732 | 13,982 | 36,086 | 27,221 | |||||||||
Total
costs and expenses
|
620,675 | 420,082 | 1,095,003 | 830,424 | |||||||||
Income
from operations
|
111,546 | 15,266 | 154,124 | 35,515 | |||||||||
Other
income (expense):
|
|||||||||||||
Interest
expense
|
(17,097 | ) | (10,030 | ) | (27,184 | ) | (20,023 | ) | |||||
Interest
income
|
2,234 | 457 | 3,023 | 1,094 | |||||||||
Loss
on early extinguishment of debt
|
(14,669 | ) | — | (14,669 | ) | — | |||||||
Miscellaneous
income (expense), net
|
(127 | ) | 512 | 2 | 554 | ||||||||
Total
other income (expense), net
|
(29,659 | ) | (9,061 | ) | (38,828 | ) | (18,375 | ) | |||||
Income
before income taxes and minority interest
|
81,887 | 6,205 | 115,296 | 17,140 | |||||||||
Income
tax expense
|
7,662 | 1,502 | 15,630 | 4,131 | |||||||||
Minority
interest
|
(112 | ) | (44 | ) | (201 | ) | (87 | ) | |||||
Net
income
|
$ | 74,337 | $ | 4,747 | $ | 99,867 | $ | 13,096 | |||||
Net
income per basic share
|
$ | 1.07 | $ | 0.07 | $ | 1.48 | $ | 0.20 | |||||
Net
income per diluted share
|
$ | 1.04 | $ | 0.07 | $ | 1.46 | $ | 0.20 | |||||
See
accompanying notes to condensed consolidated financial
statements.
|
|||||||||||||
Condensed
Consolidated Balance Sheets (Unaudited)
|
|||||||
(In
thousands, except share and per share amounts)
|
|||||||
June
30,
|
December
31,
|
||||||
2008
|
2007
|
||||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$ | 406,494 | $ | 54,365 | |||
Trade
accounts receivable, net
|
257,285 | 183,969 | |||||
Notes
and other receivables
|
11,345 | 11,141 | |||||
Inventories | 85,418 | 70,780 | |||||
Deferred
income taxes
|
10,788 | — | |||||
Prepaid
expenses and other current assets
|
111,052 | 59,954 | |||||
Total
current assets
|
882,382 | 380,209 | |||||
Property,
plant, and equipment, net
|
619,237 | 640,258 | |||||
Goodwill
|
20,547 | 20,547 | |||||
Other
intangibles, net
|
7,826 | 9,376 | |||||
Deferred
income taxes
|
81,522 | 97,130 | |||||
Other
assets
|
67,422 | 63,394 | |||||
Total
assets
|
$ | 1,678,936 | $ | 1,210,914 | |||
Liabilities
and Stockholders' Equity
|
|||||||
Current
liabilities:
|
|||||||
Current
portion of long-term debt
|
$ | 289,956 | $ | 2,579 | |||
Notes Payable | 6,398 | 18,883 | |||||
Trade
accounts payable
|
119,753 | 95,749 | |||||
Deferred
income taxes
|
— | 9,753 | |||||
Accrued
expenses and other current liabilities
|
154,418 | 96,098 | |||||
Total
current liabilities
|
570,525 | 223,062 | |||||
Long-term
debt, net of current portion
|
249,242 | 425,451 | |||||
Workers’
compensation benefit obligations
|
8,846 | 9,055 | |||||
Postretirement
medical benefit obligations
|
57,078 | 53,811 | |||||
Asset
retirement obligation
|
84,348 | 83,020 | |||||
Deferred
gains on sale of property interests
|
2,758 | 3,176 | |||||
Other
liabilities
|
38,208 | 30,930 | |||||
Total
liabilities
|
1,011,005 | 828,505 | |||||
Minority
Interest
|
1,187 | 1,573 | |||||
Commitments
and contingencies
|
|||||||
Stockholders'
equity:
|
|||||||
Preferred
stock - par value $0.01, 10,000,000 shares
|
|||||||
authorized,
none issued
|
— | — | |||||
Common
stock - par value $0.01, 100,000,000 shares
|
|||||||
authorized,
70,482,861 and
65,769,303 shares issued and outstanding
|
|||||||
at
June 30, 2008 and December 31, 2007, respectively
|
705 | 658 | |||||
Additional
paid-in capital
|
411,240 | 227,336 | |||||
Accumulated
other comprehensive loss
|
(20,200 | ) | (22,290 | ) | |||
Retained
earnings
|
274,999 | 175,132 | |||||
Total
stockholders' equity
|
666,744 | 380,836 | |||||
Total
liabilities and stockholders' equity
|
$ | 1,678,936 | $ | 1,210,914 | |||
See
accompanying notes to condensed consolidated financial
statements.
|
|||||||
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
|||||||
(In
thousands)
|
|||||||
Six
Months Ended
|
|||||||
June
30,
|
|||||||
2008
|
2007
|
||||||
Operating
activities:
|
|||||||
Net
income
|
$ | 99,867 | $ | 13,096 | |||
Adjustments to
reconcile net income to net
|
|||||||
cash provided by
operatingactivities:
|
|||||||
Depreciation,
depletion and amortization
|
89,170 | 73,644 | |||||
Loss on
early extinguishment of debt
|
14,669 | — | |||||
Amortization of
debt issuance costs
|
9,962 | 1,140 | |||||
Accretion of
asset retirement obligation
|
3,708 | 3,123 | |||||
Share-based
compensation
|
14,575 | 4,064 | |||||
Amortization of
deferred gains on sales
|
|||||||
of
property interests
|
(418 | ) | (493 | ) | |||
Gain on
sale of fixed assets and investments
|
(1,789 | ) | (1,650 | ) | |||
Minority
interest
|
(201 | ) | (87 | ) | |||
Change
in fair value of derivative instruments
|
(23,200 | ) | (840 | ) | |||
Deferred income
tax benefit
|
(6,256 | ) | (854 | ) | |||
Other
|
50 | 385 | |||||
Changes
in operating assets and liabilities:
|
|||||||
Trade
accounts receivable
|
(73,316 | ) | 24,512 | ||||
Notes
and other receivables
|
(1,642 | ) | (1,036 | ) | |||
Inventories
|
(14,638 | ) | (6,857 | ) | |||
Prepaid
expenses and other current
|
|||||||
assets
|
21,488 | 8,647 | |||||
Other
assets
|
3,048 | (6,831 | ) | ||||
Trade
accounts payable
|
28,830 | (6,607 | ) | ||||
Accrued
expenses and other current
|
|||||||
liabilities
|
15,553 | (1,598 | ) | ||||
Workers’
compensation benefits
|
(164 | ) | 1,941 | ||||
Postretirement
medical benefits
|
4,497 | 4,125 | |||||
Asset
retirement obligation
|
(2,650 | ) | (3,327 | ) | |||
Other
liabilities
|
(1,706 | ) | (2,189 | ) | |||
Net cash provided
by
|
|||||||
operating
activities
|
$ | 179,437 | $ | 102,308 | |||
ALPHA
NATURAL RESOURCES, INC. AND SUBSIDIARIES
|
|||||||
Consolidated
Statements of Cash Flows (Unaudited) - (Continued)
|
|||||||
(In
thousands)
|
|||||||
Six
Months Ended
|
|||||||
June
30,
|
|||||||
2008
|
2007
|
||||||
Investing
activities:
|
|||||||
Capital
expenditures
|
$ | (74,207 | ) | $ | (71,655 | ) | |
Proceeds
from disposition of property, plant,
|
|||||||
and
equipment
|
2,775 | 2,559 | |||||
Investment
in and advances to investee
|
(164 | ) | (147 | ) | |||
Proceeds
from sale of investment in coal terminal
|
1,500 | — | |||||
Investment
in Dominion terminal facility
|
(2,824 | ) | — | ||||
Purchase
of acquired companies
|
— | (43,890 | ) | ||||
Deferred
acquisition cost
|
(931 | ) | (630 | ) | |||
Net
cash used in investing activities
|
(73,851 | ) | (113,763 | ) | |||
Financing
activities:
|
|||||||
Repayments
of note payable
|
(12,485 | ) | (13,853 | ) | |||
Proceeds
from issuance of convertible debt
|
287,500 | — | |||||
Repayments
on long-term debt
|
(176,028 | ) | (1,664 | ) | |||
Proceeds
from issuance of long-term debt
|
— | 15,000 | |||||
Proceeds
from issuance of common stock, net
|
164,666 | — | |||||
Debt
issuance costs
|
(10,861 | ) | — | ||||
Premium
payment on early extinguishment of debt
|
(10,703 | ) | — | ||||
Decrease
in bank overdraft
|
(160 | ) | (12,749 | ) | |||
Tax
benefit from share-based compensation
|
1,790 | — | |||||
Proceeds
from exercise of stock options
|
3,128 | 120 | |||||
Other | (304 | ) | — | ||||
Net
cash provided by (used in) financing activities
|
246,543 | (13,146 | ) | ||||
Net
increase (decrease) in cash and cash equivalents
|
352,129 | (24,601 | ) | ||||
Cash
and cash equivalents at beginning of period
|
54,365 | 33,256 | |||||
Cash
and cash equivalents at end of period
|
$ | 406,494 | $ | 8,655 | |||
See
accompanying notes to condensed consolidated financial
statements.
|
|||||||
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net
income
|
$
|
74,337
|
$
|
4,747
|
$
|
99,867
|
$
|
13,096
|
||||||||
Denominator:
|
||||||||||||||||
Weighted
average shares — basic
|
69,455,450
|
64,588,324
|
67,273,460
|
64,583,769
|
||||||||||||
Dilutive
effect of stock equivalents
|
1,965,803
|
253,374
|
1,352,406
|
205,733
|
||||||||||||
Weighted
average shares — diluted
|
71,421,253
|
64,841,698
|
68,625,866
|
64,789,502
|
||||||||||||
Net
income per basic share:
|
$
|
1.07
|
$
|
0.07
|
$
|
1.48
|
$
|
0.20
|
||||||||
Net
income per diluted share:
|
$
|
1.04
|
$
|
0.07
|
$
|
1.46
|
$
|
0.20
|
June
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Raw
coal
|
$
|
10,572
|
$
|
8,754
|
||||
Saleable
coal
|
60,091
|
48,928
|
||||||
Equipment
for resale
|
1,330
|
1,688
|
||||||
Materials
and supplies
|
13,289
|
11,410
|
||||||
Lime
|
136
|
-
|
||||||
Total
inventories
|
$
|
85,418
|
$
|
70,780
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Federal
statutory income tax expense
|
$ | 28,661 | $ | 2,172 | $ | 40,354 | $ | 5,999 | |||||
Increases
(reductions) in taxes due to:
|
|||||||||||||
Nondeductible
stock-based compensation
|
23 | 201 | 91 | 385 | |||||||||
Percentage
depletion allowance
|
(4,527 | ) | (1,682 | ) | (7,897 | ) | (3,807 | ) | |||||
State
taxes, net of federal tax impact
|
2,457 | 94 | 3,351 | 288 | |||||||||
Change
in valuation allowance
|
(17,953 | ) | 651 | (19,420 | ) | 1,142 | |||||||
Domestic
production activities deduction
|
(1,158 | ) | 6 | (1,264 | ) | (28 | ) | ||||||
Taxes
not provided for minority interest
|
5 | - | 21 | - | |||||||||
Change
in state rates
|
- | - | 247 | - | |||||||||
Other,
net
|
154 | 60 | 147 | 152 | |||||||||
Income
tax expense
|
$ | 7,662 | $ | 1,502 | $ | 15,630 | $ | 4,131 | |||||
June
30,
2008
|
December
31,
2007
|
||||||
Term
loan
|
$ | 233,125 | $ | 233,125 | |||
2.375%
convertible senior notes due 2015
|
287,500 | - | |||||
10%
senior notes due 2012
|
- | 175,000 | |||||
Capital
lease obligations
|
401 | 705 | |||||
Gallatin loan
facility
|
17,472 | 18,500 | |||||
Other
|
700 | 700 | |||||
Total
long-term debt
|
539,198 | 428,030 | |||||
Less
current portion
|
289,956 | 2,579 | |||||
Long-term debt,
net of current portion
|
$ | 249,242 | $ | 425,451 | |||
Total
asset retirement obligation at December 31, 2007
|
$ | 91,199 | ||
Accretion for
the period
|
3,708 | |||
Expenditures
for the period
|
(2,650 | ) | ||
Sites
added during the period
|
632 | |||
Revisions in
estimated cash flows
|
(146 | ) | ||
Total
asset retirement obligation at June 30, 2008
|
$ | 92,743 | ||
Weighted-
|
||||||
Weighted-
|
Average
|
|||||
Average
|
Remaining
|
|||||
Number
of
|
Exercise
|
Contract
|
||||
Shares
|
Price
|
Life
(Years)
|
||||
Outstanding
at December 31, 2007
|
744,692
|
$
|
17.51
|
|||
Exercised
|
(182,785)
|
17.11
|
||||
Forfeited/Expired
|
(11,857)
|
14.84
|
||||
Outstanding at
June 30, 2008
|
550,050
|
17.71
|
6.57
|
|||
Exercisable
at June 30, 2008
|
150,213
|
$
|
20.05
|
6.67
|
||
Weighted-
|
|||||
Average
|
|||||
Number
of
|
Grant
Date
|
||||
Shares
|
Fair
Value
|
||||
Non-vested
shares outstanding at December 31, 2007
|
880,232
|
$
|
15.93
|
||
Granted
|
364,612
|
33.87
|
|||
Vested
|
(309,900)
|
27.04
|
|||
Forfeited/Expired
|
(15,656)
|
19.47
|
|||
Non-vested
shares outstanding at June 30, 2008
|
919,288
|
$
|
19.21
|
||
|
Level
1 - Quoted prices in active markets for identical assets or
liabilities;
|
|
Level
2 - Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active;
and
|
|
Level
3 - Unobservable inputs in which there is little or no market data which
require the reporting entity to develop its own
assumptions.
|
As
of June 30, 2008
|
|||||||||||||||
Fair
Value Measurements Using:
|
|||||||||||||||
Quoted
|
Significant
|
||||||||||||||
Prices
in
|
Other
|
Significant
|
|||||||||||||
Active
|
Observable
|
Unobservable
|
|||||||||||||
Carrying
|
Total
Fair
|
Markets
|
Inputs
|
Inputs
|
|||||||||||
Amount
|
Value
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||
(In
thousands)
|
|||||||||||||||
Financial
Assets (Liabilities):
|
|||||||||||||||
Forward
coal sales
|
$ | (58,471 | ) | $ | (58,471 | ) | $ | - | $ | (58,471 | ) | $ | - | ||
Forward
coal purchases
|
$ | 69,338 | $ | 69,338 | $ | - | $ | 69,338 | $ | - | |||||
Diesel
fuel derivatives
|
$ | 22,702 | $ | 22,702 | $ | - | $ | 22,702 | $ | - | |||||
Interest rate
swaps
|
$ | (13,452 | ) | $ | (13,452 | ) | $ | - | $ | (13,452 | ) | $ | - | ||
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
June
30,
|
June
30,
|
|||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||
Service
cost
|
$ | 693 | $ | 536 | $ | 1,386 | $ | 1,496 | ||||
Interest
cost
|
873 | 820 | 1,746 | 1,526 | ||||||||
Amortization of
net actuarial gain
|
- | (47 | ) | - | - | |||||||
Amortization of
prior service cost
|
615 | 599 | 1,230 | 1,167 | ||||||||
Net periodic
benefit cost
|
$ | 2,181 | $ | 1,908 | $ | 4,362 | $ | 4,189 | ||||
Three
Months Ended
June
30, 2008
|
Six
Months
Ended
June
30, 2008
|
||||||
Net
Income
|
$ | 74,337 | $ | 99,867 | |||
Change
in fair value of cash flow hedge, net of tax effect of $2,408 and $830,
for the three months and six months, respectively
|
6,140 | 1,308 | |||||
Change
in SFAS 158 adjustment related to postretirement medical, net of tax
effect of $325 and $476, for the three months and six months,
respectively
|
290 | 754 | |||||
Change
in SFAS 158 adjustment related to black lung obligations, net of tax
effect of $12 and $17, for the three months and six months,
respectively
|
11 | 28 | |||||
Total
comprehensive income
|
$ | 80,778 | $ | 101,957 | |||
Fair
value of cash flow hedge, net of tax effect of $3,027
|
$
|
10,425
|
||
SFAS
158 adjustment related to postretirement medical obligations, net of tax
effect of $2,777
|
9,150
|
|||
SFAS
158 adjustment related to black lung obligations, net of tax effect of
$197
|
625
|
|||
Total
accumulated other comprehensive loss
|
$
|
20,200
|
||
Corporate
|
||||||||||||
Coal
|
All
|
and
|
||||||||||
Operations
|
Other
|
Eliminations
|
Consolidated
|
|||||||||
Revenues
|
$ | 720,450 | $ | 25,216 | $ | (13,445 | ) | $ | 732,221 | |||
Depreciation,
depletion, and amortization
|
42,825 | 1,675 | 410 | 44,910 | ||||||||
EBITDA
|
174,238 | 3,315 | (35,781 | ) | 141,772 | |||||||
Capital
expenditures
|
38,572 | 1,209 | 629 | 40,410 | ||||||||
Total
assets
|
1,592,726 | 130,959 | (44,749 | ) | 1,678,936 |
Corporate
|
||||||||||||
Coal
|
All
|
and
|
||||||||||
Operations
|
Other
|
Eliminations
|
Consolidated
|
|||||||||
Revenues
|
$ | 1,227,228 | $ | 48,303 | $ | (26,404 | ) | $ | 1,249,127 | |||
Depreciation,
depletion, and amortization
|
85,303 | 3,049 | 818 | 89,170 | ||||||||
EBITDA
|
273,481 | 6,482 | (51,135 | ) | 228,828 | |||||||
Captial
expenditures
|
69,978 | 3,240 | 989 | 74,207 | ||||||||
Total
assets
|
1,592,726 | 130,959 | (44,749 | ) | 1,678,936 |
Corporate
|
||||||||||||
Coal
|
All
|
and
|
||||||||||
Operations
|
Other
|
Eliminations
|
Consolidated
|
|||||||||
Revenues
|
$ | 429,733 | $ | 15,210 | $ | (9,595 | ) | $ | 435,348 | |||
Depreciation,
depletion, and amortization
|
36,133 | 1,435 | 287 | 37,855 | ||||||||
EBITDA
|
66,020 | 1,646 | (13,989 | ) | 53,677 | |||||||
Capital
expenditures
|
21,507 | 4,928 | 643 | 27,078 | ||||||||
Total
assets
|
1,250,286 | 108,641 | (212,729 | ) | 1,146,198 |
Corporate
|
||||||||||||
Coal
|
All
|
and
|
||||||||||
Operations
|
Other
|
Eliminations
|
Consolidated
|
|||||||||
Revenues
|
$ | 853,965 | $ | 30,630 | $ | (18,656 | ) | $ | 865,939 | |||
Depreciation,
depletion, and amortization
|
70,184 | 2,926 | 534 | 73,644 | ||||||||
EBITDA
|
132,808 | 4,217 | (27,225 | ) | 109,800 | |||||||
Captial
expenditures
|
62,168 | 8,432 | 1,055 | 71,655 | ||||||||
Total
assets
|
1,250,286 | 108,641 | (212,729 | ) | 1,146,198 | |||||||
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
June
30,
|
June
30,
|
|||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||
Total
segment EBITDA
|
$ | 141,772 | $ | 53,677 | $ | 228,828 | $ | 109,800 | ||||
Interest
expense
|
(17,097 | ) | (10,030 | ) | (27,184 | ) | (20,023 | ) | ||||
Interest
income
|
2,234 | 457 | 3,023 | 1,094 | ||||||||
Income
tax expense
|
(7,662 | ) | (1,502 | ) | (15,630 | ) | (4,131 | ) | ||||
Depreciation,
depletion and amortization
|
(44,910 | ) | (37,855 | ) | (89,170 | ) | (73,644 | ) | ||||
Net
income
|
$ | 74,337 | $ | 4,747 | $ | 99,867 | $ | 13,096 | ||||
·
|
worldwide
market demand for coal, electricity and steel;
|
·
|
future
global economic, capital market or political conditions;
|
·
|
inherent
risks of coal mining beyond our control;
|
·
|
environmental
laws, including those directly affecting our coal mining and production,
and those affecting our customers' coal usage;
|
·
|
regulatory
and court decisions;
|
·
|
competition
in coal markets;
|
·
|
the
geological characteristics of Central and Northern Appalachian coal
reserves;
|
·
|
availability
of skilled employees and other employee workforce factors;
|
·
|
weather
conditions or catastrophic weather-related damage;
|
·
|
our
production capabilities and costs;
|
·
|
the
consummation of financing, acquisition or disposition transactions and the
effect thereof on our business;
|
·
|
our
ability to successfully integrate the operations we have acquired and/or
developed with our existing operations, as well as our ability to
successfully integrate operations we may acquire and/or develop in the
future;
|
·
|
our
plans and objectives for future operations and expansion or
consolidation;
|
·
|
our
relationships with, and other conditions affecting, our
customers;
|
·
|
timing
of changes in customer coal inventories;
|
·
|
changes
in, renewal of and acquiring new long-term coal supply
arrangements;
|
·
|
railroad,
barge, truck and other transportation availability, performance and
costs;
|
·
|
availability
of mining and processing equipment and parts;
|
·
|
our
assumptions concerning economically recoverable coal reserve
estimates;
|
·
|
our
ability to obtain or maintain any necessary permits or rights, and our
ability to mine properties due to defects in title on leasehold
interest;
|
·
|
future
legislation and changes in regulations, governmental policies or
taxes;
|
·
|
changes
in postretirement benefit obligations;
|
·
|
our
liquidity, results of operations and financial
condition;
|
·
|
decline
in coal prices;
|
·
|
forward
sales and purchase contracts and diesel fuel swaps and put options not
accounted for as a hedge that are being marked to market;
|
·
|
indemnification
of certain obligations not being met;
|
·
|
continued
funding of the road construction business and related costs;
|
·
|
disruption
in coal supplies;
|
·
|
the
ability to comply with new safety and health regulations;
|
·
|
unfavorable
government intervention in, or nationalization of, foreign
investments;
|
·
|
our
third-party suppliers may not deliver coal we purchase;
|
·
|
issuance
of additional shares of our common stock could cause the price of our
common stock to decline;
|
·
|
provisions
in our certificate of incorporation and bylaws and the indenture for our
convertible notes may discourage a takeover attempt even if doing so might
be beneficial to our stockholders;
|
·
|
restrictive
covenants in our credit facility and the indenture governing our
convertible notes;
|
·
|
certain
terms of our convertible notes, including any conversions, may adversely
impact our liquidity;
|
·
|
our
reported interest expense may increase due to a proposed accounting change
for cash settled convertible debt instruments like our convertible
notes;
|
·
|
the
risk that the businesses of Alpha and Cleveland-Cliffs, Inc.
(“Cleveland-Cliffs”) may not be integrated successfully pursuant to the
proposed merger;
|
·
|
the
risk that the cost savings and any other synergies from the proposed
merger may not be fully realized or may take longer to realize than
expected;
|
·
|
the
uncertainty regarding the value of the merger consideration to be received
by Alpha stockholders in the proposed merger, due to fluctuations in the
market price of Cleveland-Cliffs common shares;
|
·
|
the
failure to obtain approval of the merger from the stockholders of
Cleveland-Cliffs and Alpha; since the approval of holders of two-thirds of
Cleveland-Cliffs common shares is required for the proposed transaction,
the opposition of Harbinger Capital Partners and/or other significant
shareholders of Cleveland-Cliffs may prevent the completion of the
merger;
|
·
|
the
risk that government approvals of the proposed merger may not be obtained
on the proposed terms and schedule, or at all, and conditions may be
imposed on the combined company in connection with consummation of the
proposed merger;
|
·
|
the
failure to satisfy various other conditions to the closing of the proposed
merger contemplated by the merger agreement between Cleveland-Cliffs and
Alpha;
|
·
|
disruption
from the proposed merger causing disruptions in the business, including by
making it more difficult to maintain relationships with customers,
employees or suppliers; and
|
·
|
other
factors, including the other factors discussed in “Overview - Coal Pricing
Trends, Uncertainties and Outlook” below and the factors discussed in Part
I, Item 1A, “Risk Factors,” of our annual report on Form 10-K for the year
ended December 31, 2007.
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
(in
thousands)
|
|||||||||||||
Net
income
|
$ | 74,337 | $ | 4,747 | $ | 99,867 | $ | 13,096 | |||||
Interest
expense
|
17,097 | 10,030 | 27,184 | 20,023 | |||||||||
Interest
income
|
(2,234 | ) | (457 | ) | (3,023 | ) | (1,094 | ) | |||||
Income
tax expense
|
7,662 | 1,502 | 15,630 | 4,131 | |||||||||
Depreciation,
depletion and amortization
|
44,910 | 37,855 | 89,170 | 73,644 | |||||||||
EBITDA
|
$ | 141,772 | $ | 53,677 | $ | 228,828 | $ | 109,800 | |||||
Three
Months Ended
|
Increase
|
|||||||||||
June
30,
|
(Decrease)
|
|||||||||||
2008
|
2007
|
$
or Tons
|
%
|
|||||||||
(in
thousands, except per ton data)
|
||||||||||||
Coal
revenues
|
$ | 631,876 | $ | 387,212 | * | $ | 244,664 | 63 | % | |||
Freight
and handling revenues
|
86,015 | 41,588 | 44,427 | 107 | % | |||||||
Other
revenues
|
14,330 | 6,548 | 7,782 | 119 | % | |||||||
Total
revenues
|
$ | 732,221 | $ | 435,348 | $ | 296,873 | 68 | % | ||||
Tons
Sold:
|
||||||||||||
Steam
|
4,368 | 4,326 | 42 | 1 | % | |||||||
Metallurgical
|
3,387 | 2,515 | 872 | 35 | % | |||||||
Total
|
7,755 | 6,841 | 914 | 13 | % | |||||||
Coal
sales realization per ton:
|
||||||||||||
Steam
|
$ | 51.12 | $ | 48.01 | * | $ | 3.11 | 6 | % | |||
Metallurgical
|
$ | 120.63 | $ | 71.39 | $ | 49.24 | 69 | % | ||||
Total
|
$ | 81.48 | $ | 56.60 | * | $ | 24.88 | 44 | % | |||
*Adjusted
from amounts reported in prior periods to exclude changes in the
presentation of fair value of derivative instruments, which are now
recorded as a component of costs and expenses, to conform to current year
income statement presentation. The adjustments have no effect on
previously reported income from operations or net income.
|
||||||||||||
Three
Months Ended
|
Increase
|
||||||||||
June
30,
|
(Decrease)
|
||||||||||
2008
|
2007
|
$
|
%
|
||||||||
(in
thousands, except per ton data)
|
|||||||||||
Cost
of coal sales (exclusive of items shown separately below)
|
$ | 462,424 | $ | 322,279 | * | $ | 140,145 | 43 | % | ||
Increase
in fair value of derivative instruments, net
|
(6,516 | ) | (390 | ) | (6,126 | ) |
NM
|
||||
Freight
and handling costs
|
86,015 | 41,588 | 44,427 | 107 | % | ||||||
Cost
of other revenues
|
13,110 | 4,768 | 8,342 | 175 | % | ||||||
Depreciation,
depletion and amortization
|
44,910 | 37,855 | 7,055 | 19 | % | ||||||
Selling,
general and administrative expenses
|
20,732 | 13,982 | 6,750 | 48 | % | ||||||
Total
costs and expenses
|
$ | 620,675 | $ | 420,082 | $ | 200,593 | 48 | % | |||
Cost
of coal sales per ton:
|
|||||||||||
Company
mines
|
$ | 55.56 | $ | 46.13 | * | $ | 9.43 | 20 | % | ||
Contract
mines (including purchased and processed)
|
70.69 | 51.29 | 19.40 | 38 | % | ||||||
Total
produced and processed
|
57.73 | 47.04 | * | 10.69 | 23 | % | |||||
Purchased
and sold without processing
|
67.47 | 47.62 | * | 19.85 | 42 | % | |||||
Cost of
coal sales per ton
|
$ | 59.63 | $ | 47.11 | * | $ | 12.52 | 27 | % | ||
*Adjusted
from amounts reported in prior periods to exclude changes in the
presentation of fair value of derivative instruments, which are now
recorded as a component of costs and expenses, to conform to current year
income statement presentation. The adjustments have no effect on
previously reported income from operations or net income.
|
|||||||||||
Six
Months Ended
|
Increase
|
||||||||||
June
30,
|
(Decrease)
|
||||||||||
2008
|
2007
|
$
or Tons
|
%
|
||||||||
(in
thousands, except per ton data)
|
|||||||||||
Coal
revenues
|
$ | 1,077,555 | $ | 767,362 | * | $ | 310,193 | 40 | % | ||
Freight
and handling revenues
|
145,187 | 84,799 | 60,388 | 71 | % | ||||||
Other
revenues
|
26,385 | 13,778 | 12,607 | 92 | % | ||||||
Total
revenues
|
$ | 1,249,127 | $ | 865,939 | $ | 383,188 | 44 | % | |||
Tons
Sold:
|
|||||||||||
Steam
|
8,337 | 8,586 | (249 | ) | -3 | % | |||||
Metallurgical
|
6,270 | 4,882 | 1,388 | 28 | % | ||||||
Total
|
14,607 | 13,468 | 1,139 | 8 | % | ||||||
Coal
sales realization per ton:
|
|||||||||||
Steam
|
$ | 50.83 | $ | 48.42 | * | $ | 2.41 | 5 | % | ||
Metallurgical
|
$ | 104.27 | $ | 72.02 | $ | 32.25 | 45 | % | |||
Total
|
$ | 73.77 | $ | 56.98 | * | $ | 16.79 | 29 | % | ||
*Adjusted
from amounts reported in prior periods to exclude changes in the
presentation of fair value of derivative instruments, which are now
recorded as a component of costs and expenses, to conform to current year
income statement presentation. The adjustments have no effect on
previously reported income from operations or net income.
|
|||||||||||
Six
Months Ended
|
Increase
|
||||||||||
June
30,
|
(Decrease)
|
||||||||||
2008
|
2007
|
$
|
%
|
||||||||
(in
thousands, except per ton data)
|
|||||||||||
Cost
of coal sales (exclusive of items shown separately below)
|
$ | 824,635 | $ | 635,204 | * | $ | 189,431 | 30 | % | ||
Increase
in fair value of derivative instruments, net
|
(23,200 | ) | (840 | ) | (22,360 | ) |
NM
|
||||
Freight
and handling costs
|
145,187 | 84,799 | 60,388 | 71 | % | ||||||
Cost
of other revenues
|
23,125 | 10,396 | 12,729 | 122 | % | ||||||
Depreciation,
depletion and amortization
|
89,170 | 73,644 | 15,526 | 21 | % | ||||||
Selling,
general and administrative expenses
|
36,086 | 27,221 | 8,865 | 33 | % | ||||||
Total
costs and expenses
|
$ | 1,095,003 | $ | 830,424 | $ | 264,579 | 32 | % | |||
Cost
of coal sales per ton:
|
|||||||||||
Company
mines
|
$ | 53.07 | $ | 45.86 | * | $ | 7.21 | 16 | % | ||
Contract
mines (including purchased and processed)
|
64.75 | 50.76 | 13.99 | 28 | % | ||||||
Total
produced and processed
|
54.65 | 46.69 | * | 7.96 | 17 | % | |||||
Purchased
and sold without processing
|
64.96 | 50.84 | * | 14.12 | 28 | % | |||||
Cost of
coal sales per ton
|
$ | 56.45 | $ | 47.16 | * | $ | 9.29 | 20 | % | ||
*Adjusted
from amounts reported in prior periods to exclude changes in the
presentation of fair value of derivative instruments, which are now
recorded as a component of costs and expenses, to conform to current year
income statement presentation. The adjustments have no effect on
previously reported income from operations or net income.
|
|||||||||||
June
30,
|
||||
2008
|
||||
Term
loan
|
$
|
233,125
|
||
2.375%
convertible senior notes due 2015
|
287,500
|
|||
Capital
lease obligations
|
401
|
|||
Gallatin
loan facility
|
17,472
|
|||
Other
|
700
|
|||
Total
long-term debt (1)
|
539,198
|
|||
Less
current portion
|
289,956
|
|||
Long-term debt,
net of current portion (1)
|
$
|
249,242
|
||
(1)
|
Includes
the reclassification from long-term to short-term of the $287.5 million
aggregate principal amount of 2.375% convertible senior notes due 2015
that became convertible on July 1, 2008 and will remain convertible
through September 30, 2008.
|
|
·
|
We
must maintain a maximum leverage ratio, defined as the ratio of
consolidated debt less unrestricted cash and cash equivalents to EBITDA
(as defined in the Credit Agreement, “Adjusted EBITDA”), of not more than
3.50:1.0 for the period of four fiscal quarters ended on June 30, 2008 and
for each period of four fiscal quarters ending on each quarter end
thereafter.
|
|
·
|
We
must maintain a minimum interest coverage ratio, defined as the ratio of
Adjusted EBITDA to cash interest expense, of not less than 2.50:1.0 for
the four fiscal quarters ending on the last day of any fiscal
quarter.
|
|
·
|
We
must have a maximum senior secured leverage ratio, defined as the ratio of
consolidated debt that is secured by a lien less unrestricted cash and
cash equivalents to Adjusted EBITDA, of 2.5:1.0 or 2.0:1.0 starting
January 1, 2009.
|
|
·
|
We
must satisfy a liquidity test, i.e., the sum of the
unused commitments under the credit facility’s revolving line of credit
plus our unrestricted cash and cash equivalents must not be less than
$100.0 million.
|
Twelve
|
|||||||||||||||
Months
|
|||||||||||||||
Three
Months Ended
|
Ended
|
||||||||||||||
September
30, 2007
|
December
31, 2007
|
March
31, 2008
|
June
30, 2008
|
June
30, 2008
|
|||||||||||
(in
thousands)
|
|||||||||||||||
Net
income
|
$ | 8,949 | $ | 5,689 | $ | 25,530 | $ | 74,337 | $ | 114,505 | |||||
Interest
expense
|
10,101 | 10,091 | 10,087 | 17,097 | 47,376 | ||||||||||
Interest
income
|
(265 | ) | (981 | ) | (789 | ) | (2,234 | ) | (4,269 | ) | |||||
Income
tax expense
|
2,363 | 2,135 | 7,968 | 7,662 | 20,128 | ||||||||||
Depreciation,
depletion and amortization
|
43,926 | 42,009 | 44,260 | 44,910 | 175,105 | ||||||||||
EBITDA
|
65,074 | 58,943 | 87,056 | 141,772 | 352,845 | ||||||||||
Unrestricted
subsidiary
|
758 | 1,031 | 1,328 | 1,131 | 4,248 | ||||||||||
Change
in fair value of derivative instruments,
net
|
(1,413 | ) | (6,674 | ) | (16,684 | ) | (6,516 | ) | (31,287 | ) | |||||
Other
allowance adjustments
|
603 | 1,452 | 607 | 131 | 2,793 | ||||||||||
Accretion
expense
|
1,838 | 1,885 | 1,852 | 1,855 | 7,430 | ||||||||||
Amortization
of deferred gains
|
(214 | ) | (184 | ) | (213 | ) | (205 | ) | (816 | ) | |||||
Loss
on early extinguishment of debt
|
- | - | - | 14,669 | 14,669 | ||||||||||
Stock-based
compensation charges
|
2,341 | 2,592 | 2,911 | 11,456 | 19,300 | ||||||||||
Adjusted
EBITDA
|
$ | 68,987 | $ | 59,045 | $ | 76,857 | $ | 164,293 | $ | 369,182 | |||||
Leverage
ratio (1)
|
0.33 | ||||||||||||||
Interest
coverage ratio (2)
|
8.75 | ||||||||||||||
(1)
|
Leverage
ratio is defined in our Credit Agreement as total debt divided by Adjusted
EBITDA.
|
(2)
|
Interest
coverage ratio is defined in our Credit Agreement as Adjusted EBITDA
divided by cash interest expense.
|
|
·
|
Loan
life coverage ratio greater than or equal to 1.30, defined as the ratio of
the present value of future cash flow to aggregate principal amount of all
outstanding loans;
|
|
·
|
Gearing
ratio less than 1.85, defined as the ratio of outstanding net
interest-bearing indebtedness to total borrower equity;
and
|
|
·
|
Debt
service cover ratio greater than 1.20, defined as the ratio of actual cash
flow available for debt service to funded debt
service.
|
Purchase
Contracts
|
Purchase Price
Range
|
Tons
Outstanding
|
Delivery
Period
|
Fair
Value (In Millions)
Asset/(Liability)
|
|||||
$
|
45.00
- 50.00
|
430,000
|
07/01/08-12/31/08
|
$
|
48.4
|
||||
50.00
- 60.00
|
195,000
|
07/01/08-12/31/08
|
20.9
|
||||||
625,000
|
$
|
69.3
|
|||||||
Sales
Contracts
|
Selling
Price Range
|
Tons
Outstanding
|
Delivery
Period
|
Fair
Value (In Millions) Asset/(Liability)
|
|||||
$
|
40.00
- 50.00
|
120,000
|
07/01/08-12/31/08
|
$
|
(13.2)
|
||||
50.00
- 60.00
|
130,000
|
07/01/08-12/31/08
|
(12.6)
|
||||||
60.00
- 70.00
|
60,000
|
07/01/08-12/31/08
|
(5.3)
|
||||||
50.00
- 60.00
|
120,000
|
01/01/09-12/31/09
|
(9.9)
|
||||||
60.00
- 70.00
|
120,000
|
01/01/09-12/31/09
|
(9.6)
|
||||||
70.00
- 80.00
|
120,000
|
01/01/09-12/31/09
|
(7.8)
|
||||||
670,000
|
$
|
(58.4)
|
|||||||
|
·
|
the
businesses of Alpha and Cleveland-Cliffs may not be integrated
successfully pursuant to the proposed
merger;
|
|
·
|
the
cost savings and any other synergies from the proposed merger may not be
fully realized or may take longer to realize than
expected;
|
|
·
|
the
value of the merger consideration to be received by Alpha stockholders in
the proposed merger is uncertain, due to fluctuations in the market price
of Cleveland-Cliffs common shares;
|
|
·
|
the
stockholders of Cleveland-Cliffs and Alpha may not approve the proposed
merger; since the approval of holders of two-thirds of Cleveland-Cliffs
common shares is required for the proposed transaction, the opposition of
Harbinger Capital Partners and/or other significant shareholders of
Cleveland-Cliffs may prevent completion of the
merger;
|
|
·
|
government
approvals of the proposed merger may not be obtained on the proposed terms
and schedule, or at all, and conditions may be imposed on the combined
company in connection with consummation of the proposed
merger;
|
|
·
|
various
other conditions to the closing of the proposed merger contemplated by the
merger agreement between Cleveland-Cliffs and Alpha may not be satisfied;
and
|
|
·
|
disruption
from the proposed merger may cause disruptions in the businesses of Alpha
and Cleveland-Cliffs, including by making it more difficult to maintain
relationships with customers, employees or
suppliers.
|
|
1.
|
To
elect nine directors to hold office for a one-year term expiring at the
annual meeting in 2009 and until their respective successors are elected
and qualified:
|
Director Name
|
For
|
Withheld
|
|||
Mary
Ellen Bowers
|
54,295,801
|
117,471
|
|||
John
S. Brinzo
|
54,289,057
|
124,215
|
|||
Hermann
Beurger
|
54,282,856
|
130,416
|
|||
Kevin
S. Crutchfield
|
54,292,757
|
120,515
|
|||
E.
Linn Draper, Jr.
|
51,833,112
|
2,580,160
|
|||
Glenn
A. Eisenberg
|
54,288,057
|
125,215
|
|||
John
W. Fox, Jr.
|
53,448,208
|
965,064
|
|||
Michael
J. Quillen
|
53,826,643
|
586,629
|
|||
Ted
G. Wood
|
53,980,016
|
433,256
|
|
2.
|
To
approve the amendment and restatement of the 2005 Long-Term Incentive
Plan:
|
For:
|
43,813,055 | |||
Against:
|
5,257,638 | |||
Abstained:
|
22,713 | |||
Non
Votes:
|
5,319,866 |
|
3.
|
To
approve the 2008 Annual Incentive Bonus
Plan:
|
For:
|
47,887,405 | |||
Against:
|
1,186,933 | |||
Abstained:
|
19,068 | |||
Non
Votes:
|
5,319,866 | |||
|
4.
|
To
ratify the appointment of KPMG LLP as independent auditors for the fiscal
year ending December 31, 2008:
|
For:
|
54,220,328 | |||
Against:
|
162,302 | |||
Abstained:
|
30,642 | |||
ALPHA
NATURAL RESOURCES, INC.
|
||||||
By:/s/
David C. Stuebe
|
||||||
Name:
David C. Stuebe
|
||||||
Title:
Vice
President and Chief Financial Officer
|
Exhibit
No
|
Description
of Exhibit
|
|
3.1
|
Restated
Certificate of Incorporation of Alpha Natural Resources,
Inc. (Incorporated by reference to Exhibit 3.1 to the Annual Report
on Form 10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on
March 30, 2005)
|
|
3.2
|
Amended
and Restated Bylaws of Alpha Natural Resources, Inc. (Incorporated by
reference to Exhibit 3.2 to the Annual Report on Form 10-K of Alpha
Natural Resources, Inc. (File No. 1-32423) filed on March 1,
2007)
|
|
4.1
|
Indenture
dated as of April 7, 2008, between Alpha Natural Resources, Inc. (the
“Company”) and Union Bank of California, N.A., as Trustee (the “Trustee”)
(Incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K (File No. 1-32423) filed on April 9, 2008)
|
|
4.2
|
Subordinated
Indenture dated as of April 7, 2008, between the Company and the
Trustee (Incorporated by reference to Exhibit 4.2 to the Current Report on
Form 8-K (File No. 1-32423) filed on April 9, 2008)
|
|
4.3
|
Supplemental
Indenture dated as of April 7, 2008, between the Company and the
Trustee (Incorporated by reference to Exhibit 4.3 to the Current Report on
Form 8-K (File No. 1-32423) filed on April 9, 2008)
|
|
4.4
|
Form
of 2.375% Convertible Senior Note due 2015 (Incorporated by reference to
Exhibit 4.4 to the Current Report on Form 8-K (File No. 1-32423) filed on
April 9, 2008)
|
|
4.5
|
Seventh
Supplemental Indenture dated as of July 12, 2007 among Alpha Natural
Resources, LLC, Alpha Natural Resources Capital Corp., the existing
Guarantors, Wells Fargo Bank, N.A., as Trustee, and Cobra Natural
Resources, LLC (Incorporated by reference to Exhibit 4.16 to the
Registration Statement on Form S-3 of the Company (File No. 333-134081)
filed on April 1, 2008)
|
|
4.6
|
Eighth
Supplemental Indenture dated as of April 14, 2008, among Alpha
Natural Resources, LLC, Alpha Natural Resources Capital Corp., the
guarantors named therein and Wells Fargo Bank, National Association, as
trustee (Incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K (File No. 1-32423) filed on April 15, 2008)
|
|
10.1
|
Third
Amendment and Joinder Agreement, dated as of March 28, 2008, among
Alpha Natural Resources, Inc. (as successor by merger to Alpha NR Holding,
Inc. (“Holdings”)), Alpha Natural Resources, LLC (“ANR LLC”), Citicorp
North America, Inc., as administrative agent and as collateral agent (the
“Agent”), and the Lenders and Issuing Banks (the “Banks”) party thereto
from time to time, to the Credit Agreement (the “Credit Agreement”), dated
as of October 26, 2005, among Holdings, ANR LLC, the Banks and the
Agent, as amended (Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K (File No. 1-32423) filed on April 3,
2008)
|
|
10.2
|
Fourth
Amendment and Consent, dated as of March 31, 2008, among the Company,
ANR LLC, the Agent and the Banks party thereto from time to time, to the
Credit Agreement (Incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K (File No. 1-32423) filed on April 3,
2008)
|
|
10.3
|
Alpha
Natural Resources, Inc. 2005 Long-Term Incentive Plan, as amended and
restated (Incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K (File No. 1-32423) filed on May 16, 2008)
|
|
10.4
|
Alpha
Natural Resources, Inc. 2008 Annual Incentive Bonus Plan (Incorporated by
reference to Exhibit 10.2 to the Current Report on Form 8-K (File No.
1-32423) filed on May 16, 2008)
|
|
12.1*
|
||
12.2*
|
||
31(a)*
|
||
31(b)*
|
||
32(a)*
|
||
32(b)*
|
||
100.INS†† |
XBRL
Instance Document
|
|
100.SCH†† |
XBRL
Taxonomy Extension Schema Document
|
|
100.LAB†† |
XBRL
Taxonomy Extension Label Linkbase Document
|
|
100.CAL†† |
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
100.PRE†† |
XBRL
Taxonomy Extension Presentation Linkbase
Document
|
*
|
Filed
herewith.
|
|
††
|
Furnished,
not filed.
|