Second Quarter Highlights - Net Income totaled $20.2 million or
$0.24 per share - Produced Coal Tons Sold totaled 9.4 million -
Operating cash margin per ton of $10.48 - EBITDA totaled $116.3
million - Cash balance increased by $42.9 million RICHMOND, Va.,
July 28 /PRNewswire-FirstCall/ -- Massey Energy Company (NYSE:MEE)
today reported net income of $20.2 million or $0.24 per share for
the quarter ended June 30, 2009. These positive results were
achieved on the sale of 9.4 million tons of produced coal which
generated total produced coal revenue of $603.2 million during the
quarter. By comparison, Massey reported a net loss of $93.3 million
on produced coal revenue of $710.3 million in the second quarter of
2008 (the prior year's quarterly results included a litigation
charge that offset otherwise strong operating performance: see Note
10 below). Earnings before interest, taxes, depreciation and
amortization (EBITDA) for the second quarter of 2009 was $116.3
million compared to ($46.3) million in the second quarter of 2008.
In addition, the Company reported a net increase of $42.9 million
in its cash balance during the quarter. The increased cash balance
was primarily driven by earnings and changes in working capital.
(Logo:
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Commenting on the Company's second quarter results, Massey's
Chairman and Chief Executive Officer Don Blankenship said, "We are
extremely pleased to be generating strong cash flow for our
shareholders in a very difficult market. We have had to make tough
decisions to control costs and adapt our operating plans as coal
demand remains weak but our operations have performed well." "We
are also pleased to have increased our market share in the first
half of the year," Blankenship added. "Our coal tons shipped to
utilities increased 8 percent compared to the first half of 2008
while it is estimated that total shipments of Central Appalachia
coal to utilities declined by 7 percent in the same period." For
the first half of 2009, Massey generated produced coal revenue of
$1.28 billion and recorded net income of $63.6 million or $0.75 per
share. This compared to produced coal revenue of $1.25 billion and
a net loss of $51.4 million in the first half of 2008. EBITDA was
$261.7 million in the first half of 2009 compared to EBITDA of
$83.0 million in the first six months of 2008. Massey's second
quarter operating cash margin per ton was $10.48. Though a strong
result, this was down from the record high operating cash margin
per ton of $15.94 reported in the second quarter of 2008. The
decline was driven by a 3 percent decrease in average realized
prices on coal shipped and an increase in cash cost per ton of
approximately 8 percent as compared to the second quarter of 2008.
Average realized prices were impacted most significantly by product
mix as utility coal shipments increased by 0.3 million tons and
metallurgical coal and industrial coal shipments decreased by 1.2
and 0.5 million tons, respectively, compared to volumes in the same
period a year ago. The impact of the weaker mix was only partially
offset by price increases of 12 percent and 18 percent for utility
coal and industrial coal, respectively. The average realized price
for metallurgical coal shipped in the quarter declined by
approximately 3 percent. Average cash cost per ton for the second
quarter was $53.66 compared to $49.84 in the second quarter of
2008. The increase was largely the result of higher fixed cost
absorption on lower volume shipped. 2nd Quarter Comparative
Statistics 2nd 1st 2nd Qtr. 2009 Qtr. 2009 Qtr. 2008 -----------
----------- ---------- Produced tons sold (millions) 9.4 10.8 10.8
Produced coal revenue ($millions) $603.2 $681.0 $710.3 Produced
coal revenue per ton $64.14 $63.03 $65.78 Average cash cost per ton
$53.66 $52.55 $49.84 EBITDA ($millions) $116.3 $145.4 ($46.3)
EBITDA (excluding WP litigation charge) $116.3 $145.4 $199.0
($millions) First Half Comparative Statistics 1st 1st half half
---- ---- 2009 2008 ---- ---- Produced tons sold (millions) 20.2
20.4 Produced coal revenue ($millions) $1,284.2 $1,253.5 Produced
coal revenue per ton $63.55 $61.34 Average cash cost per ton $53.07
$47.85 EBITDA ($millions) $261.7 $83.0 EBITDA (excluding WP
litigation charge) $261.7 $328.3 ($millions) Reconciliations for
non-GAAP measures are provided in attached notes to financial
statements. Coal Market Overview The continuing global economic
weakness has caused a significant deterioration of world coal
markets. Coal contracting and shipment activities remained slow as
end market coal consumers further reduced production and power
generation targets. -- Coal burn at utilities in the Southeastern
United States was down 19 percent in the first six months of 2009
compared to the same period a year ago according to industry
estimates. It is also estimated that the burn of Central Appalachia
coal was down 25 percent in the first six months of the year. These
declines are due in part to lower overall electric power demand and
increased use of natural gas for power generation purposes. --
Receipts of coal at Southeastern utilities were estimated to be
down 6 percent in the first six months of 2009. Coal stockpiles in
terms of tons increased by about 50 percent in the region since the
end of June 2008. Receipts of Central Appalachia coal were
estimated to have declined by 7 percent during the first six months
of the year as compared to the same period a year ago. Stockpiles
of Central Appalachia coal increased an estimated 60 percent year
over year. -- The Energy Information Administration (EIA) projects
that coal-fired generation in the domestic electric power sector
will decline by approximately 6 percent in 2009 due to lower
overall electric power demand and an increase of about 3 percent in
generation fueled by natural gas. -- Steam coal export volumes by
U.S. producers decreased 14 percent in the second quarter of 2009
compared to the second quarter of 2008. Metallurgical coal exports
declined 53 percent in the same period. The EIA forecasts that
steam coal exports will decline by about 17 percent for the full
year and met coal exports will decline by 27 percent as the weak
global economy and a relatively strong U.S. Dollar are combining to
reduce demand in international markets. -- According to the World
Steel Association, global steel output declined 22 percent in the
first five months of 2009 as compared to the same period in 2008.
-- US steel production was at 44 percent capacity utilization for
the first half of the year, down 51 percent compared to the first
half of 2008 -- The EIA expects the coal industry to respond to the
weak market conditions by reducing production by about 8 percent in
2009. According to EIA estimates, total U.S. coal production was
down about 6 percent in the first half of the year. Production in
Appalachia was down about 8 percent in the same period. While
market conditions remained weak in the first two quarters of the
year and high stockpile and inventory levels in both thermal and
metallurgical coal point to further weakness, there have been some
positive data points in the industry recently that may signal some
market improvement: -- The economies of China and India have
continued to grow throughout the economic downturn. China reported
economic growth of 7.9 percent in the second quarter of the year
and forecasts are for full year growth of 7 to 8 percent. --
Reports indicate that China's steel production and its demand for
metallurgical coal imports have increased in recent months. The
country is expected to be a net importer of as much as 56 million
tons of metallurgical coal in 2009. -- India's increasing
electrification has led to increasing coal demand. The country is
presently experiencing some shortages of coal and power outages.
Thermal coal stockpiles are as low as 2 days of burn in some
regions. -- Domestically, steel production has increased and total
capacity utilization exceeded 50 percent in early July for the
first time since November 2008. Massey continues to believe that
the quality of Central Appalachia coal allows it to enjoy
significant market diversity and its proximity to sea ports makes
it a viable source of coal to fill the growing demand for energy
throughout most of the world. As coal demand strengthens in Asia,
Massey believes more Australian produced coal will be sold into
that region, resulting in increased opportunities for Massey to
export coal to customers throughout the Atlantic basin. Cost
Cutting Measures Massey continued efforts to reduce costs in the
second quarter through the idling of higher cost mines, limitation
of overtime, selective general and administrative cost reductions,
renegotiation of supply contracts and significant wage and benefit
reductions. Total workforce has been reduced by approximately 700
members since the beginning of the year. The resulting savings
offset a significant portion of the Average cash cost per ton
increases that were driven by lower production and sales volume in
the quarter. In addition, Massey expects to benefit from meaningful
productivity increases as its new mines and work forces mature and
total turnover declines. Shipment Deferrals Massey is continuing to
work with its customers to modify shipment schedules where
necessary. The number of customer requests for such deferrals has
declined significantly in the second quarter, likely in
anticipation of the peak summer demand. The possibility remains
that customer requests for shipment deferrals will increase again
in the fall if utility stockpiles remain high. Shipment deferrals
have allowed Massey to selectively reduce actual and planned
production at higher cost mining operations in 2009. Permitting
During the second quarter Massey was granted approval to begin work
on four permits that had been previously issued by the Army Corps
of Engineers but were subsequently held up in litigation. Combined,
these permits provide Massey access to surface mine over 100
million tons of coal and are expected to provide significant
competitive advantages going forward. Other surface mining and
valley fill permit applications have been submitted and are at
various stages in the approval process. Because of changes and
uncertainty in the Environmental Protection Agency's review
process, many permit applications remain on hold with little
clarity on the timeline for approvals going forward. Massey
continues to work with state and federal agencies to process permit
applications in conformity with existing and, where possible,
anticipated regulations. Safety Massey is on track for another
record year in terms of safety. Through the first six months of
2009, Massey reported a non-fatal days lost (NFDL) incident rate of
1.72. The Company's previous best rate for a full year was 1.93,
achieved in 2008. By comparison, the bituminous coal industry
average NFDL rate was 2.95 in 2008. The coal mining industry is
continually confronted with new and changing regulation by state
and federal agencies. The implementation of initiatives required by
the MINER Act of 2007 has been a major focus over the past two
years. Massey is currently making the investments to comply with
requirements for reinforced seals, underground shelters and miner
communication and tracking devices. Capital spending on these
initiatives totaled more than $8 million in the first half of the
year and is expected be more than $30 million for the full year.
Massey is concerned that some regulatory requirements are
ineffective and may divert capital from more effective programs or
initiatives. Massey remains committed to working with regulators to
identify and develop the most effective safety programs possible.
Massey has long been an innovator in mining safety initiatives.
Consistent with this history, Massey has recently developed a
comprehensive Hazard Elimination Program which will be implemented
in conjunction with Federal and State mine safety agencies. This
program is intended to reinforce Massey's members' ability to
recognize and remedy potential violations of state and federal
mining laws, educate members on recent changes to those laws, and
enhance compliance throughout its operations. The new program will
be implemented August 1, 2009 as a continuation of Massey's
long-standing commitment to the health and safety of its members.
"We are very excited about this new safety program," said Chris
Adkins, Massey's Senior Vice President and Chief Operating Officer.
"We are confident that it will be very effective and enable us to
take our safety performance to a new level." Liquidity and Capital
Resources Massey ended the second quarter of 2009 with $609.6
million in Cash and cash equivalents. This compared to $607.0
million at December 31, 2008. In addition, the Company had $15.1
million invested in the Reserve Primary Fund at the quarter's end,
which is classified as a short-term investment as the availability
of these funds remains subject to the liquidation of the underlying
assets of the Fund. The Company had $99.5 million available under
its asset-based revolving credit facility at June 30, 2009. Total
debt at June 30, 2009 was $1,319.7 million compared to $1,312.2
million at December 31, 2008. Massey's total debt-to-book
capitalization ratio was 52.5 percent at June 30, 2009 compared to
53.8 percent at December 31, 2008. After deducting available cash
and short-term investments of $624.7 million and restricted cash of
$46.0 million, net debt totaled $649.0 million. Total net
debt-to-book capitalization was 35.2 percent at June 30, 2009
compared to 35.5 percent at December 31, 2008. (December 31, 2008
amounts have been adjusted to conform with accounting guidance
related to the Company's 3.25% convertible notes, effective January
1, 2009. See Note 5 to the attached financial statements.) Capital
expenditures for the second quarter 2009 totaled $75.4 million
compared to $178.2 million in 2008. For the full year 2009 Massey
currently expects total CAPEX of $300 million or less.
Depreciation, depletion and amortization (DD&A) was $67.6
million in the second quarter 2009 compared to $62.3 million in the
second quarter of 2008. DD&A is expected to be in the range of
$280 million to $290 million for the full year 2009. Guidance
Update The Company tightened the ranges for most guidance
categories and now expects 2009 produced coal shipments will be
between 38.5 and 40.5 million tons, with average produced coal
realization between $61.50 and $63.50 per ton. Average cash cost
per ton for the full year 2009 is expected to be between $51.50 and
$53.00. Other income is expected to be between $75 and $100
million. For 2010 Massey expects produced coal shipments to be in
the range of 37.0 to 42.0 million tons, with an average sales price
in the range of $60.00 to $65.00 per ton. Cash costs for 2010 are
expected to be in the range of $48.00 to $52.00 per ton.
Expectations for capital expenditures in 2010 remain in the range
of $100 to $200 million. With results in these ranges, the Company
believes it would generate solid free cash flow for the year.
Changes to Company issued guidance are summarized below: (In
millions except per ton 2009 2010 amounts) Previous Current
Previous Current Estimate Estimate Estimate Estimate --------
-------- -------- -------- Shipped Tons 38.0 to 38.5 to 35.0 to
37.0 to 41.0 40.5 40.0 42.0 Average $60.00 to $61.50 to $60.00 to
$60.00 to Price/Ton $63.00 $63.50 $65.00 $65.00 Cash Cost/Ton
$50.00 to $51.50 to $48.00 to $48.00 to $53.00 $53.00 $52.00 $52.00
CAPEX (approx) less than or less than or $100 to $100 to equal to
$300 equal to $300 $200 $200 Other Income $40 to $75 to - - $80
$100 Conference Call, Webcast and Replay Members of the Company's
senior management will hold a conference call to discuss the second
quarter results and operations on Wednesday, July 29 at 11:00 a.m.
EDT. The call can be accessed via the Massey Energy Company website
at http://www.masseyenergyco.com/. A replay of the call will be
available at the same site through August 29, 2009. Company
Description Massey Energy Company, headquartered in Richmond,
Virginia, with operations in West Virginia, Kentucky and Virginia,
is the fourth largest coal company in the United States based on
produced coal revenue and is included the S&P 500 index.
FORWARD-LOOKING STATEMENTS: Certain statements in this press
release constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and
are intended to come within the safe harbor protection provided by
those sections. Any forward-looking statements are also subject to
a number of assumptions regarding, among other things, future
economic, competitive and market conditions. These assumptions are
based on facts and conditions as they exist at the time such
statements are made as well as predictions as to future facts and
conditions, the accurate prediction of which may be difficult and
involve the assessment of circumstances or events beyond the
Company's control. The Company disclaims any intent or obligation
to update these forward-looking statements unless required by
securities law, and the Company cautions the reader to not rely on
them unduly. Caution must be exercised in relying on
forward-looking statements including disclosures that use words
such as "believe," "anticipate," "expect," "estimate," "intend,"
"may," "plan," "project," "will," and similar words or statements
that are subject to risks, trends and uncertainties that could
cause the Company's actual results to differ materially from the
expectations expressed or implied in such forward-looking
statements. Factors potentially contributing to such differences
include, among others: the Company's cash flows, results of
operation or financial condition; worldwide market demand for coal,
electricity and steel; the successful completion of acquisition,
disposition or financing transactions; future economic or capital
market conditions; foreign currency fluctuations; governmental
policies, laws, regulatory actions and court decisions affecting
the coal industry or our customers' coal usage; competition among
coal producers in the United States and internationally; inherent
risks of coal mining beyond the Company's control, including
weather and geologic conditions or catastrophic weather-related
damage; the Company's ability to expand mining capacity; the
Company's production capabilities to meet market expectations and
customer requirements; the Company's ability to obtain coal from
brokerage sources or contract miners in accordance with their
contracts; the successful implementation of the Company's strategic
plans and objectives for future operations and expansion or
consolidation; the Company's assumptions and projections concerning
economically recoverable coal reserve estimates; the Company's
assumptions and projections regarding pension and other
post-retirement benefit liabilities; the Company's interpretation
and application of accounting literature related to mining specific
issues; failure to receive anticipated new contracts; the Company's
reliance upon and relationships with our customers and suppliers;
the creditworthiness of the Company's customers and suppliers;
adjustments made in price, volume or terms to existing coal supply
agreements; the Company's ability to manage production costs,
including labor costs; the Company's ability to timely obtain
necessary supplies and equipment; the Company's ability to obtain
and renew permits necessary for existing and planned operations;
the availability and cost of credit, surety bonds, and letters of
credit that the Company requires; the Company's ability to attract,
train and retain a skilled workforce to meet replacement or
expansion needs; the cost and availability of transportation for
the Company's produced coal; legal and administrative proceedings,
settlements, investigations and claims and the availability of
insurance coverage related thereto; the lack of insurance coverage
against all potential operating risk; and environmental concerns
related to coal mining and combustion and the cost and perceived
benefits of alternative sources of energy such as natural gas and
nuclear energy. Additional information concerning these and other
factors can be found in press releases and Massey's public filings
with the Securities and Exchange Commission, including Massey's
Annual Report on Form 10-K for the year ended December 31, 2008,
which was filed on March 2, 2009, and subsequently filed interim
reports. Massey's filings are available either publicly, on the
Investor Relations page of Massey's website,
http://www.masseyenergyco.com/, or upon request from Massey's
Investor Relations Department: (866) 814-6512 (toll free). For
further information, please visit Massey's website at
http://www.masseyenergyco.com/. MASSEY ENERGY COMPANY CONSOLIDATED
FINANCIAL RESULTS - UNAUDITED (in Millions, except # of employees,
per share & per ton information) Three Months Six Months Ended
June 30, Ended June 30, -------------- ----------------- 2009 2008
2009 2008 ---- ---- ---- ---- Revenues Produced coal revenue $603.2
$710.3 $1,284.2 $1,253.5 Freight and handling revenue 60.9 83.4
118.7 148.5 Purchased coal revenue 19.2 6.9 29.2 17.6 Other revenue
14.3 26.2 33.6 51.9 ---- ---- ---- ---- Total revenues 697.6 826.8
1,465.7 1,471.5 Costs and expenses Cost of produced coal revenue
484.6 499.7 1,030.6 917.9 Freight and handling costs 60.9 83.4
118.7 148.5 Cost of purchased coal revenue 15.5 5.6 20.7 15.4
Depreciation, depletion and amortization applicable to: Cost of
produced coal revenue 66.8 61.5 138.4 120.8 Selling, general and
administrative 0.8 0.8 1.9 1.8 Selling, general and administrative
20.0 38.5 41.9 60.0 Other expense 0.7 0.6 1.3 1.4 Litigation charge
- 245.3 - 245.3 Gain on derivative instruments (0.4) - (9.2) - ----
--- ---- --- Total costs and expenses 648.9 935.4 1,344.3 1,511.1
----- ----- ------- ------- Income (loss) before interest and taxes
48.7 (108.6) 121.4 (39.6) Interest income 2.8 3.6 11.7 8.8 Interest
expense(1) (25.4) (20.8) (50.7) (41.8) ----- ----- ----- -----
Income (loss) before taxes 26.1 (125.8) 82.4 (72.6) Income tax
(expense) benefit (5.9) 32.5 (18.8) 21.2 ---- ---- ----- ---- Net
income (loss) $20.2 $(93.3) $63.6 $(51.4) ===== ====== ===== ======
Net income (loss) per share Basic $0.24 $(1.16) $0.75 $(0.64) =====
====== ===== ====== Diluted $0.24 $(1.16) $0.75 $(0.64) =====
====== ===== ====== Shares used to calculate net income (loss) per
share Basic 84.9 80.2 84.9 80.0 ==== ==== ==== ==== Diluted 85.3
80.2 85.2 80.0 ==== ==== ==== ==== EBIT $48.7 $(108.6) $121.4
$(39.6) EBITDA $116.3 $(46.3) $261.7 $83.0
--------------------------------- (1) Interest expense for the
three and six months ended June 30, 2009 includes non-cash interest
expense in accordance with accounting accounting guidance related
to the Company's 3.25% convertible senior notes due 2015 ("3.25%
Notes"), effective January 1, 2009. See Note 5 below. Three Months
Six Months Ended June 30, Ended June 30, -------------
-------------- 2009 2008 2009 2008 ---- ---- ---- ---- Produced
tons sold: ------------------- Utility 7.1 6.8 15.3 13.2
Metallurgical 1.8 3.0 3.6 5.2 Industrial 0.5 1.0 1.3 2.0 --- ---
--- --- Total produced tons sold 9.4 10.8 20.2 20.4 === ==== ====
==== Total tons produced 9.4 10.5 20.8 20.5 Produced coal revenue
per ton sold ------------------------- Utility $53.19 $47.39 $53.70
$47.63 Metallurgical $105.98 $109.58 $104.47 $97.14 Industrial
$70.84 $59.99 $67.69 $57.49 Produced coal revenue per ton sold
$64.14 $65.78 $63.55 $61.34 Average cash cost per ton $53.66 $49.84
$53.07 $47.85 Capital expenditures $75.4 $178.2 $179.1 $301.8
Number of employees 5,975 5,877 5,975 5,877 As Adjusted June 30,
December 31, 2009 2008 ---- ---- ASSETS Cash and cash equivalents
$609.6 $607.0 Short-term investment 15.1 39.4 Trade and other
accounts receivable 240.4 233.2 Inventories 225.3 233.2 Income tax
receivable - 6.6 Other current assets 99.1 116.1 Net property,
plant and equipment 2,337.8 2,297.7 Other noncurrent assets(2)
127.7 139.2 ----- ----- Total assets $3,655.0 $3,672.4 ========
======== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt $1.5
$2.0 Accounts payable, principally trade and bank overdrafts 163.7
244.2 Payroll and employee benefits 51.6 57.0 Income taxes payable
1.3 - Other current liabilities 168.5 201.0 Long-term debt(2)
1,318.2 1,310.2 Deferred taxes(2) 183.9 177.3 Pension obligations
62.4 63.3 Other noncurrent liabilities 510.8 490.8 ----- -----
Total liabilities 2,461.9 2,545.8 Total stockholders' equity(2)
1,193.1 1,126.6 ------- ------- Total liabilities and stockholders'
equity $3,655.0 $3,672.4 ======== ========
----------------------------------------------- (2) Amounts at
December 31, 2008 have been restated in accordance with accounting
guidance related to the 3.25% Notes, effective January 1, 2009. See
Note 5 below. Note 1: The number of shares used to calculate basic
net income per share is based on the weighted average outstanding
shares of Massey Energy during the respective periods. The number
of shares used to calculate diluted net income per share is based
on the number of shares used to calculate basic net income per
share plus the dilutive effect of stock options and other
stock-based instruments held by Massey Energy employees and
directors each period and debt securities convertible into common
stock. In accordance with accounting principles generally accepted
in the United States, the effect of certain dilutive securities was
excluded from the calculation of the diluted net income per share
in the three and six months ended June 30, 2009, and June 30, 2008,
as such inclusion would result in antidilution. Note 2: "Gain on
derivative instruments" for the three and six months ended June 30,
2009, represents the net gain for certain coal contracts deemed
derivative instruments under Statement of Financial Accounting
Standard 133, "Accounting for Derivative Instruments and Hedging
Instruments," ("SFAS 133"). Contracts that qualify as derivatives
under SFAS 133 are recognized at fair value and changes to their
value are recognized as gains or losses in the current period
earnings. Note 3: "EBIT" is defined as Income before interest and
taxes. "EBITDA" is defined as Income before interest and taxes
before deducting Depreciation, depletion, and amortization
("DD&A"). Although neither EBIT nor EBITDA are measures of
performance calculated in accordance with Generally Accepted
Accounting Principles ("GAAP"), we believe that both measures are
useful to an investor in evaluating us because they are widely used
in the coal industry as measures to evaluate a company's operating
performance before debt expense and as a measure of its cash flow.
Neither EBIT nor EBITDA purport to represent operating income, net
income or cash generated by operating activities and should not be
considered in isolation or as a substitute for measures of
performance calculated in accordance with GAAP. In addition,
because neither EBIT nor EBITDA are calculated identically by all
companies, the presentation here may not be comparable to other
similarly titled measures of other companies. The table below
reconciles the GAAP measure of Net income to EBIT and to EBITDA.
Three Months Six Months Ended June 30, Ended June 30,
-------------- -------------- 2009 2008 2009 2008 ---- ---- ----
---- Net income (loss) $20.2 $(93.3) $63.6 $(51.4) Plus: Income tax
expense (benefit) 5.9 (32.5) 18.8 (21.2) Plus: Net interest expense
22.6 17.2 39.0 33.0 ---- ---- ---- ---- EBIT 48.7 (108.6) 121.4
(39.6) Plus: Depreciation, depletion and amortization 67.6 62.3
140.3 122.6 ---- ---- ----- ----- EBITDA $116.3 $(46.3) $261.7
$83.0 ====== ====== ====== ===== Note 4: "Average cash cost per
ton" is calculated as the sum of Cost of produced coal revenue and
Selling, general and administrative expense ("SG&A") (excluding
DD&A), divided by the number of produced tons sold. Although
Average cash cost per ton is not a measure of performance
calculated in accordance with GAAP, we believe that it is useful to
investors in evaluating us because it is widely used in the coal
industry as a measure to evaluate a company's control over its cash
costs. Average cash cost per ton should not be considered in
isolation or as a substitute for measures of performance in
accordance with GAAP. In addition, because Average cash cost per
ton is not calculated identically by all companies, the
presentation here may not be comparable to other similarly titled
measures of other companies. The table below reconciles the GAAP
measure of Total costs and expenses to Average cash cost per ton.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------- 2009 2008
2009 2008 ---- ---- ---- ---- Per Per Per Per $ Ton $ Ton $ Ton $
Ton ------------- ------------- --------------- ------------ Total
costs and expenses $648.9 $935.4 $1,344.3 $1,511.1 Less: Freight
and handling costs 60.9 83.4 118.7 148.5 Less: Cost of purchased
coal revenue 15.5 5.6 20.7 15.4 Less: Depreciation, depletion and
amortization 67.6 62.3 140.3 122.6 Less: Other expense 0.7 0.6 1.3
1.4 Less: Litigation charge - 245.3 - 245.3 Less: Gain on
derivative instruments (0.4) - (9.2) - ---- --- ---- --- Average
cash cost $504.6 $53.66 $538.2 $49.84 $1,072.5 $53.07 $977.9 $47.85
====== ====== ======== ====== Note 5: On January 1, 2009, the
Company adopted Financial Accounting Standards Board ("FASB") Staff
Position ("FSP") Accounting Principles Board ("APB") 14-1,
"Accounting for Convertible Debt Instruments That May Be Settled in
Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB
14-1") for the 3.25% Notes issued in August 2008. This FSP
indicated that convertible debt instruments that may be settled in
cash upon conversion, including partial cash settlement, should
separately account for the liability and equity components in a
manner that reflects the Company's nonconvertible debt borrowing
rate when interest cost is recognized in subsequent periods. Upon
adopting FSP APB 14-1, the provisions were retroactively applied.
As a result, $4.6 and $9.1million of additional non-cash interest
expense was recorded for the three and six months ended June 30,
2009, respectively. The discount associated with the 3.25% Notes
will be amortized via the effective-interest method until the notes
are carried at par value on their maturity date. The Company's debt
is comprised of the following: As Adjusted June 30, December 31,
2009 2008 ---- ---- 6.875% senior notes due 2013, net of discount
$756.4 $756.0 3.25% convertible senior notes due 2015, net of
discount 526.7 517.6 6.625% senior notes due 2010 21.9 21.9 2.25%
convertible senior notes due 2024 9.6 9.6 4.75% convertible senior
notes due 2023 - 0.1 Capital lease obligations 5.1 7.0 --- ---
Total debt 1,319.7 1,312.2 Less: Short-term debt 1.5 2.0 --- ---
Total long-term debt $1,318.2 $1,310.2 ======== ======== The
adoption of FSP APB 14-1 also impacted the historical accounting
for the 3.25% Notes which resulted in the restatement of the
Company's Condensed Consolidated Balance Sheet as of December 31,
2008, as follows: As originally Presented As Adjusted December 31,
December 31, Condensed Consolidated Balance Sheet 2008 2008
------------------------------------ ---- ---- Other noncurrent
assets $142.6 $139.2 Total assets 3,675.8 3,672.4 Long-term debt
1,463.6 1,310.2 Other noncurrent liabilities 671.4 731.4 Total
liabilities 2,639.2 2,545.8 Total shareholders' equity 1,036.6
1,126.6 Total liabilities and shareholders' equity 3,675.8 3,672.4
Note 6: "Net debt" is calculated as the sum of Short-term debt and
Long-term debt less Cash and cash equivalents, Short-term
investment and Restricted cash, which is included in Other current
assets. Although Net debt is not a measure of performance
calculated in accordance with GAAP, management believes that it is
useful to an investor in evaluating Massey Energy because it
provides a clearer comparison of the Company's debt position from
period to period. Net debt should not be considered in isolation or
as a substitute for measures of performance in accordance with
GAAP. The table below reconciles the GAAP measure of Long-term debt
to Net debt. December 31, 2008 amounts have been restated in
accordance with accounting guidance related to the 3.25% Notes,
effective January 1, 2009 (see Note 5). As Adjusted June 30,
December 31, 2009 2008 ---- ---- Long-term debt $1,318.2 $1,310.2
Plus: Short-term debt 1.5 2.0 Less: Cash and cash equivalents 609.6
607.0 Less: Short-term investment 15.1 39.4 Less: Restricted cash
46.0 46.0 ---- ---- Net debt $649.0 $619.8 ====== ====== Note 7:
The "Total debt-to-book capitalization" ratio is calculated as the
sum of Short-term debt and Long-term debt divided by the sum of
Short-term debt, Long-term debt and Total shareholders' equity. The
"Total net debt-to-book capitalization" ratio is calculated as the
sum of Net debt (calculated in Note 6) divided by the sum of Net
debt and Total shareholders' equity. The tables below calculate the
Total debt-to-book capitalization and Total net debt-to-book
capitalization ratios. December 31, 2008 amounts have been restated
in accordance with accounting guidance related to the 3.25% Notes,
effective January 1, 2009 (see Note 5). As Adjusted June 30,
December 31, 2009 2008 ---- ---- Long-term debt $1,318.2 $1,310.2
Plus: Short-term debt 1.5 2.0 --- --- Total debt (numerator)
1,319.7 1,312.2 Plus: Total shareholders' equity 1,193.1 1,126.6
------- ------- Book capitalization (denominator) $2,512.8 $2,438.8
======== ======== Total debt-to-book capitalization ratio 52.5%
53.8% ==== ====
---------------------------------------------------- -----------
Net debt (from Note 6) (numerator) 649.0 619.8 Plus: Total
shareholders' equity 1,193.1 1,126.6 ------- ------- Adjusted book
capitalization (denominator) $1,842.1 $1,746.4 ======== ========
Total net debt-to-book capitalization ratio 35.2% 35.5% ==== ====
Note 8: "Operating cash margin per ton" is calculated as the
difference between Produced coal revenue per ton sold (Produced
coal revenue divided by Total produced tons sold) and Average cash
cost per ton (computed in Note 4). Although Operating cash margin
per ton is not a measure of performance calculated in accordance
with GAAP, management believes that it is useful to an investor in
evaluating Massey Energy because it is widely used in the coal
industry as a measure to evaluate a company's profitability from
produced tons sold. Operating cash margin per ton should not be
considered in isolation or as a substitute for measures of
performance in accordance with GAAP. In addition, because Operating
cash margin per ton may not be calculated identically by all
companies, the presentation here may not be comparable to other
similarly titled measures of other companies. The table below
reconciles the GAAP measure of Produced coal revenue to Operating
cash margin per ton. Three Months Ended June 30, Six Months Ended
June 30, --------------------------- ------------------------- 2009
2008 2009 2008 ---- ---- ---- ---- Per Per Per Per $ Ton $ Ton $
Ton $ Ton ------------- ------------- --------------- -------------
Produced coal revenue $603.2 $64.14 $710.3 $65.78 $1,284.2 $63.55
$1,253.5 $61.34 Less: Average cash cost (from Note 4) 504.6 53.66
538.2 49.84 1,072.5 53.07 977.9 47.85 ------------- -------------
--------------- ------------- Operating cash margin $98.6 $10.48
$172.1 $15.94 $211.7 $10.48 $275.6 $13.49 =============
============== ============== ============== Note 9: "Other income"
is calculated as the sum of Purchased coal revenue and Other
revenue less Cost of purchased coal revenue and Other expense.
Although Other income is not a measure of performance calculated in
accordance with GAAP, management believes that it is useful to
investors in evaluating Massey Energy because it is a widely used
measure of gross income from non-core sources. Other income should
not be considered in isolation or as a substitute for measures of
performance in accordance with GAAP. In addition, because Other
income is not calculated identically by all companies, the
presentation here may not be comparable to other similarly titled
measures of other companies. The table below reconciles the GAAP
measure of Other revenue to Other income. Three Months Six Months
Ended June 30, Ended June 30, ------------- ------------- 2009 2008
2009 2008 ---- ---- ---- ---- Other revenue $14.3 $26.2 $33.6 $51.9
Plus: Purchased coal revenue 19.2 6.9 29.2 17.6 Less: Cost of
purchased coal revenue 15.5 5.6 20.7 15.4 Less: Other expense 0.7
0.6 1.3 1.4 Plus: Gain on derivative instruments 0.4 - 9.2 - ---
--- --- --- Other income $17.7 $26.9 $50.0 $52.7 ===== ===== =====
===== Note 10: Litigation charge shown in Costs and expenses for
the three and six months ended June 30, 2008, relates to an accrual
recorded in the second quarter of 2008 in the amount of $245.3
million ($185.5 million after-tax) for a specific legal action. On
May 22, 2008, the West Virginia Supreme Court of Appeals ("WV
Supreme Court") decided not to hear an appeal of the verdicts
against Massey Energy or its subsidiary Central West Virginia
Energy Company that awarded damages in favor of Wheeling-Pittsburgh
Steel Corporation and Mountain State Carbon, LLC in the amount of
$219.9 million, comprised of $119.9 million compensatory and $100
million punitive damages (plus an additional $24 million of
pre-judgment interest). On December 2, 2008, a payment of $267.4
million was made to Wheeling-Pittsburgh for final settlement of the
judgment, which included $50 million of cash previously used to
support an appeal bond for this matter.
http://www.newscom.com/cgi-bin/prnh/20071031/MASSEYENERGYLOGODATASOURCE:
Massey Energy Company CONTACT: Roger Hendriksen, Director, Investor
Relations, +1-804-788-1824 Web Site: http://www.masseyenergyco.com/
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