UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31, 2009
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from
to
Commission
File No. 001-07775
MASSEY
ENERGY COMPANY
(Exact
name of registrant as specified in its charter)
|
|
Delaware
|
95-0740960
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
|
|
4
North 4th Street, Richmond, Virginia
|
23219
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (804) 788-1800
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
|
Name
of each exchange on which registered
|
Common
Stock, $0.625 par value
|
New
York Stock Exchange
|
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x No ¨
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes ¨
No x
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes x No ¨
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such
files). Yes x No ¨
Indicate by check mark
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,”
“non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act (Check One):
Large accelerated
filer x Accelerated
filer ¨
Non-accelerated
filer ¨
Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨
No x
The
aggregate market value of the common stock held by non-affiliates of the
registrant on June 30, 2009, was $1,670,076,824 based on the last sales price
reported that date on the New York Stock Exchange of $19.54 per share. In
determining this figure, the Registrant has assumed that all of its directors
and executive officers are affiliates. Such assumptions should not be deemed to
be conclusive for any other purpose.
Common
stock, $0.625 par value (“Common Stock”), outstanding as of February 15, 2010 —
86,545,037 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Part
III incorporates certain information by reference from the registrant’s
definitive proxy statement for the 2010 Annual Meeting of Stockholders, which
proxy statement will be filed no later than 120 days after the close of the
registrant’s fiscal year ended December 31, 2009.
Forward
Looking Statements
From time
to time, we make certain comments and disclosures in reports, including this
report, or through statements made by our officers that may be forward-looking
in nature. Examples include statements related to our future outlook,
anticipated capital expenditures, projected cash flows and borrowings and
sources of funding. We caution readers that forward-looking statements,
including disclosures that use words such as “anticipate,” “believe,”
“estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “project,”
“target,” “will” and similar words or statements are subject to certain risks,
trends and uncertainties that could cause actual cash flows, results of
operations, financial condition, cost reductions, acquisitions, dispositions,
financing transactions, operations, expansion, consolidation and other events to
differ materially from the expectations expressed or implied in such
forward-looking statements. 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 and events beyond
our control. We disclaim any intent or obligation to update these
forward-looking statements unless required by securities law, and we caution the
reader not to rely on them unduly. We have
based any forward-looking statements we have made on our current expectations
and assumptions about future events and circumstances that are subject to risks,
uncertainties and contingencies that could cause results to differ materially
from those discussed in the forward-looking statements, including, but not
limited to:
(i)
|
our
cash flows, results of operation or financial
condition;
|
(ii)
|
the
successful completion of acquisition, disposition or financing
transactions and the effect thereof on our business;
|
(iii)
|
governmental
policies, laws, regulatory actions and court decisions affecting the coal
industry or our customers’ coal usage;
|
(iv)
|
legal
and administrative proceedings, settlements, investigations and claims and
the availability of insurance coverage related thereto;
|
(v)
|
inherent
risks of coal mining beyond our control, including weather and geologic
conditions or catastrophic weather-related damage;
|
(vi)
|
inherent
complexities make it more difficult and costly to mine in Central
Appalachia than in other parts of the United States;
|
(vii)
|
our
production capabilities to meet market expectations and customer
requirements;
|
(viii)
|
our
ability to obtain coal from brokerage sources or contract miners in
accordance with their contracts;
|
(ix)
|
our
ability to obtain and renew permits necessary for our existing and planned
operations in a timely manner;
|
(x)
|
the
cost and availability of transportation for our produced
coal;
|
(xi)
|
our
ability to expand our mining capacity;
|
(xii)
|
our
ability to manage production costs, including labor
costs;
|
(xiii)
|
adjustments
made in price, volume or terms to existing coal supply
agreements;
|
(xiv)
|
the
worldwide market demand for coal, electricity and
steel;
|
(xv)
|
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;
|
(xvi)
|
competition
among coal and other energy producers, in the United States and
internationally;
|
(xvii)
|
our
ability to timely obtain necessary supplies and
equipment;
|
(xviii)
|
our
reliance upon and relationships with our customers and
suppliers;
|
(xix)
|
the
creditworthiness of our customers and suppliers;
|
(xx)
|
our
ability to attract, train and retain a skilled workforce to meet
replacement or expansion needs;
|
(xxi)
|
our
assumptions and projections concerning economically recoverable coal
reserve estimates;
|
(xxii)
|
our
failure to enter into anticipated new contracts;
|
(xxiii)
|
future
economic or capital market conditions;
|
(xxiv)
|
foreign
currency fluctuations;
|
(xxv)
|
the
availability and costs of credit, surety bonds and letters of credit that
we require;
|
(xxvi)
|
the
lack of insurance against all potential operating
risks;
|
(xxvii)
|
our
assumptions and projections regarding pension and other post-retirement
benefit liabilities;
|
(xxviii)
|
our
interpretation and application of accounting literature related to mining
specific issues; and
|
(xxix)
|
the
successful implementation of our strategic plans and objectives for future
operations and expansion or
consolidation.
|
We are
including this cautionary statement in this document to make applicable and take
advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statements made by, or on behalf,
of us.
Any forward-looking statements should be considered in context with the various
disclosures made by us about our businesses, including without limitation the
risk factors more specifically described below in Item 1A. Risk Factors of this
Annual Report on Form 10-K.
2009
ANNUAL REPORT ON FORM 10-K
TABLE
OF CONTENTS
|
|
Page
|
PART I
|
|
|
Item
1.
|
Business
|
1
|
Item
1A.
|
Risk
Factors
|
24
|
Item
1B.
|
Unresolved
Staff Comments
|
33
|
Item
2.
|
Properties
|
34
|
Item
3.
|
Legal
Proceedings
|
34
|
|
|
|
PART
II
|
|
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
35
|
Item
6.
|
Selected
Financial Data
|
37
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
39
|
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
54
|
Item
8.
|
Financial
Statements and Supplementary Data
|
55
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
92
|
Item
9A.
|
Controls
and Procedures
|
93
|
Item
9B.
|
Other
Information
|
94
|
|
|
|
PART III
|
|
|
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
95
|
Item
11.
|
Executive
Compensation
|
97
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
97
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
97
|
Item
14.
|
Principal
Accountant Fees and Services
|
97
|
|
|
|
PART IV
|
|
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
98
|
|
|
SIGNATURES
|
103
|
Annual
Shareholders Meeting
Our 2010
Annual Meeting of Shareholders will be held at 9:00 a.m. EDT on Tuesday, May 18,
2010 at The Jefferson Hotel, 101 West Franklin Street, Richmond, Virginia
23220.
Part
I
Because
certain terms used in the coal industry may be unfamiliar to many investors, we
have provided a Glossary of Selected Terms beginning on page 21 at the end
of Item 1. Business.
Item
1. Business
Business
Overview
We are
one of the largest coal producers in the United States and we are the
largest coal company in Central Appalachia, our primary region of operation, in
terms of tons produced and total coal reserves in 2009.
We
produce, process and sell bituminous coal of various steam and metallurgical
grades, primarily of a low sulfur content, through our 23 processing and
shipping centers (“Resource Groups”), many of which receive coal from multiple
mines. At January 31, 2010, we operated 56 mines, including 42 underground mines
(two of which employ both room and pillar and longwall mining) and 14 surface
mines (with 12 highwall miners in operation) in West Virginia, Kentucky and
Virginia. The number of mines that we operate may vary from time to
time depending on a number of factors, including the existing demand for and
price of coal, exhaustion of economically recoverable reserves and availability
of experienced labor.
Customers
for our steam coal product include primarily electric power utility companies
who use our coal as fuel for their steam-powered
generators. Customers for our metallurgical coal include primarily
steel producers who use our coal to produce coke, which is in turn used as a raw
material in the steel manufacturing process.
A.T.
Massey was originally incorporated in Richmond, Virginia in 1920 as a coal
brokering business. In the late 1940s, A.T. Massey expanded its business to
include coal mining and processing. In 1974, St. Joe Minerals acquired a
majority interest in A.T. Massey. In 1981, St. Joe Minerals was acquired by
Fluor Corporation. A.T. Massey was wholly owned by Fluor Corporation from 1987
until November 30, 2000. On November 30, 2000, we completed a reverse spin-off
(the “Spin-Off”) which separated Fluor Corporation into two
entities: the “new” Fluor Corporation (“New Fluor”) and Fluor
Corporation which retained our coal-related businesses and was subsequently
renamed Massey Energy Company. Massey Energy Company has been a
separate, publicly traded company since December 1, 2000.
Industry
Overview
Coal
accounted for 25% of the energy consumed (excluding certain alternative fuels
including wind, geothermal and solar power generators) by the United States and
29% of energy consumed globally in 2008, according to the BP Statistical Review
of World Energy (“BP”). In 2008, coal was the fuel source of 49% of the
electricity generated nationwide, as reported by the Energy Information
Administration (“EIA”), a statistical agency of the United States Department of
Energy.
According
to BP, in 2008, the United States was the second largest coal producer in the
world, exceeded only by China. Other leading coal producers include Australia,
India, South Africa, the Russian Federation and Indonesia. According to BP, the
United States has the largest coal reserves in the world, with proved reserves
totaling 238 billion tons. The Russian Federation ranks second in proved coal
reserves with 157 billion tons, followed by China with 115 billion tons,
according to BP. The United States has more than 200 years of coal
reserves at current production rates.
United
States coal production has more than doubled over the last 40 years. In 2009,
total United States coal production, as estimated by EIA, was 1.1 billion tons.
The primary producing regions by tons were as follows:
Region
|
|
% of Total
|
|
Powder
River Basin
|
|
|
46% |
|
Central
Appalachia
|
|
|
19% |
|
Northern
Appalachia
|
|
|
12% |
|
West
(other than Powder River Basin)
|
|
|
11% |
|
Midwest
|
|
|
10% |
|
All
other
|
|
|
2% |
|
Total
|
|
|
100% |
|
The EIA
estimated that approximately 69% of United States coal was produced by surface
mining methods in 2008. The remaining 31% was produced by underground mining
methods, which include room and pillar mining and longwall mining (more fully
described in Item 1. Business, under the heading “Mining Methods”).
Coal is
used in the United States by utilities to generate electricity, by steel
companies to make steel products, and by a variety of industrial users to
produce heat and to power foundries, cement plants, paper mills, chemical plants
and other manufacturing and processing facilities. Significant quantities of
coal are also exported from both East and Gulf Coast terminals. The breakdown of
United States coal consumption for the first ten months of 2009 as estimated by
EIA is as follows:
End
Use
|
|
% of Total
|
|
Electric
Power
|
|
|
94% |
|
Other
Industrial
|
|
|
4% |
|
Coke
|
|
|
2% |
|
Residential
and Commercial
|
|
<1%
|
|
Total
|
|
|
100% |
|
Coal has
long been favored as an electricity generating fuel because of its basic
economic advantage. The largest cost component in electricity generation is
fuel. This fuel cost is typically lower for coal than competing fuels such as
oil and natural gas on a Btu-comparable basis. The EIA estimates the
average cost of various fossil fuels for generating electricity in the first 10
months of 2009 was as follows:
Electricity
Generation Source
|
|
Average Cost per million BTU
|
Petroleum
Liquids
|
|
$9.92
|
Natural
Gas
|
|
$4.65
|
Coal
|
|
$2.22
|
Petroleum
Coke
|
|
$1.59
|
There are
factors other than fuel cost that influence each utility’s choice of electricity
generation mode, including facility construction cost, access to fuel
transportation infrastructure, environmental restrictions, and other factors.
The breakdown of United States electricity generation by fuel source in the
first 10 months of 2009, as estimated by EIA, is as follows:
Electricity
Generation Source
|
|
%
of Total Electricity Generation
|
|
Coal
|
|
|
44% |
|
Natural
Gas
|
|
|
24% |
|
Nuclear
|
|
|
20% |
|
Hydroelectric
|
|
|
7% |
|
Oil
and other (solar, wind, etc.)
|
|
|
5% |
|
Total
|
|
|
100% |
|
Demand
for electricity has historically been driven by United States economic growth
but it can fluctuate from year to year depending on weather patterns. In the
first 10 months of 2009, electricity consumption in the United States decreased
4.4% from the same period in 2008, but the average growth rate in the past
decade was approximately 1.3% per year according to EIA estimates. Because
coal-fired generation is used in most cases to meet base load requirements, coal
consumption has generally grown at the pace of electricity demand
growth.
According
to the World Coal Institute (“WCI”), in 2008, the United States ranked fourth
among worldwide exporters of coal. Australia was the largest exporter, with
other major exporters including Indonesia, the Russian Federation, Columbia,
South Africa and China. According to Energy Ventures Analysis, Inc. ("EVA"),
United States exports decreased by 28% from 2008 to 2009. The usage breakdown
for 2009 United States coal exports of 59 million tons was 39% for electricity
generation and 61% for steel production. In 2009, United States coal exports
were shipped to more than 40 countries. The largest purchaser of United States
exported utility coal in 2009 continued to be Canada, which took 8.2 million
tons or 36% of total utility coal exports. This was down 57% compared to the
19.1 million tons exported to Canada in 2008. Overall steam coal exports
decreased 41% in 2009 compared to 2008. The largest purchaser of United States
exported metallurgical coal was Brazil, which
imported
approximately 8.1 million tons from the United States, or 22% of total United
States metallurgical coal exports. In total, metallurgical coal exports
decreased 16% in 2009, compared to 2008.
Depending
on the relative strength of the United States dollar versus currencies in other
coal producing regions of the world, United States producers may export more or
less coal into foreign countries as they compete on price with other foreign
coal producing sources. Likewise, the domestic coal market may be impacted due
to the relative strength of the United States dollar to other currencies, as
foreign sources could be cost-advantaged based on a coal producing region’s
relative currency position.
During
the past ten years, the global marketplace for coal has experienced swings in
the demand/supply balance. In periods of supply shortfall, as
occurred from 2003 to early 2006 and again in late 2007 through late 2008, the
prices for coal reached record highs in the United States. The increased
worldwide demand was primarily driven by higher prices for oil and natural gas
and economic expansion, particularly in China, India and elsewhere in Asia. At
the same time, infrastructure and regulatory limitations in China contributed to
a tightening of worldwide coal supply, affecting global prices of coal. The
growth in China and India caused an increase in worldwide demand for raw
materials and a disruption of expected coal exports from China to Japan, Korea
and other countries. Since mid-2008, the United States and world
economies have been in an economic recession and financial credit crisis,
reducing the demand for coal.
Metallurgical
grade coal is distinguished by special quality characteristics that include high
carbon content, volatile matter, low expansion pressure, low sulfur content, and
various other chemical attributes. High vol met coal is also high in heat
content (as measured in Btus), and therefore is desirable to utilities as fuel
for electricity generation. Consequently, high vol met coal producers have the
ongoing opportunity to select the market that provides maximum revenue and
profitability. The premium price offered by steel makers for the metallurgical
quality attributes is typically higher than the price offered by utility coal
buyers that value only the heat content. The primary concentration of United
States metallurgical coal reserves is located in the Central Appalachian region.
EVA estimates that the Central Appalachian region supplied 88% of domestic
metallurgical coal and 70% of United States exported metallurgical coal during
2008.
For
utility coal buyers, the primary goal is to maximize heat content, with other
specifications like ash content, sulfur content, and size varying considerably
among different customers. Low sulfur coals, such as those produced in the
western United States and in Central Appalachia, generally demand a higher price
due to restrictions on sulfur emissions imposed by the Federal Clean Air Act, as
amended, and implementing regulations (“Clean Air Act”) and the volatility in
sulfur dioxide (“SO2”)
allowance prices that occurred in recent years when the demand for all
specifications of coal increased. SO2 allowances
permit utilities to emit a higher level of SO2 than
otherwise required under the Clean Air Act regulations. The demand and premium
price for low sulfur coal is expected to diminish as more utilities install
scrubbers at their coal-fired plants.
Coal
shipped for North American consumption is typically sold at the mine loading
facility with transportation costs being borne by the purchaser. Offshore export
shipments are normally sold at the ship-loading terminal, with the purchaser
paying the ocean freight. According to the National Mining Association (“NMA”),
approximately two-thirds of United States coal shipments in recent years were
transported via railroads. Final delivery to consumers often involves more than
one transportation mode. A significant portion of United States production is
delivered to customers via barges on the inland waterway system and ships loaded
at Great Lakes ports.
Neither
we nor any of our subsidiaries are affiliated with or have any investment in BP,
EIA, EVA or WCI. We are a member of the NMA.
Mining
Methods
We
produce coal using four distinct mining methods: underground room and pillar,
underground longwall, surface and highwall mining, which are explained as
follows:
In the
underground room and pillar method of mining, continuous miners cut three to
nine entries into the coal bed and connect them by driving crosscuts, leaving a
series of rectangular pillars, or columns of coal, to help support the mine roof
and control the flow of air. Generally openings are driven 20 feet wide and the
pillars are 40 to 100 feet wide. As mining advances, a grid-like pattern of
entries and pillars is formed. When mining advances to the end of a panel,
retreat mining may begin. In retreat mining, as much coal as is feasible is
mined from the pillars that were created in advancing the panel, allowing the
roof to fall upon retreat. When retreat mining is completed to the mouth of the
panel, the mined panel is abandoned.
In
longwall mining (which is a type of underground mining), a shearer (cutting
head) moves back and forth across a panel of coal typically about 1,000 feet in
width, cutting a slice approximately 3.5 feet deep. The cut coal falls onto a
flexible conveyor for removal. Longwall mining is performed under hydraulic roof
supports (shields) that are advanced as the seam is cut. The roof in the mined
out areas falls as the shields advance.
Surface
mining is used to extract coal deposits found close to the surface. This method
involves removal of overburden (earth and rock covering coal) with heavy earth
moving equipment, including large shovels and draglines, and explosives,
followed by extraction of coal from coal seams. After extraction of coal,
disturbed parcels of land are reclaimed by replacing overburden and
reestablishing vegetation and plant life.
Highwall
mining is used in connection with surface mining. A highwall mining system
consists of a remotely controlled continuous miner, which extracts coal and
conveys it via augers or belt conveyors to the portal. The cut is typically a
rectangular, horizontal opening in the highwall (the unexcavated face of exposed
overburden and coal in a surface mine) 11-feet wide and reaching depths of up to
1,000 feet. Multiple, parallel openings are driven into the highwall, separated
by narrow pillars that extend the full depth of the hole.
Use of
continuous miners in the room and pillar method of underground mining
represented approximately 45% of our 2009 coal production. Production from
underground longwall mining operations constituted approximately 3% of our 2009
production. Surface mining represented approximately 44% of our 2009 coal
production. Highwall mining represented approximately 8% of our 2009 coal
production.
Mining
Operations
We
currently have 23 distinct Resource Groups, including seventeen in West
Virginia, five in Kentucky and one in Virginia. These complexes blend, process
and ship coal that is produced from one or more mines, with a single complex
handling the coal production of as many as ten distinct underground or surface
mines. Our mines have been developed at strategic locations in close proximity
to our preparation plants and rail shipping facilities.
We
currently operate solely in the Central Appalachian region, which is the
principal source of low sulfur bituminous coal in the United States, used for
power generation, metallurgical coke production and industrial boilers. Central
Appalachian coal accounted for 19% of 2009 United States coal production
according to EIA.
The
following map provides the location of our operations within the Central
Appalachian region:
The
following table provides key operational information on our Resource Groups in
2009:
Resource
Group Name
|
Location
(County)
|
Active/
Inactive
|
|
Mine
Type
|
|
|
Active
Mine Count (1)
|
|
Mining
Equipment
|
Transportation
|
|
2009
Production (2)
|
|
|
2009
Shipments (3)
|
|
|
Year
Established or Acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands
of Tons)
|
|
|
|
|
West
Virgina Resource Groups
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black
Castle
|
Boone
|
Active
|
|
|
S |
|
|
|
1 |
|
HW
|
truck,
barge
|
|
|
2,680 |
|
|
|
1,843 |
|
|
|
1987 |
|
|
|
Delbarton
|
Mingo
|
Active
|
|
|
U |
|
|
|
1 |
|
|
NS
|
|
|
476 |
|
|
|
893 |
|
|
|
1999 |
|
|
|
Edwight
|
Raleigh
|
Active
|
|
|
S |
|
|
|
1 |
|
|
CSX
|
|
|
1,482 |
|
|
|
2,159 |
|
|
|
2003 |
|
|
|
Elk
Run
|
Boone
|
Active
|
|
|
U |
|
|
|
5 |
|
|
CSX
|
|
|
2,033 |
|
|
|
3,292 |
|
|
|
1978 |
|
|
|
Endurance
|
Boone
|
Inactive
|
|
|
|
|
|
|
|
|
|
CSX
|
|
|
483 |
|
|
|
194 |
|
|
|
2001 |
|
|
|
Green
Valley
|
Nicholas
|
Active
|
|
|
U |
|
|
|
3 |
|
|
CSX
|
|
|
847 |
|
|
|
807 |
|
|
|
1996 |
|
|
|
Guyandotte
|
Wyoming
|
Active
|
|
|
U |
|
|
|
1 |
|
|
NS
|
|
|
228 |
|
|
|
208 |
|
|
|
2006 |
|
|
|
Independence
|
Boone
|
Active
|
|
|
U |
|
|
|
3 |
|
LW
|
CSX
|
|
|
1,490 |
|
|
|
2,811 |
|
|
|
1994 |
|
|
|
Inman
|
Boone
|
Active
|
|
|
U |
|
|
|
1 |
|
|
CSX
|
|
|
536 |
|
|
|
- |
|
|
|
2008 |
|
|
|
Logan
County
|
Logan
|
Active
|
|
|
S/U |
|
|
|
2 |
|
HW
|
CSX
|
|
|
3,738 |
|
|
|
3,233 |
|
|
|
1998 |
|
|
|
Mammoth
|
Kanawha
|
Active
|
|
|
U |
|
|
|
4 |
|
|
barge/NS
|
|
|
1,688 |
|
|
|
4,465 |
|
|
|
2004 |
|
|
|
Marfork
|
Raleigh
|
Active
|
|
|
S/U |
|
|
|
9 |
|
LW/HW
|
CSX
|
|
|
4,244 |
|
|
|
3,925 |
|
|
|
1993 |
|
|
|
Nicholas
Energy
|
Nicholas
|
Active
|
|
|
S/U |
|
|
|
3 |
|
HW
|
NS
|
|
|
2,211 |
|
|
|
2,043 |
|
|
|
1997 |
|
|
|
Progress
|
Boone
|
Active
|
|
|
S |
|
|
|
1 |
|
HW/DL
|
CSX
|
|
|
4,954 |
|
|
|
3,149 |
|
|
|
1998 |
|
|
|
Rawl
|
Mingo
|
Active
|
|
|
U |
|
|
|
2 |
|
|
NS
|
|
|
999 |
|
|
|
- |
|
|
|
1974 |
|
|
|
Republic
Energy
|
Raleigh
|
Active
|
|
|
S |
|
|
|
2 |
|
HW
|
truck
|
|
|
3,367 |
|
|
|
260 |
|
|
|
2004 |
|
|
|
Stirrat
|
Logan
|
Active
|
|
|
|
|
|
|
|
|
|
CSX
|
|
|
450 |
|
|
|
1.068 |
|
|
|
1993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kentucky
Resource Groups
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalgood
Energy
|
Harlan
|
Active
|
|
|
S/U |
|
|
|
2 |
|
HW
|
CSX
|
|
|
348 |
|
|
|
310 |
|
|
|
2005 |
|
|
|
Long
Fork
|
Pike
|
Active
|
|
|
|
|
|
|
|
|
|
NS
|
|
|
- |
|
|
|
1,513 |
|
|
|
1991 |
|
|
|
Martin
County
|
Martin
|
Active
|
|
|
S/U |
|
|
|
4 |
|
HW
|
NS
|
|
|
1,691 |
|
|
|
1,394 |
|
|
|
1969 |
|
|
|
New
Ridge
|
Pike
|
Active
|
|
|
|
|
|
|
|
|
|
CSX
|
|
|
- |
|
|
|
315 |
|
|
|
1992 |
|
|
|
Sidney
|
Pike
|
Active
|
|
|
S/U |
|
|
|
9 |
|
HW
|
NS
|
|
|
3,447 |
|
|
|
2,219 |
|
|
|
1984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virginia
Resource Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Knox
Creek
|
Tazewell
|
Active
|
|
|
S/U |
|
|
|
2 |
|
HW
|
NS
|
|
|
562 |
|
|
|
551 |
|
|
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
56 |
|
|
|
|
|
37,954 |
|
|
|
36,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Active mine count as of January 31, 2010
(2) For
purposes of this table, coal production has been allocated to the Resource Group
where the coal is mined, rather than the Resource Group where the coal is
processed and shipped. Production amounts above represent coal extracted from
the ground.
(3) For
purposes of this table, coal shipments have been allocated to the Resource Group
from where the coal is processed and shipped, rather than the Resource Group
where the coal is mined.
S
-surface mine
U
-underground mine
HW -highwall miners
operated in conjunction with surface mines
DL
-dragline
NS
-Norfolk Southern Railway Company
CSX - CSX
Transportation
The
following descriptions of the Resource Groups are current as of January 31,
2010:
West
Virginia Resource Groups
Black Castle. The Black
Castle complex includes a large surface mine, two highwall miners, the Homer III
direct-ship loadout, a stoker plant, and the Omar preparation plant. Some of the
surface mine coal is trucked to the stoker plant where the coal is crushed and
screened. The stoker product is trucked to river docks for barge delivery or
trucked directly to customers. A portion of the coal is trucked to the Omar
plant, where it is crushed and shipped to customers or, if the coal needs
processing, it is belted to the preparation plant at the Independence Resource
Group for processing and shipment. The direct-ship facility at the preparation
plant can crush 500 tons per hour and the preparation plant can process 800 tons
per hour. The Omar preparation plant serves CSX rail system customers with unit
train shipments of up to 110 railcars. Coal is also trucked to the Homer III
loadout where it is crushed and shipped to customers by rail, trucked to river
docks for barge delivery, or trucked directly to customers. The Homer III
loadout serves CSX rail system customers with unit train shipments of up to 100
railcars. The Omar preparation plant was not utilized for processing coal in
2009.
Delbarton. The Delbarton
complex includes one underground room and pillar mine and a preparation plant.
Production from the mine is transported to the Delbarton preparation plant via
overland conveyor. The Delbarton preparation plant also processes coal from a
surface mine of the Logan County Resource Group. The Delbarton preparation plant
can process 600 tons per hour. The clean coal product is shipped to customers
via the Norfolk Southern railway in unit trains of up to 110
railcars.
Edwight. The Edwight complex
includes a surface mine and the Goals preparation plant. Production from the
surface mine is transported via conveyor system to the Goals preparation plant.
The Goals preparation plant can process 800 tons per hour. The rail loading
facility serves CSX railway customers with unit trains of up to 100
railcars.
Elk Run. The Elk Run complex
produces coal from five underground room and pillar mines, which is belted to
the Elk Run preparation plant. Additionally, Elk Run processes coal produced by
surface mines of the Progress Resource Group and transported via underground
conveyor system. The Elk Run preparation plant has a processing capacity of
2,200 tons per hour. Elk Run also operates a 200 ton per hour stoker facility
that produces screened, small dimension coal for certain of our industrial
customers. Customer shipments are loaded on the CSX rail system in unit trains
of up to 150 railcars.
Endurance. The Endurance
complex includes an idle surface mine and a direct-ship loadout. When in
production, a portion of the production from the surface mine is loaded for
shipment to customers at the direct-ship loadout and the remainder is trucked to
the preparation plant at the Independence Resource Group for
processing.
Green Valley. The Green
Valley complex includes three underground room and pillar mines and a
preparation plant. The Green Valley preparation plant, which has a processing
capacity of 600 tons per hour, receives coal from the mines via trucks. The rail
loading facility services customers on the CSX rail system with unit train
shipments of up to 75 railcars.
Guyandotte. The Guyandotte
complex includes one underground room and pillar mine. The mine belts coal to a
third-party preparation plant for washing and shipment to customers via the
Norfolk Southern railway system.
Independence. The
Independence complex includes the Revolution longwall mine, two underground room
and pillar mines and a preparation plant. Production from the underground mines
is transported via overland conveyor system to the Independence preparation
plant. The surface mine at the Black Castle Resource Group belts coal requiring
processing to the Independence preparation plant. The Independence plant has a
processing capacity of 2,200 tons per hour. Customers are served via rail
shipments on the CSX rail system in unit trains of up to 150
railcars.
Inman. The Inman complex
includes one underground room and pillar mine and a preparation plant.
Production from the underground mine is transported via overland conveyor system
to the preparation plant. The Inman plant has a processing capacity of 800 tons
per hour. Coal processed at the preparation plant is trucked to Marfork Resource
Group’s preparation plant where it is loaded and shipped to customers via the
CSX rail system in unit trains of up to 150 railcars.
Logan County. The Logan
County complex includes a surface mine, a highwall miner and an underground room
and pillar mine. Production from the underground mine is transported via truck
to the preparation plant of the Stirrat Resource Group. The surface
mine and highwall miner production is transported via truck to the Feats Loadout
or the Delbarton Resource Group preparation plant. The Feats Loadout can service
customers via the CSX rail system with unit train shipments of up to 80 cars.
The Logan County Resource Group preparation plant (“Bandmill preparation plant”)
was destroyed by fire in August 2009. A new plant is expected to be completed in
fall of 2010, at which time the production from
the
underground room and pillar mine will go to this new plant. Additionally, upon
completion of the new plant, three surface mines that are currently idle are
expected to be re-started.
Mammoth. The Mammoth complex
operates four underground room and pillar mines and a preparation plant. Coal is
transported to the preparation plant using a conveyor system. The plant has a
1,200 tons per hour processing facility capacity with barge loading capabilities
on the upper Kanawha River and a rail loading facility that services customers
on the Norfolk Southern railway with unit trains of up to 130
railcars.
Marfork. The Marfork complex
includes seven underground room and pillar mines, a longwall mine, a surface
mine, a highwall miner and a preparation plant. Production from the longwall
mine and six of the underground mines is belted directly to the Marfork
preparation plant while production from the remaining underground mine is belted
to Edwight Resource Group’s Goals preparation plant. Production from the surface
mine and the highwall miner is trucked to either the Marfork preparation plant
or the Elk Run Resource Group’s preparation plant. The Marfork preparation plant
has a capacity of 2,400 tons per hour. Customers are served via the CSX rail
system with unit trains of up to 150 railcars.
Nicholas Energy. The Nicholas
Energy complex includes one underground room and pillar mine, a surface mine,
two highwall miners and a preparation plant. Coal from the underground mine is
transported to the preparation plant for processing via conveyor system. Coal
from the highwall miners and the portion of surface mined coal requiring
processing is transported to the preparation plant using off-road trucks. Coal
not requiring processing is transported via off-road trucks to a conveyor system
that moves the coal directly to a rail loadout facility. The plant has a
processing capacity of 1,200 tons per hour. Coal shipments are loaded into rail
cars for delivery via the Norfolk Southern railway in unit trains of up to 140
railcars, or are transported via on-highway trucks to the Mammoth Resource
Group’s barge loading facility.
Progress. The Progress
complex includes the large Twilight MTR surface mine and a highwall miner. A
dragline is also utilized at the Twilight MTR surface mine. Production from the
Twilight MTR surface mine is transported via underground conveyor to the Elk Run
Resource Group for processing and rail shipment.
Rawl. The Rawl complex
includes two underground room and pillar mines and a preparation plant.
Production from the mines is transported via truck to the preparation plant of
the Stirrat Resource Group. The Rawl plant, which was idled in December 2006,
has a throughput capacity of 1,450 tons per hour. Customers can be served by the
Rawl plant via the Norfolk Southern railway with unit trains of up to 150
railcars.
Republic Energy. The Republic
Energy complex consists of two surface mines and a highwall miner. Direct-ship
coal is trucked using on-highway trucks to various docks on the Kanawha River
for barge delivery to customers and to the Marfork Resource Group for rail
delivery to customers. Coal requiring processing is trucked using
on-highway trucks to Mammoth Resource Group’s preparation plant for processing
and barge or train delivery to customers.
Stirrat. The Stirrat complex
includes a preparation plant and the Superior loadout. The Superior loadout
serves CSX railway customers with unit trains of up to 100 railcars. The Stirrat
preparation plant cleans coal from two adjacent underground room and pillar
mines of the Rawl Resource Group and one underground room and pillar mine of the
Logan County Resource Group. The plant has a rated capacity of 600 tons per
hour. Customers are served via the CSX rail system with unit trains of up to 100
railcars.
Coalgood Energy. The Coalgood
Energy complex includes one underground room and pillar mine, one surface mine,
one highwall miner, a direct-ship loadout and a preparation plant. The coal from
the surface mine is trucked off-road to the loadout, which serves CSX railway
customers with unit trains of up to 100 railcars. Production from the
underground mine and the highwall miner is transported via truck to the
preparation plant. The Coalgood Energy preparation plant has a throughput
capacity of 800 tons per hour. Coal from this preparation plant is loaded onto
trains from the direct-ship loadout.
Long Fork. The Long Fork
preparation plant processes coal produced by two underground room and pillar
mines of the Sidney Resource Group. All production is transported via conveyor
system to the Long Fork preparation plant for processing and shipping to
customers. The Long Fork plant has a rated capacity of 1,500 tons per hour. The
rail loading facility services customers on the Norfolk Southern railway with
unit trains of up to 150 railcars.
Martin County. The Martin
County complex includes two underground room and pillar mines, two surface
mines, a highwall miner and a preparation plant. Direct-ship coal
production from the surface mines is shipped to river docks via truck. Surface
mine and highwall miner coal requiring processing and production from the
underground mines is transported
by
conveyor belt or truck to the preparation plant. Martin County’s preparation
plant has a throughput capacity of 1,500 tons per hour, although the throughput
capacity is limited due to decreased impoundment availability. The coal from the
preparation plant can be shipped either via the Norfolk Southern railway in unit
trains of up to 125 railcars or to river docks via truck.
New Ridge. The New Ridge
complex loads clean coal that is transported via truck from the preparation
plant of the Sidney Resource Group and coal trucked directly from Sidney’s
surface mine. The New Ridge preparation plant has a capacity of 800 tons per
hour. The preparation plant is currently idle but may be reactivated from time
to time during 2010 as needed. All coal is loaded for shipment to customers via
the CSX rail system in unit trains of up to 100 railcars.
Sidney. The Sidney complex
includes eight underground room and pillar mines, one surface mine, a highwall
miner and a preparation plant. Four of the underground mines transport coal via
underground conveyor system to the Long Fork Resource Group for processing and
shipment, and the remainder of the underground mines transport production via
underground conveyor system or truck to Sidney’s preparation plant. A portion of
the coal from Sidney’s preparation plant and coal from the surface mines are
trucked to the New Ridge Resource Group for loading into railroad cars. Sidney’s
preparation plant has a capacity of 1,500 tons per hour. The rail loading
facility at the preparation plant serves customers on the Norfolk Southern rail
system with unit trains of up to 140 railcars.
Knox Creek. The Knox Creek
complex includes one underground room and pillar mine, one surface mine, one
highwall miner and a preparation plant. Production from the underground mine is
belted by conveyor system to the preparation plant, while coal requiring
processing from the surface mine, including coal from the highwall miner, is
trucked to the preparation plant. The preparation plant has a feed capacity of
650 tons per hour. The preparation plant serves customers on the Norfolk
Southern rail system with unit trains of up to 100 railcars.
Coal
Reserves
We
estimate that, as of December 31, 2009, we had total recoverable reserves of
approximately 2.4 billion tons consisting of both proven and probable reserves.
“Reserves” are defined by the SEC Industry Guide 7 as that part of a mineral
deposit, which could be economically and legally extracted or produced at the
time of the reserve determination. “Recoverable” reserves means coal that is
economically recoverable using existing equipment and methods under federal and
state laws currently in effect. Approximately 1.5 billion tons of reserves are
classified as proven reserves. “Proven (measured) reserves” are defined by the
SEC Industry Guide 7 as reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or
quality are computed from the results of detailed sampling and (b) the sites for
inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth and mineral content of
reserves are well-established. The remaining approximately 0.9 billion tons of
our reserves are classified as probable reserves. “Probable reserves” are
defined by the SEC Industry Guide 7 as reserves for which quantity and grade
and/or quality are computed from information similar to that used for proven
(measured) reserves, but the sites for inspection, sampling, and measurement are
farther apart or are otherwise less adequately spaced. The degree of assurance,
although lower than that for proven (measured) reserves, is high enough to
assume continuity between points of observation.
Information
about our reserves consists of estimates based on engineering, economic and
geological data assembled and analyzed by our internal engineers, geologists and
finance associates. Reserve estimates are updated annually using geologic data
taken from drill holes, adjacent mine workings, outcrop prospect openings and
other sources. Coal tonnages are categorized according to coal quality, seam
thickness, mineability and location relative to existing mines and
infrastructure. In accordance with applicable industry standards, proven
reserves are those for which reliable data points are spaced no more than 2,700
feet apart. Probable reserves are those for which reliable data points are
spaced 2,700 feet to 7,900 feet apart. Further scrutiny is applied using
geological criteria and other factors related to profitable extraction of the
coal. These criteria include seam height, roof and floor conditions, yield and
marketability.
As with
most coal-producing companies in Central Appalachia, the majority of our coal
reserves are controlled pursuant to leases from third-party landowners. The
leases are generally long-term in nature (original term five to fifty years or
until the mineable and merchantable coal reserves are exhausted), and
substantially all of the leases contain provisions that allow for automatic
extension of the lease term as long as mining continues. These leases convey
mining rights to the coal producer in exchange for a per ton or percentage of
gross sales price royalty payment to the lessor. However, approximately 18% of
our reserve holdings are owned and require no royalty or per ton payment to
other parties. Royalty expense for coal reserves
from our producing properties (owned and leased) was approximately 4.4% of
Produced coal revenue for the year ended December 31, 2009.
The
following table provides proven and probable reserve data by “status” (i.e.,
location, owned or leased, assigned or unassigned, etc.) as of December 31,
2009:
Recoverable Reserves
(1)
|
|
Resource
Group
|
Location (2)
|
|
Total
|
|
|
Proven
|
|
|
Probable
|
|
|
Assigned (3)
|
|
|
Unassigned (3)
|
|
|
Owned
|
|
|
Leased
|
|
(In
Thousands of Tons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black
Castle
|
Boone
County
|
|
|
83,440 |
|
|
|
57,364 |
|
|
|
26,076 |
|
|
|
39,297 |
|
|
|
44,143 |
|
|
|
538 |
|
|
|
82,902 |
|
Delbarton
|
Mingo
County
|
|
|
285,761 |
|
|
|
120,440 |
|
|
|
165,321 |
|
|
|
140,263 |
|
|
|
145,498 |
|
|
|
25 |
|
|
|
285,736 |
|
Edwight
|
Raleigh
County
|
|
|
4,851 |
|
|
|
4,851 |
|
|
|
- |
|
|
|
4,851 |
|
|
|
- |
|
|
|
- |
|
|
|
4,851 |
|
Elk
Run
|
Boone
County
|
|
|
106,756 |
|
|
|
73,963 |
|
|
|
32,793 |
|
|
|
80,734 |
|
|
|
26,022 |
|
|
|
4,660 |
|
|
|
102,096 |
|
Endurance
|
Boone
County
|
|
|
20,871 |
|
|
|
20,871 |
|
|
|
- |
|
|
|
20,871 |
|
|
|
- |
|
|
|
20,831 |
|
|
|
40 |
|
Green
Valley
|
Nicholas
County
|
|
|
11,360 |
|
|
|
11,360 |
|
|
|
- |
|
|
|
10,417 |
|
|
|
943 |
|
|
|
- |
|
|
|
11,360 |
|
Guyandotte
|
Wyoming
County
|
|
|
45,336 |
|
|
|
17,366 |
|
|
|
27,970 |
|
|
|
2,100 |
|
|
|
43,236 |
|
|
|
330 |
|
|
|
45,006 |
|
Independence
|
Boone
County
|
|
|
42,881 |
|
|
|
41,571 |
|
|
|
1,310 |
|
|
|
30,293 |
|
|
|
12,588 |
|
|
|
9,482 |
|
|
|
33,399 |
|
Inman
|
Boone
County
|
|
|
45,501 |
|
|
|
43,986 |
|
|
|
1,515 |
|
|
|
- |
|
|
|
45,501 |
|
|
|
- |
|
|
|
45,501 |
|
Logan
County
|
Logan
County
|
|
|
102,302 |
|
|
|
84,718 |
|
|
|
17,584 |
|
|
|
75,134 |
|
|
|
27,168 |
|
|
|
2,388 |
|
|
|
99,914 |
|
Mammoth
|
Kanawha
County
|
|
|
131,628 |
|
|
|
100,705 |
|
|
|
30,923 |
|
|
|
73,881 |
|
|
|
57,747 |
|
|
|
42,596 |
|
|
|
89,032 |
|
Marfork
|
Raleigh
County
|
|
|
128,977 |
|
|
|
100,849 |
|
|
|
28,128 |
|
|
|
70,759 |
|
|
|
58,218 |
|
|
|
815 |
|
|
|
128,162 |
|
Nicholas
Energy
|
Nicholas
County
|
|
|
86,161 |
|
|
|
48,258 |
|
|
|
37,903 |
|
|
|
43,745 |
|
|
|
42,416 |
|
|
|
33,554 |
|
|
|
52,607 |
|
Progress
|
Boone
County
|
|
|
21,860 |
|
|
|
21,860 |
|
|
|
- |
|
|
|
21,860 |
|
|
|
- |
|
|
|
- |
|
|
|
21,860 |
|
Rawl
|
Mingo
County
|
|
|
107,853 |
|
|
|
80,623 |
|
|
|
27,230 |
|
|
|
73,985 |
|
|
|
33,868 |
|
|
|
1,333 |
|
|
|
106,520 |
|
Republic
Energy
|
Raleigh
County
|
|
|
77,211 |
|
|
|
65,626 |
|
|
|
11,585 |
|
|
|
77,211 |
|
|
|
- |
|
|
|
- |
|
|
|
77,211 |
|
Stirrat
|
Logan
County
|
|
|
9,512 |
|
|
|
7,330 |
|
|
|
2,182 |
|
|
|
4,631 |
|
|
|
4,881 |
|
|
|
- |
|
|
|
9,512 |
|
Kentucky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalgood
Energy
|
Harlan
County
|
|
|
20,906 |
|
|
|
12,939 |
|
|
|
7,967 |
|
|
|
3,361 |
|
|
|
17,545 |
|
|
|
2,704 |
|
|
|
18,202 |
|
Long
Fork
|
Pike
County
|
|
|
4,964 |
|
|
|
2,764 |
|
|
|
2,200 |
|
|
|
264 |
|
|
|
4,700 |
|
|
|
- |
|
|
|
4,964 |
|
Martin
County
|
Martin
County
|
|
|
46,967 |
|
|
|
30,278 |
|
|
|
16,689 |
|
|
|
1,905 |
|
|
|
45,062 |
|
|
|
1,336 |
|
|
|
45,631 |
|
New
Ridge
|
Pike
County
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Sidney
|
Pike
County
|
|
|
120,685 |
|
|
|
70,173 |
|
|
|
50,512 |
|
|
|
120,685 |
|
|
|
- |
|
|
|
7,028 |
|
|
|
113,657 |
|
Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Knox
Creek
|
Tazewell
County
|
|
|
62,307 |
|
|
|
46,756 |
|
|
|
15,551 |
|
|
|
34,776 |
|
|
|
27,531 |
|
|
|
4,552 |
|
|
|
57,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
1,568,090 |
|
|
|
1,064,651 |
|
|
|
503,439 |
|
|
|
931,023 |
|
|
|
637,067 |
|
|
|
132,172 |
|
|
|
1,435,918 |
|
Land Management
Companies: (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black
King
|
Boone
County, WV
|
|
|
53,536 |
|
|
|
40,804 |
|
|
|
12,732 |
|
|
|
734 |
|
|
|
52,802 |
|
|
|
- |
|
|
|
53,536 |
|
Raleigh
County, WV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boone
East
|
Boone
County, WV
|
|
|
138,741 |
|
|
|
101,268 |
|
|
|
37,473 |
|
|
|
4,340 |
|
|
|
134,401 |
|
|
|
61,218 |
|
|
|
77,523 |
|
Kanawha
County, WV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boone
West
|
Lincoln
County, WV
|
|
|
241,974 |
|
|
|
92,201 |
|
|
|
149,773 |
|
|
|
10,496 |
|
|
|
231,478 |
|
|
|
65,553 |
|
|
|
176,421 |
|
Logan
County, WV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceres
Land
|
Raleigh
County, WV
|
|
|
33,351 |
|
|
|
24,220 |
|
|
|
9,131 |
|
|
|
- |
|
|
|
33,351 |
|
|
|
- |
|
|
|
33,351 |
|
Rostraver
Energy
|
Various
counties, PA
|
|
|
94,086 |
|
|
|
44,449 |
|
|
|
49,637 |
|
|
|
- |
|
|
|
94,086 |
|
|
|
65,728 |
|
|
|
28,358 |
|
Lauren
Land
|
Mingo
County, WV
|
|
|
171,028 |
|
|
|
104,814 |
|
|
|
66,214 |
|
|
|
11,175 |
|
|
|
159,853 |
|
|
|
17,669 |
|
|
|
153,359 |
|
Logan
County, WV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Various
counties, KY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Market Land
|
Wyoming
County, WV
|
|
|
5,884 |
|
|
|
2,690 |
|
|
|
3,194 |
|
|
|
- |
|
|
|
5,884 |
|
|
|
102 |
|
|
|
5,782 |
|
Raven
Resources
|
Raleigh
County, WV
|
|
|
18,978 |
|
|
|
18,978 |
|
|
|
- |
|
|
|
- |
|
|
|
18,978 |
|
|
|
- |
|
|
|
18,978 |
|
Boone
County, WV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tennessee
Consolidated Coal
|
Various
counties, TN
|
|
|
26,907 |
|
|
|
1,332 |
|
|
|
25,575 |
|
|
|
- |
|
|
|
26,907 |
|
|
|
24,054 |
|
|
|
2,853 |
|
Subtotal
Land Management
|
|
|
784,485 |
|
|
|
430,756 |
|
|
|
353,729 |
|
|
|
26,745 |
|
|
|
757,740 |
|
|
|
234,324 |
|
|
|
550,161 |
|
Other
|
N/A
|
|
|
57,733 |
|
|
|
29,680 |
|
|
|
28,053 |
|
|
|
12,740 |
|
|
|
44,993 |
|
|
|
3,112 |
|
|
|
54,621 |
|
Total
|
|
|
|
2,410,308 |
|
|
|
1,525,087 |
|
|
|
885,221 |
|
|
|
970,508 |
|
|
|
1,439,800 |
|
|
|
369,608 |
|
|
|
2,040,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Recoverable reserves represents the amount of proven and probable reserves that
can actually be recovered from the reserve base taking into account all mining
and preparation losses involved in producing a saleable product using existing
methods under current law.
(2)
All of the recoverable reserves listed are in Central Appalachia, except
for the Rostraver reserves, which are located in Northern Appalachia and Lauren
Land reserves, a portion of which are located in the Illinois Basin. The
reserve numbers of each Resource Group contain a moisture factor specific to the
particular reserves of that Resource Group. The moisture factor represents
the average moisture present in our delivered coal.
(3)
Assigned Reserves represent recoverable reserves that are dedicated to a
specific permitted mine; otherwise, the reserves are considered
Unassigned. For Land Management Companies, Assigned Reserves have been
leased to a third-party and are dedicated to a specific permitted mine of the
lessee.
(4)
Land management companies are our subsidiaries whose primary purposes are to
acquire and hold our reserves.
The
categorization of the “quality” (i.e., sulfur content, Btu, coal type, etc.) of
coal reserves is as follows:
|
|
|
|
|
Recoverable Reserves
(1)
|
|
|
|
|
|
|
|
|
|
Recoverable
|
|
|
|
|
|
Sulfur
Content
|
|
|
|
|
|
Avg.
Btu as
|
|
|
|
|
Resource
Group
|
|
Reserves
|
|
|
|
+1% (2) |
|
|
|
-1% (2) |
|
|
Compliance (2)
|
|
|
Received (3)
|
|
|
Coal Type (4)
|
|
|
|
(In
Thousands of Tons Except Average Btu as Received)
|
|
|
|
|
West
Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black
Castle
|
|
|
83,440 |
|
|
|
33,978 |
|
|
|
49,462 |
|
|
|
22,093 |
|
|
|
12,700 |
|
|
Utility
|
|
Delbarton
|
|
|
285,761 |
|
|
|
111,954 |
|
|
|
173,807 |
|
|
|
127,073 |
|
|
|
13,350 |
|
|
High
Vol Met and Utility
|
|
Edwight
|
|
|
4,851 |
|
|
|
1,225 |
|
|
|
3,626 |
|
|
|
3,512 |
|
|
|
12,550 |
|
|
High
Vol Met and Utility
|
|
Elk
Run
|
|
|
106,756 |
|
|
|
46,795 |
|
|
|
59,961 |
|
|
|
50,058 |
|
|
|
13,700 |
|
|
High
Vol Met and Utility
|
|
Endurance
|
|
|
20,871 |
|
|
|
6,443 |
|
|
|
14,428 |
|
|
|
6,381 |
|
|
|
11,850 |
|
|
Utility
|
|
Green
Valley
|
|
|
11,360 |
|
|
|
2,550 |
|
|
|
8,810 |
|
|
|
9,750 |
|
|
|
13,100 |
|
|
High
Vol Met, Mid Vol Met, and Industrial
|
|
Guyandotte
|
|
|
45,336 |
|
|
|
- |
|
|
|
45,336 |
|
|
|
45,336 |
|
|
|
13,850 |
|
|
Low
Vol Met
|
|
Independence
|
|
|
42,881 |
|
|
|
16,725 |
|
|
|
26,156 |
|
|
|
- |
|
|
|
12,650 |
|
|
High
Vol Met and Utility
|
|
Inman
|
|
|
45,501 |
|
|
|
26,672 |
|
|
|
18,829 |
|
|
|
19,549 |
|
|
|
12,650 |
|
|
High
Vol Met and Utility
|
|
Logan
County
|
|
|
102,302 |
|
|
|
34,899 |
|
|
|
67,403 |
|
|
|
44,840 |
|
|
|
12,050 |
|
|
High
Vol Met, Utility, and Industrial
|
|
Mammoth
|
|
|
131,628 |
|
|
|
22,391 |
|
|
|
109,237 |
|
|
|
41,073 |
|
|
|
12,150 |
|
|
High
Vol Met and Utility
|
|
Marfork
|
|
|
128,977 |
|
|
|
51,797 |
|
|
|
77,180 |
|
|
|
38,606 |
|
|
|
14,050 |
|
|
High
Vol Met and Utility
|
|
Nicholas
Energy
|
|
|
86,161 |
|
|
|
38,466 |
|
|
|
47,695 |
|
|
|
28,000 |
|
|
|
12,450 |
|
|
High
Vol Met and Utility
|
|
Progress
|
|
|
21,860 |
|
|
|
9,038 |
|
|
|
12,822 |
|
|
|
12,836 |
|
|
|
12,350 |
|
|
High
Vol Met and Utility
|
|
Rawl
|
|
|
107,853 |
|
|
|
27,658 |
|
|
|
80,195 |
|
|
|
59,378 |
|
|
|
12,350 |
|
|
High
Vol Met and Utility
|
|
Republic
|
|
|
77,211 |
|
|
|
16,576 |
|
|
|
60,635 |
|
|
|
36,980 |
|
|
|
12,450 |
|
|
High
Vol Met and Utility
|
|
Stirrat
|
|
|
9,512 |
|
|
|
204 |
|
|
|
9,308 |
|
|
|
7,492 |
|
|
|
12,300 |
|
|
High
Vol Met and Utility
|
|
Kentucky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalgood
Energy
|
|
|
20,906 |
|
|
|
4,708 |
|
|
|
16,198 |
|
|
|
11,680 |
|
|
|
13,100 |
|
|
Utility
and Industrial
|
|
Long
Fork
|
|
|
4,964 |
|
|
|
3,500 |
|
|
|
1,464 |
|
|
|
- |
|
|
|
12,850 |
|
|
Utility
|
|
Martin
County
|
|
|
46,967 |
|
|
|
33,900 |
|
|
|
13,067 |
|
|
|
4,888 |
|
|
|
12,500 |
|
|
Utility
|
|
New
Ridge
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
N/A |
|
|
Sidney
|
|
|
120,685 |
|
|
|
47,878 |
|
|
|
72,807 |
|
|
|
52,545 |
|
|
|
13,200 |
|
|
Utility
|
|
Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Knox
Creek
|
|
|
62,307 |
|
|
|
9,193 |
|
|
|
53,114 |
|
|
|
38,491 |
|
|
|
12,350 |
|
|
High
Vol Met and Utility
|
|
Subtotal
|
|
|
1,568,090 |
|
|
|
546,550 |
|
|
|
1,021,540 |
|
|
|
660,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
Management Companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black
King
|
|
|
53,536 |
|
|
|
99 |
|
|
|
53,437 |
|
|
|
36,858 |
|
|
|
12,150 |
|
|
Low
Vol Met, High Vol Met and Utility
|
|
Boone
East
|
|
|
138,741 |
|
|
|
34,939 |
|
|
|
103,802 |
|
|
|
36,789 |
|
|
|
12,500 |
|
|
Low
Vol Met, High Vol Met and Utility
|
|
Boone
West
|
|
|
241,974 |
|
|
|
130,063 |
|
|
|
111,911 |
|
|
|
79,369 |
|
|
|
13,350 |
|
|
High
Vol Met and Utility
|
|
Ceres
Land
|
|
|
33,351 |
|
|
|
5,991 |
|
|
|
27,360 |
|
|
|
12,740 |
|
|
|
12,700 |
|
|
High
Vol Met and Utility
|
|
Rostraver
Energy
|
|
|
94,086 |
|
|
|
94,086 |
|
|
|
- |
|
|
|
- |
|
|
|
14,050 |
|
|
High
Vol Met, Utility, and Industrial
|
|
Lauren
Land
|
|
|
171,028 |
|
|
|
88,195 |
|
|
|
82,833 |
|
|
|
62,286 |
|
|
|
12,700 |
|
|
High
Vol Met and Utility
|
|
New
Market Land
|
|
|
5,884 |
|
|
|
- |
|
|
|
5,884 |
|
|
|
5,884 |
|
|
|
12,700 |
|
|
High
Vol Met and Low Vol Met
|
|
Raven
Resources
|
|
|
18,978 |
|
|
|
7,449 |
|
|
|
11,529 |
|
|
|
1,369 |
|
|
|
12,100 |
|
|
High
Vol Met and Utility
|
|
Tennessee
Consolidated Coal
|
|
|
26,907 |
|
|
|
20,353 |
|
|
|
6,554 |
|
|
|
4,816 |
|
|
|
13,000 |
|
|
Mid
Volume Met, Utility, and Industrial
|
|
Subtotal
Land Management
|
|
|
784,485 |
|
|
|
381,175 |
|
|
|
403,310 |
|
|
|
240,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
57,733 |
|
|
|
6,638 |
|
|
|
51,095 |
|
|
|
45,948 |
|
|
|
12,800 |
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,410,308 |
|
|
|
934,363 |
|
|
|
1,475,945 |
|
|
|
946,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The reserve numbers of each Resource Group contain a moisture factor specific to
the particular reserves of that Resource Group. The moisture factor
represents the average moisture present in our delivered coal.
(2)
+1% or -1% refers to sulfur content as a percentage in coal by
weight. Compliance coal is less than 1% sulfur content by weight and is
included in the -1% column.
(3)
Represents an estimate of the average Btu per pound in our coal, as it is
received by the customer.
(4)
Reserve holdings include metallurgical coal reserves. Although these
metallurgical coal reserves receive the highest selling price in the current
coal market when marketed to steel-making customers, they can also be marketed
as an ultra high Btu, low sulfur utility coal for electricity
generation.
Compliance
compared to non-compliance coal
Coals are
sometimes characterized as compliance or non-compliance coal. The phrase
compliance coal, as it is commonly used in the coal industry, refers to
compliance only with sulfur dioxide emissions standards imposed by Title IV of
the Clean Air Act and indicates that when burned, the coal will produce
emissions that will meet the current standard without further cleanup. A coal
that is considered a compliance coal for meeting sulfur dioxide standards may
not meet an emission standard for a different pollutant such as mercury.
Moreover, the term compliance coal is always used with reference to the then
current regulatory limit. Clean air regulations that further restrict sulfur
dioxide emissions will likely reduce significantly the amount of coal that can
be labeled compliance. Currently, coal classified as compliance will meet the
power plant emission standard of 1.2 pounds of sulfur dioxide per million Btu’s
of fuel consumed. At December 31, 2009, approximately 0.9 billion tons, or 39%,
of our coal reserves met the current standard as compliance coal.
Distribution
We employ
transportation specialists who negotiate freight and terminal agreements with
various providers, including railroads, barge lines, ocean-going vessels, bulk
motor carriers and terminal facilities. Transportation specialists also
coordinate with customers, mining facilities and transportation providers to
establish shipping schedules that meet each customer’s needs.
Our 2009
shipments of 36.7 million tons were loaded from 23 mining complexes. Rail
shipments constituted 89% of total shipments, with 28% loaded on Norfolk
Southern trains and 61% loaded on CSX trains. The balance was shipped from
mining complexes via truck or barge.
Approximately
21% of production was ultimately delivered via the inland waterway system. Coal
is loaded directly into barges, or is transported by rail or truck to docks on
the Ohio, Big Sandy and Kanawha Rivers and then ultimately transported by barge
to electric utilities, integrated steel producers and industrial consumers
served by the inland waterway system. We also moved approximately 5% of our
production to Great Lakes’ ports for transport to various United States and
Canadian customers.
Customers
and Coal Contracts
We have
coal supply commitments with a wide range of electric utilities, steel
manufacturers, industrial customers and energy traders and brokers. By offering
coal of both steam and metallurgical grades, we are able to serve a diverse
customer base. This market diversity allows us to adjust to changing market
conditions and sustain high sales volumes. The majority of our customers
purchase coal for terms of one year or longer, but we also supply coal on a spot
basis for some customers. At December 31, 2009, approximately 61%, 19% and 20%
of Trade receivables represents amounts due from utility customers,
metallurgical customers and industrial customers, respectively, compared with
75%, 13% and 12%, respectively, as of December 31, 2008. During 2009, we had 27
separate, active coal purchase agreements with Constellation Energy Commodities
Group, Inc. (“Constellation”), with terms ranging from one month to two years
which, in the aggregate accounted for approximately 19% of our fiscal year 2009
Produced coal revenue. The largest of the 27 agreements represented less than 2%
of our fiscal year 2009 Produced coal revenue. As a result, we do not consider
our business to be substantially dependent upon any of these agreements,
individually or in the aggregate. No other customer accounted for 10% or more of
fiscal year 2009 Produced coal revenue or produced tons.
As is
customary in the coal industry, we enter into long-term contracts (one year or
more in duration) with many of our customers. These arrangements allow customers
to secure a supply for their future needs and provide us with greater
predictability of sales volume and sales prices. Long-term contracts are a
result of extensive negotiations with customers. As a result, the terms of these
contracts vary with respect to price adjustment mechanisms, pricing terms,
permitted sources of supply, force majeure provisions, quality adjustments and
other parameters. Some of the contracts contain price adjustment mechanisms that
allow for changes to prices based on statistics from the United States
Department of Labor. Coal quality specifications may be especially stringent for
steel customers.
For the
year ended December 31, 2009, approximately 99% of coal sales volume was
pursuant to long-term contracts. We anticipate that in 2010, coal sales volume
percentage pursuant to long-term arrangements will be comparable to 2009. As of
February 17, 2010, we had contractual sales commitments of
approximately 100 million tons, including commitments subject to price
reopener and/or optional tonnage provisions. Remaining contractual terms of our
sales commitments range from one to ten years with an average volume-weighted
remaining term of approximately 2.1 years. Seventy percent of our total
contracted sales tons are priced. As of February 17, 2010, we have committed
most of our expected 2010
production.
In addition, we purchase coal from third-party coal producers from time to time
to supplement production and resell this coal to customers.
Suppliers
The main types of goods we purchase are
mining equipment and replacement parts, explosives, fuel, tires, steel-related
(including roof control) products and lubricants. Although we have many
well-established, strategic relationships with our key suppliers, we do not
believe that we are dependent on any of our individual suppliers, except as
noted below. The supplier base providing mining materials has been relatively
consistent in recent years, although there continues to be some consolidation.
Consolidation of suppliers of explosives has limited the number of sources for
these materials. Although our current supply of explosives is concentrated with
one supplier, some alternative sources are available to us in the regions where
we operate. Further consolidation of underground equipment suppliers has
resulted in a situation where purchases of certain underground mining equipment
are concentrated with one principal supplier; however, supplier competition
continues to develop. In recent years, demand for certain surface and
underground mining equipment and off-the-road tires has increased. As a result,
lead times for certain items have generally increased, although no material
impact is currently expected to our cash flows, results of operations or
financial condition.
Competition
The coal
industry in the United States and overseas is highly competitive, with numerous
producers selling into all markets that use coal. We compete against large and
small producers in the United States and overseas. The NMA estimated that in
2008 there were 28 coal companies in the United States with annual production of
5 million or more tons, which together account for approximately 87% of United
States production. According to the NMA, we were the sixth largest coal company
in terms of tons produced in 2008, exceeded by Peabody Energy Corporation
(“Peabody”), Rio Tinto Energy America, Inc., Arch Coal, Inc. (“Arch”),
Foundation Coal Holdings Inc. (“Foundation”) and CONSOL Energy Inc.
(“CONSOL”).
We
compete with other producers primarily on the basis of price, coal quality,
transportation cost and reliability of supply. Continued demand for coal is also
dependent on factors outside of our control, including demand for electricity
and steel, general economic conditions, environmental and governmental
regulations, weather, technological developments, and the availability and cost
of alternative fuel sources. We sell coal to foreign electricity generators and
to the more specialized metallurgical coal market, both of which are
significantly affected by international demand and competition.
Historically,
global coal markets have responded to increased demand and higher prices for
coal by increasing production and supply. In recent years, however, capacity
expansion has been somewhat limited by the increased costs of mining, high
capital requirements, coal seam degradation, reserve depletion, labor shortages,
transportation issues related to rail, barge and truck shipments, higher costs
related to compliance with new and increasingly stringent regulations, the
difficulty of obtaining permits and bonding and other factors. While these
constraints persist in major coal producing countries and regions, periods of
supply and demand imbalance may be extended and increased pricing volatility may
result.
Other
Related Operations
We have
other related operations and activities in addition to our normal coal
production and sales business. The following business activities are included in
this category:
Coal Handling Joint Venture.
We hold a 50% interest in a joint venture that owns and operates third-party
end-user coal handling facilities. Certain of our subsidiaries currently operate
the coal handling facilities for the joint venture.
Gas Operations. We hold
interests in operations that produce, gather and market natural gas from shallow
reservoirs in the Appalachian Basin. In the eastern United States, conventional
natural gas reservoirs are located in various types of sedimentary formations at
depths ranging from 2,000 to 15,000 feet. The depths of the reservoirs drilled
and operated by us range from 2,500 to 5,800 feet.
Nearly
all of our gas production is from operations in southern West Virginia. In this
region, we own and operate approximately 160 wells, 200 miles of gathering line,
and various small compression facilities. Our southern West Virginia operations
control approximately 27,000 acres of drilling rights. In addition, we own a
majority working interest in 50 wells operated by others, and minority working
interests in approximately 13 wells operated by others. The December 2009
average daily production, from the 228 wells owned or controlled, was 2.0
million cubic feet per day. We do not consider our current gas production level,
revenues or costs to be material to our cash flows, results of operations or
financial condition.
Other. From time to time, we
also engage in the sale of certain non-strategic assets such as timber, oil and
gas rights, surface properties and reserves. In addition, we have established
several contractual arrangements with customers where services other than coal
supply are provided on an ongoing basis. None of these contractual arrangements
is considered to be material. Examples of such other services include
arrangements with several metallurgical and industrial customers to coordinate
shipment of coal to their stockpiles, maintain ownership of the coal inventory
on their property and sell tonnage to them as it is consumed. We work closely
with customers to provide other services in response to the current needs of
each individual customer.
Marketing
and Sales
Our
marketing and sales force, based in the corporate office in Richmond, Virginia,
includes sales managers, distribution/traffic managers and administrative
personnel.
During
the year ended December 31, 2009, we sold 36.7 million tons of produced coal for
total Produced coal revenue of $2.3 billion. The breakdown of produced tons sold
by market served was 62% utility, 30% metallurgical and 8% industrial. Sales
were concluded with over 100 customers. Export shipment revenue totaled
approximately $472.1 million, representing approximately 20% of 2009 Produced
coal revenue. In 2009, we exported shipments to customers in 13 countries across
the globe, which included destinations in Europe, Asia, Africa, South America
and North America. Sales are made in United States dollars, which minimizes
foreign currency risk.
Employees
and Labor Relations
As of
December 31, 2009, we had 5,851 employees, including 76 employees affiliated
with the United Mine Workers of America (“UMWA”). Relations with employees are
generally good, and there have been no material work stoppages in the past ten
years.
Environmental,
Safety and Health Laws and Regulations
The coal
mining industry is subject to regulation by federal, state and local authorities
on matters such as the discharge of materials into the environment, employee
health and safety, permitting and other licensing requirements, reclamation and
restoration of mining properties after mining is completed, management of
materials generated by mining operations, surface subsidence from underground
mining, water pollution, water appropriation and legislatively mandated benefits
for current and retired coal miners, air quality standards, protection of
wetlands, endangered plant and wildlife protection, limitations on land use, and
storage of petroleum products and substances that are regarded as hazardous
under applicable laws. The possibility exists that new legislation or
regulations may be adopted that could have a significant impact on our mining
operations or on our customers’ ability to use coal.
Numerous
governmental permits and approvals are required for mining operations.
Regulations provide that a mining permit or modification can be delayed, refused
or revoked if an officer, director or a stockholder with a 10% or greater
interest in the entity is affiliated with or is in a position to control another
entity that has outstanding permit violations. Thus, past or ongoing violations
of federal and state mining laws by individuals or companies no longer
affiliated with us could provide a basis to revoke existing permits and to deny
the issuance of addition permits. We are required to prepare and present to
federal, state or local authorities data and/or analysis pertaining to the
effect or impact that any proposed exploration for or production of coal may
have upon the environment, public and employee health and safety. All
requirements imposed by such authorities may be costly and time-consuming and
may delay commencement or continuation of exploration or production operations.
Accordingly, the permits we need for our mining and gas operations may not be
issued, or, if issued, may not be issued in a timely fashion. Permits we need
may involve requirements that may be changed or interpreted in a manner that
restricts our ability to conduct our mining operations or to do so profitably.
Future legislation and administrative regulations may increasingly emphasize the
protection of the environment, health and safety and, as a consequence, our
activities may be more closely regulated. Such legislation and regulations, as
well as future interpretations of existing laws, may require substantial
increases in equipment and operating costs, delays, interruptions or a
termination of operations, the extent of which cannot be predicted.
While it
is not possible to quantify the expenditures we incur to maintain compliance
with all applicable federal and state laws, those costs have been and are
expected to continue to be significant. We post surety performance bonds or
letters of credit pursuant to federal and state mining laws and regulations for
the estimated costs of reclamation and mine closing, often including the cost of
treating mine water discharge when necessary. Compliance with these laws has
substantially increased the cost of coal mining for all domestic coal producers.
We endeavor to conduct our mining operations in
compliance
with all applicable federal, state and local laws and regulations. However, even
with our substantial efforts to comply with extensive and comprehensive
regulatory requirements, violations during mining operations occur from time to
time. In 2007, EPA filed suit against us and twenty-seven of our subsidiaries
alleging violations of the Federal Clean Water Act. In January 2008, we
announced that we had agreed with EPA to settle the lawsuit for a payment of $20
million in penalties. In 2009, we spent approximately $14.1 million to comply
with environmental laws and regulations, of which $6.2 million was for
reclamation, including $5.3 million for final reclamation. None of these
expenditures were capitalized. We anticipate spending approximately $50.1
million and $29.9 million in such non-capital expenditures in 2010 and 2011,
respectively. Of these expenditures, $41.2 million and $20.8 million for 2010
and 2011, respectively, are anticipated to be for final
reclamation.
Emission Control Technology.
We own a majority interest in Coalsolv, LLC (“Coalsolv”), which holds the United
States marketing rights for the coal-fired plant emission control technologies
developed by Cansolv Technologies, Inc. (“Cansolv”). Cansolv’s technologies
remove sulfur dioxide (SO2), nitrogen
oxide (NOx), mercury,
carbon dioxide (CO2), and
other greenhouse gases from flue gas emissions. The Cansolv process has been
utilized at various industrial facilities around the world, with additional
projects underway in China and Canada. Through Coalsolv, we contributed funds
for a pilot plant that has been utilized in the United States and Canada for the
testing and piloting of the Cansolv SO2, NOX, mercury,
and CO2 capture
technology on coal-fired power plants.
Mine Safety
and Health
Stringent
health and safety standards have been in effect since Congress enacted the
Federal Coal Mine Health and Safety Act of 1969. The Federal Coal Mine Safety
and Health Act of 1977 significantly expanded the enforcement of safety and
health standards and imposed safety and health standards on all aspects of
mining operations. A further expansion occurred in June 2006 with the enactment
of the Mine Improvement and New Emergency Response Act of 2006 (“MINER
Act”).
The MINER
Act and related Mine Safety and Health Administration (“MSHA”) regulatory action
require, among other things, improved emergency response capability, increased
availability of emergency breathable air, enhanced communication and tracking
systems, more available mine rescue teams, increased mine seal strength and
monitoring of sealed areas in underground mines, and larger penalties by MSHA
for noncompliance by mine operators. Coal producing states, including West
Virginia and Kentucky, have passed similar legislation. The bituminous coal
mining industry was actively engaged throughout 2009 in activities to achieve
compliance with these new requirements. These compliance efforts will continue
into 2010.
In
2008, MSHA published final rules implementing Section 4 of the MINER Act that
addressed mine rescue, sealing of abandoned areas, refuge alternatives, fire
prevention and detection, use of air from the belt entry and civil penalty
assessments. MSHA also provided guidance on wireless communication
and electronic tracking systems and new requirements for the plugging of coal
bed methane wells with horizontal branches in coal seams. Two
additional regulations were also published related to measures to achieve
alcohol and drug free mines and the use of coal mine dust personal monitors. In
February 2009, the United States Court of Appeals for the District of Columbia
Circuit held that the 2008 rules were not sufficient to satisfy the requirements
of the Miner Act in certain respects, and remanded those portions of the rules
to MSHA for reconsideration. New rules issued by the MSHA will likely contain
more stringent provisions regarding training of rescue teams.
All of
the states in which we operate have state programs for mine safety and health
regulation and enforcement. Collectively, federal and state safety and health
regulation in the coal mining industry is perhaps the most comprehensive and
pervasive system for protection of employee health and safety affecting any
segment of industry in the United States. While regulation has a significant
effect on our operating costs, our United States competitors are subject to the
same regulation.
We
measure our success in this area primarily through the use of occupational
injury and illness frequency rates. We believe that a superior safety and health
regime is inherently tied to achieving productivity and financial goals, with
overarching benefits for our shareholders, the community and the
environment.
Black Lung. Under federal
black lung benefits legislation, each coal mine operator is required to make
payments of black lung benefits or contributions to: (i) current and former coal
miners totally disabled from black lung disease; and (ii) certain survivors of a
miner who dies from black lung disease. The Black Lung Disability Trust Fund, to
which we must make certain tax payments based on tonnage sold, provides for the
payment of medical expenses to claimants whose last mine employment was before
January 1, 1970 and to claimants employed after such date, where no responsible
coal mine operator has been identified for claims or where the responsible coal
mine operator has defaulted on the payment of such
benefits.
In addition to federal acts, we are also liable under various state statutes for
black lung claims. Federal benefits are offset by any state benefits
paid.
Workers’ Compensation. We are
liable for workers’ compensation benefits for traumatic injuries under state
workers’ compensation laws in the states in which we have operations. Workers’
compensation laws are administered by state agencies with each state having its
own set of rules and regulations regarding compensation owed to an employee
injured in the course of employment.
Coal Industry Retiree Health Benefit
Act of 1992 and Tax Relief and Retiree Health Care Act of 2006. The Coal
Industry Retiree Health Benefit Act of 1992 (“Coal Act”) provides for the
funding of health benefits for certain UMWA retirees. The Coal Act established
the Combined Benefit Fund (“CBF”) into which “signatory operators” and “related
persons” are obligated to pay annual premiums for covered beneficiaries. The
Coal Act also created a second benefit fund, the 1992 Benefit Plan, for miners
who retired between July 21, 1992 and September 30, 1994 and whose former
employers are no longer in business. On December 20, 2006, President Bush signed
the Tax Relief and Retiree Health Care Act of 2006. This legislation includes
important changes to the Coal Act that impacts all companies required to
contribute to the CBF. Effective October 1, 2007, the SSA revoked all
beneficiary assignments made to companies that did not sign a 1988 UMWA contract
(“reachback companies”), but phased-in their premium relief. As a pre-1988
signatory, our related reachback companies received the applicable premium
relief. Effective October 1, 2007, reachback companies paid only 55% of their
plan year 2008 assessed premiums, 40% of their plan year 2009 assessed premiums,
and will pay 15% of their plan year 2010 assessed premiums. General United
States Treasury money will be transferred to the CBF to make up the difference.
After 2010, reachback companies will have no further obligations to the CBF, and
transfers from the United States Treasury will cover all of the health care
costs for retirees and dependents previously assigned to reachback
companies.
Pension Protection Act. The
Pension Protection Act of 2006 (“Pension Act”) has simplified and transformed
the rules governing the funding of defined benefit plans, accelerated funding
obligations of employers, made permanent certain provisions of the Economic
Growth and Tax Relief Reconciliation Act of 2001, made permanent the
diversification rights and investment education provisions for plan participants
and encouraged automatic enrollment in defined contribution 401(k) plans.
In general, most provisions of the Pension Act took effect for plan years
beginning on or after December 31, 2007. Plans generally are required to
set a funding target of 100% of the present value of accrued benefits and
sponsors are required to amortize unfunded liabilities over a 7-year period. The
Pension Act included a funding target phase-in provision consisting of a 92%
funding target in 2008, 94% in 2009, 96% in 2010, and 100% thereafter. Plans
with a funded ratio of less than 80%, or less than 70% using special
assumptions, are deemed to be “at risk” and are subject to additional funding
requirements. As of December 31, 2009, our pension plan was underfunded by $55.6
million. We currently expect to make voluntary contributions in 2010
of approximately $20 million. The funded status at the end of fiscal year 2010,
and the need for additional future required contributions, will depend primarily
on the actual return on assets during the year and the discount rate at the end
of the year.
Environmental
Laws
Surface Mining Control and
Reclamation Act. The Surface Mining Control and Reclamation Act,
(“SMCRA”), which is administered by the Office of Surface Mining Reclamation and
Enforcement (“OSM”), establishes mining, environmental protection and
reclamation standards for all aspects of surface mining as well as many aspects
of deep mining. The SMCRA and similar state statutes require, among other
things, the restoration of mined property in accordance with specified standards
and an approved reclamation plan. In addition, the Abandoned Mine Land Fund,
which is part of the SMCRA, imposes a fee on all current mining operations, the
proceeds of which are used to restore mines closed before 1977. The maximum tax
is $0.315 per ton on surface-mined coal and $0.135 per ton on deep-mined coal. A
mine operator must submit a bond or otherwise secure the performance of its
reclamation obligations. Mine operators must receive permits and permit renewals
for surface mining operations from the OSM or, where state regulatory agencies
have adopted federally approved state programs under the act, the appropriate
state regulatory authority. We accrue for reclamation and mine-closing
liabilities in accordance with accounting principals generally accepted in the
United States (“GAAP”). See Note 9 to the Notes to Consolidated Financial
Statements.
Clean Water Act. Section 301
of the Clean Water Act prohibits the discharge of a pollutant from a point
source into navigable waters of the United States except in accordance with a
permit issued under either Section 402 or Section 404 of the Clean Water Act.
Navigable waters are broadly defined to include streams, even those that are not
navigable in fact, and may include wetlands. All mining operations in Appalachia
generate excess material, which are typically placed in fills in adjacent
valleys and hollows. Likewise, coal refuse disposal areas and coal processing
slurry impoundments are located in valleys and hollows. These areas frequently
contain intermittent or perennial streams, which are considered navigable waters
under the Clean Water Act. An operator must secure a Clean Water Act permit
before filling such streams. For approximately
the past
twenty-five years, operators have secured Section 404 fill permits that
authorize the filling of navigable waters with material from various forms of
coal mining. Operators have also obtained permits under Section 404 for the
construction of slurry impoundments. Discharges from these structures require
permits under Section 402 of the Clean Water Act. Section 402 discharge permits
are generally not suitable for authorizing the construction of fills in
navigable waters.
Clean Air Act. Coal contains
impurities, including sulfur, mercury, chlorine, nitrogen oxide and other
elements or compounds, many of which are released into the air when coal is
burned. The Clean Air Act and corresponding state laws extensively regulate
emissions into the air of particulate matter and other substances, including
sulfur dioxide, nitrogen oxide and mercury. Although these regulations apply
directly to impose certain requirements for the permitting and operation of our
mining facilities, by far their greatest impact on us and the coal industry
generally is the effect of emission limitations on utilities and other
customers. Owners of coal-fired power plants and industrial boilers have been
required to expend considerable resources to comply with these air pollution
standards. The United States Environmental Protection Agency (“EPA”) has imposed
or attempted to impose tighter emission restrictions in a number of areas, some
of which are currently subject to litigation. The general effect of such tighter
restrictions could be to reduce demand for coal. This in turn may result in
decreased production and a corresponding decrease in revenue and profits.
National Ambient Air Quality
Standards. Ozone is produced by a combination of two precursor
pollutants: volatile organic compounds and nitrogen oxide, a by-product of coal
combustion. Particulate matter is emitted by sources burning coal as fuel,
including coal fired power plants. States are required to submit to EPA
revisions to their State Implementation Plans (“SIPs”) that demonstrate the
manner in which the states will attain National Ambient Air Quality Standards
(“NAAQS”) every time a NAAQS is revised by EPA. In 2006, EPA adopted a new NAAQS
for fine particulate matter, which a number of states and environmental advocacy
groups challenged as not sufficiently stringent to satisfy Clean Air Act
requirements; in February 2009, the United States Court of Appeals for the
District of Columbia Circuit agreed that EPA had inadequately explained its
decision regarding several aspects of the NAAQS and remanded those to EPA for
reconsideration, a process that could lead to more stringent NAAQS for fine
particulate matter. EPA also adopted a more stringent ozone NAAQS on March
27, 2008. In addition, in 2009 and early 2010, EPA has proposed even more
stringent NAAQS for ozone, SO2, and NO2. Revised SIPs for
ozone, SO2, NO2, and fine
particulates could require electric power generators to further reduce
particulate, nitrogen oxide and sulfur dioxide emissions. In addition to the SIP
process, the Clean Air Act permits states to assert claims against sources in
other “upwind” states alleging that emission sources including coal fired power
plants in the upwind states are preventing the “downwind” states from attaining
a NAAQS. The new NAAQS for ozone and fine particulates, as well as claims
by affected states, could result in additional controls being required of coal
fired power plants and we are unable to predict the effect on markets for our
coal.
Acid Rain Control Provisions.
The acid rain control provisions promulgated as part of the Clean Air Act
Amendments of 1990 in Title IV of the Clean Air Act (“Acid Rain program”)
required reductions of sulfur dioxide emissions from power plants. The Acid Rain
program is now a mature program and we believe that any market impacts of the
required controls have likely been factored into the price of coal in the
national coal market.
Regional Haze Program. EPA
promulgated a regional haze program designed to protect and to improve
visibility at and around so-called Class I Areas, which are generally National
Parks, National Wilderness Areas and International Parks. This program may
restrict the construction of new coal-fired power plants whose operation may
impair visibility at and around the Class I Areas. Moreover, the program
requires certain existing coal-fired power plants to install additional control
measures designed to limit haze-causing emissions, such as sulfur dioxide,
nitrogen oxide and particulate matter. States were required to submit Regional
Haze SIPs to EPA by December 17, 2007. Many states did not meet the December 17,
2007, deadline and we are unable to predict the impact on the coal market of the
failure to submit Regional Haze SIPs by the deadline or of any subsequent
submissions deadlines.
New Source Review Program.
Under the Clean Air Act, new and modified sources of air pollution must meet
certain new source standards (“New Source Review Program”). In the late 1990s,
EPA filed lawsuits against many coal-fired plants in the eastern United States
alleging that the owners performed non-routine maintenance, causing increased
emissions that should have triggered the application of these new source
standards. Some of these lawsuits have been settled, with the owners agreeing to
install additional pollution control devices in their coal-fired plants. The
remaining litigation and the uncertainty around the New Source Review Program
rules could adversely impact utilities’ demand for coal in general or coal with
certain specifications, including the coal we produce.
Multi-Pollutant Strategies.
In March 2005, EPA issued two closely related rules designed to significantly
reduce levels of sulfur dioxide, nitrogen oxide and mercury: the Clean Air
Interstate Rule (“CAIR”) and the Clean Air Mercury Rule (“CAMR”). CAIR sets a
“cap-and-trade” program in 28 states and the District of Columbia to establish
emissions limits for sulfur dioxide and nitrogen oxide, by allowing utilities to
buy and sell credits to assist in achieving compliance with the
NAAQS for
8-hour ozone and fine particulates. CAMR as promulgated will cut mercury
emissions nearly 70% by 2018 through a “cap-and-trade” program. Both rules were
challenged in numerous lawsuits and the United States Court of Appeals for the
District of Columbia Circuit vacated CAMR and remanded it to EPA for
reconsideration on February 8, 2008. The same court vacated the CAIR on July 11,
2008, but subsequently revised its remedy to a remand to EPA for reconsideration
on December 23, 2008. EPA is preparing its response to the remand, but the court
did not impose a response date. Regardless of the outcome of litigation on
either rule, stricter controls on emissions of SO2, NOX and
mercury are
likely in some form. Any such controls may have an impact on the demand for our
coal. The EPA Administrator announced in December 2009 that EPA will propose a
new air toxics Maximum Achievable Control Technology (MACT) standard for power
plants in 2010 and finalize it in 2011. The new rule will regulate several air
toxics in addition to mercury and will likely have a significant impact on the
levels of controls required on power plants. Such rules and controls may have a
significant, but undetermined, impact on the demand for coal.
Global
Climate Change
Global
climate change continues to attract considerable public and scientific
attention. Widely publicized scientific reports, such as the Fourth Assessment
Report of the Intergovernmental Panel on Climate Change released in 2007, have
also engendered widespread concern about the impacts of human activity,
especially fossil fuel combustion, on global climate change. A considerable and
increasing amount of attention in the United States is being paid to global
climate change and to reducing greenhouse gas emissions, particularly from coal
combustion by power plants. According to the EIA report, “Emissions of
Greenhouse Gases in the United States 2007,” coal combustion accounts for 30% of
man-made greenhouse gas emissions in the United States. Legislation was
introduced in Congress in the past several years to reduce greenhouse gas
emissions in the United States and, although no bills to reduce such emissions
have yet to pass both houses of Congress, bills to reduce such emissions
remain pending and others are likely to be introduced. President Obama
campaigned in favor of a “cap-and-trade” program to require mandatory greenhouse
gas emissions reductions and since his election has continued to express support
for such legislation, contrary to the previous administration.
The
issue of greenhouse gasses has been the subject of a number of recent court
cases. Most recently, in the case of Massachusetts v. EPA, the United States
Supreme Court (“Supreme Court”) found that greenhouse gases are air pollutants
covered by the Clean Air Act. The Supreme Court held that the
administrator of the EPA must determine whether emissions of greenhouse gases
from new motor vehicles cause or contribute to air pollution that may reasonably
be anticipated to endanger public health or welfare, or whether the science is
too uncertain to make a reasoned decision. The Supreme Court decision
resulted from a petition for rulemaking under section 202(a) of the Clean Air
Act filed by more than a dozen environmental, renewable energy, and other
organizations. On December 7, 2009, the EPA Administrator signed two distinct
findings regarding greenhouse gases under section 202(a) of the Clean Air Act.
One finding is that the current and projected concentrations of the six key
well-mixed greenhouse gases--carbon dioxide (CO2),
methane (CH4),
nitrous oxide (N2O),
hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride
(SF6)--in
the atmosphere threaten the public health and welfare of current and future
generations. The second finding is that the combined emissions of these
well-mixed greenhouse gases from new motor vehicles and new motor vehicle
engines contribute to the greenhouse gas pollution which threatens public health
and welfare. These findings do not themselves impose any requirements on
industry or other entities. However, this action is a prerequisite to
finalizing the EPA’s proposed greenhouse gas emission standards for light-duty
vehicles, which were jointly proposed by EPA and the Department of
Transportation’s National Highway Safety Administration on September 15, 2009.
In addition, these findings may trigger permitting and other requirements for
stationary sources regarding CO2
and other greenhouse gasses. Such requirements may have a significant, but
undetermined impact on the ability to mine and use coal.
In
December 2009, 192 countries attended the Copenhagen Climate Change Summit to
discuss actions to be taken to combat global climate change. Leaders from more
than two dozen countries representing over 80 percent of the world’s SO2
emissions negotiated the Copenhagen Accord, which puts a non-binding expectation
on all of the major emitting countries to officially record their commitments to
reduce SO2
emissions by January 31, 2010. The United States participated in the conference
and stated a goal to reduce emissions in the range of 17 percent below 2005
levels by 2020, 42 percent below 2005 levels by 2030, and 83 percent below 2005
levels by 2050, which is substantially in line with the energy and climate
legislation passed by the United States House of Representatives in
2009. The ultimate outcome of the Copenhagen Accord and any treaty or
other arrangement ultimately adopted by the United States or other countries,
may have a material adverse impact on the global supply and demand for coal.
This is particularly true if cost effective technology for the capture and
sequestration of carbon dioxide is not sufficiently developed. Technologies that
may significantly reduce emissions into the atmosphere of greenhouse gases from
coal combustion, such as carbon capture and sequestration (which captures carbon
dioxide at major sources such as power plants and subsequently stores it in
nonatmospheric reservoirs such as depleted oil and gas reservoirs, unmineable
coal seams, deep saline formations, or the deep ocean) have attracted and
continue to attract the attention of policy makers, industry participants, and
the public. For example, in July 2008, EPA proposed rules that would establish,
for the first time, requirements specifically for wells used to inject carbon
dioxide into geologic formations. No regulations have been promulgated yet, but
the issue of carbon sequestration results in considerable uncertainty, not only
regarding rules that may become applicable to carbon dioxide injection wells but
also concerning liability for potential impacts of injection, such as
groundwater contamination or seismic activity. In addition, technical,
environmental, economic, or other factors may delay, limit, or preclude
large-scale commercial deployment of such technologies, which could ultimately
provide little or no significant reduction of greenhouse gas emissions from coal
combustion.
Global
climate change continues to attract considerable public and scientific attention
and a considerable amount of legislative attention in the United States is being
paid to global climate change and the reduction of greenhouse gas emissions,
particularly from coal combustion by power plants. Enactment of laws
and passage of regulations regarding greenhouse gas emissions by the United
States or some of its states, or other actions to limit carbon dioxide
emissions, could result in electric generators switching from coal to other fuel
sources.
Permitting
and Compliance
Our
operations are principally regulated under surface mining permits issued
pursuant to the SMCRA and state counterpart laws. Such permits are issued for
terms of five years with the right of successive renewal. We currently have over
500 surface mining permits. In conjunction with the surface mining permits, most
operations hold national pollutant discharge elimination system permits pursuant
to the Clean Water Act and state counterpart water pollution control laws for
the discharge of pollutants to waters. These permits are issued for terms of
five years. Additionally, the Clean Water Act requires permits for operations
that fill waters of the United States. Valley fills and refuse impoundments are
authorized under permits issued under the Clean Water Act by the United States
Army Corps of Engineers. Additionally, certain surface mines and preparation
plants have permits issued pursuant to the Clean Air Act and state counterpart
clean air laws allowing and controlling the discharge of air pollutants. These
permits are primarily permits allowing initial construction (not operation) and
they do not have expiration dates.
We
believe we have obtained all permits required for current operations under the
SMCRA, Clean Water Act and Clean Air Act and corresponding state laws. We
believe that we are in compliance in all material respects with such permits,
and
routinely correct violations in a timely fashion in the normal course of
operations. The expiration dates of the permits are largely immaterial as the
law provides for a right of successive renewal. The cost of obtaining surface
mining, clean water and air permits can vary widely depending on the scientific
and technical demonstrations that must be made to obtain the permits. However,
our cost of obtaining a permit is rarely more than $500,000 and our cost of
obtaining a renewal is rarely more than $5,000. It is impossible to predict the
full impact of future judicial, legislative or regulatory developments on our
operations, because the standards to be met, as well as the technology and
length of time available to meet those standards, continue to develop and
change.
We
believe, based upon present information available to us, that accruals with
respect to future environmental costs are adequate. For further discussion of
our costs, see Note 9 to the Notes to Consolidated Financial Statements.
However, the imposition of more stringent requirements under environmental laws
or regulations, new developments or changes regarding site cleanup costs or the
allocation of such costs among potentially responsible parties, or a
determination that we are potentially responsible for the release of hazardous
substances at sites other than those currently identified, could result in
additional expenditures or the provision of additional accruals in expectation
of such expenditures.
Comprehensive
Environmental Response, Compensation and Liability Act
The
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”),
and similar state laws affect coal mining operations by, among other things,
imposing cleanup requirements for threatened or actual releases of hazardous
substances that may endanger public health or welfare or the environment. Under
CERCLA and similar state laws, joint and several liability may be imposed on
waste generators, site owners and lessees and others regardless of fault or the
legality of the original disposal activity. Although EPA excludes most wastes
generated by coal mining and processing operations from the hazardous waste
laws, such wastes can, in certain circumstances, constitute hazardous substances
for the purposes of CERCLA. In addition, the disposal, release or spilling of
some products used by coal companies in operations, such as chemicals, could
implicate the liability provisions of the statute. Under EPA’s Toxic Release
Inventory process, companies are required annually to report the use,
manufacture or processing of listed toxic materials that exceed defined
thresholds, including chemicals used in equipment maintenance, reclamation,
water treatment and ash received for mine placement from power generation
customers. Our current and former coal mining operations incur, and will
continue to incur, expenditures associated with the investigation and
remediation of facilities and environmental conditions under
CERCLA.
Endangered
Species Act
The
federal Endangered Species Act and counterpart state legislation protect species
threatened with possible extinction. Protection of endangered species may have
the effect of prohibiting or delaying us from obtaining mining permits and may
include restrictions on timber harvesting, road building and other mining or
agricultural activities in areas containing the affected species. Based on the
species that have been identified on our properties to date and the current
application of applicable laws and regulations, we do not believe there are any
species protected under the Endangered Species Act that would materially and
adversely affect our ability to mine coal from our properties in accordance with
current mining plans.
Available
Information
We make
available, free of charge through our Internet website, www.masseyenergyco.com,
our annual report, quarterly reports, current reports, proxy statements, Section
16 reports and other information (and any amendments thereto) as soon as
practicable after filing or furnishing the material to the SEC, in addition to,
our Corporate Governance Guidelines, codes of ethics and the charters of the
Audit, Compensation, Executive, Finance, Governance and Nominating, and Safety,
Environmental, and Public Policy Committees. These materials also may be
requested at no cost by telephone at (866) 814-6512 or by mail at: Massey Energy
Company, Post Office Box 26765, Richmond, Virginia 23261, Attention: Investor
Relations.
Executive
Officers of the Registrant
Incorporated
by reference into this Part I is the information set forth in Part III, Item 10
under the caption “Executive Officers of the Registrant” (included herein
pursuant to Item 401(b) of Regulation S-K).
********************
GLOSSARY
OF SELECTED TERMS
Ash. Impurities consisting of
iron, aluminum and other incombustible matter that are contained in coal. Since
ash increases the weight of coal, it adds to the cost of handling and can affect
the burning characteristics of coal.
Bituminous coal. The most
common type of coal with moisture content less than 20% by weight and heating
value of 10,500 to 14,000 Btu per pound.
British thermal unit, or
“Btu.” A measure of the thermal energy required to raise the temperature
of one pound of pure liquid water one degree Fahrenheit at the temperature at
which water has its greatest density (39 degrees Fahrenheit).
Central Appalachia. Coal
producing states and regions of eastern Kentucky, eastern Tennessee, western
Virginia and southern West Virginia.
Coal seam. Coal deposits
occur in layers. Each layer is called a “seam.”
Coke. A hard, dry carbon
substance produced by heating coal to a very high temperature in the absence of
air. Coke is used in the manufacture of iron and steel. Its production results
in a number of useful byproducts.
Compliance coal. Described in
Item 1. Business, under the heading “Coal Reserves.”
Continuous miner. A mining
machine with a continuously rolling cutting cylinder used in underground and
highwall mining to cut coal from the seam and load it onto conveyors or into
shuttle cars in a continuous operation.
Direct-ship coal. Coal that
is shipped without first being processed in a preparation plant.
Deep mine. An underground
coal mine.
Dragline. A large machine
used in the surface mining process to remove the overburden, or layers of earth
and rock covering a coal seam. The dragline has a large bucket suspended from
the end of a long boom. The bucket, which is suspended by cables, is able to
scoop up substantial amounts of overburden as it is dragged across the
excavation area.
Fossil fuel. Fuel such as
coal, petroleum or natural gas formed from the fossil remains of organic
material.
Highwall mining. Described in
Item 1. Business, under the heading “Mining Methods.”
High vol met coal. Coal that
averages approximately 35% volatile matter. Volatile matter refers to the
impurities that become gaseous when heated to certain temperatures.
Illinois Basin. The Illinois
Basin consists of the coal producing areas in Illinois, Indiana and western
Kentucky.
Industrial coal. Coal used by
industrial steam boilers to produce electricity or process steam. It generally
is lower in Btu heat content and higher in volatile matter than metallurgical
coal.
Long-term contracts.
Contracts with terms of one year or longer.
Longwall mining. Described in
Item 1. Business, under the heading “Mining Methods.”
Low vol met coal. Coal that
averages approximately 20% volatile matter. Volatile matter refers to the
impurities that become gaseous when heated to certain temperatures.
Metallurgical coal. The
various grades of coal suitable for carbonization to make coke for steel
manufacture. Also known as “met” coal, it possesses four important qualities:
volatility, which affects coke yield; the level of impurities, which affects
coke quality; composition, which affects coke strength; and basic
characteristics, which affect coke oven safety. Met coal has a particularly high
Btu heat content, but low ash content.
Mine. A mine consists of
those operating assets necessary to produce coal from surface or underground
locations.
Nitrogen oxide (NOx).
Nitrogen oxide is produced as a gaseous by-product of coal
combustion.
Northern Appalachia. Northern
Appalachia consists of the bituminous coal producing areas in the states of
Pennsylvania, Ohio and Maryland and in the northern part of West
Virginia.
Overburden. Layers of earth
and rock covering a coal seam. In surface mining operations, overburden is
removed prior to coal extraction.
Overburden ratio. The amount
of overburden that must be removed to excavate a given quantity of coal. It is
commonly expressed in cubic yards per ton of coal or as a ratio comparing the
thickness of the overburden with the thickness of the coal bed.
Pillar. An area of coal left
to support the overlying strata in an underground mine, sometimes left
permanently to support surface structures.
Powder River Basin. The
Powder River Basin consists of the coal producing areas in southeast Montana and
northeast Wyoming.
Preparation plant. A
preparation plant is a facility for crushing, sizing and washing coal to remove
rock and other impurities to prepare it for use by a particular customer.
Preparation plants are usually located on a mine site, although one plant may
serve several mines. The washing process has the added benefit of removing some
of the coal’s sulfur content.
Probable reserves. Described
in Item 1. Business, under the heading “Coal Reserves.”
Proven reserves. Described in
Item 1. Business, under the heading “Coal Reserves.”
Reclamation. The process of
restoring land and the environment to their approximate original state following
mining activities. The process commonly includes “recontouring” or reshaping the
land to its approximate original appearance, restoring topsoil and planting
native grass and ground covers. Reclamation operations are usually underway
before the mining of a particular site is completed. Reclamation is closely
regulated by both state and federal law.
Reserve. Described in Item 1.
Business, under the heading “Coal Reserves.”
Resource Group. An
organizational unit, generally located within a specific geographic locale, that
contains one or more of the following operations related to the mining,
processing or shipping of coal: underground mine, surface mine,
preparation plant or load-out facility.
Roof. The stratum of rock or
other mineral above a coal seam; the overhead surface of a coal working
place.
Room and pillar mining.
Described in Item 1. Business, under the heading “Mining Methods.”
Scrubber (flue gas desulfurization
unit). Any of several forms of chemical/physical devices that operate to
neutralize sulfur and other greenhouse gases formed during coal combustion.
These devices combine the sulfur in gaseous emissions with other chemicals to
form inert compounds, such as gypsum, that must then be removed for disposal.
Although effective in substantially reducing sulfur from combustion gases,
scrubbers require about 6% to 7% of a power plant’s electrical output and
thousands of gallons of water to operate.
Steam coal. Coal used by
power plants and industrial steam boilers to produce electricity or process
steam. It generally is lower in Btu heat content and higher in volatile matter
than metallurgical coal. Also known as utility coal.
Stoker coal. Coal that is
sized to a specific, standard range. Stoker coal is typically one quarter inch
by one and one quarter to one and three quarter inch.
Sulfur. One of the elements
present in varying quantities in coal that reacts with air when coal is burned
to form sulfur dioxide.
Sulfur content. Coal is
commonly described by its sulfur content due to the importance of sulfur in
environmental regulations. “Low sulfur” coal has a variety of definitions, but
typically is used to describe coal consisting of 1.0% or less
sulfur.
Sulfur dioxide (SO2). Sulfur dioxide is produced
as a gaseous by-product of coal combustion.
Surface mining. Described in
Item 1. Business, under the heading “Mining Methods.”
Tons. A “short” or net ton is
equal to 2,000 pounds. A “long” or British ton is approximately 2,240 pounds; a
“metric” ton is approximately 2,205 pounds. The short ton is the unit of measure
referred to in this Annual Report on Form 10-K.
Underground mine. Also known
as a “deep” mine. Usually located several hundred feet below the earth’s
surface, an underground mine’s coal is removed mechanically and transferred by
shuttle car or conveyor to the surface.
Unit train. A railroad train
of a specified number of railroad cars carrying only coal. A typical unit train
can carry at least 10,000 tons of coal in a single shipment.
Utility coal. Coal used by
power plants to produce electricity or process steam. It generally is lower in
Btu heat content and higher in volatile matter than metallurgical coal. Also
known as steam coal.
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Item
1A. Risk Factors
We are
subject to a variety of risks, including, but not limited to, those risk factors
set forth below and those referenced herein to other Items contained in this
Annual Report on Form 10-K, including Item 1. Business, under the headings
“Customers and Coal Contracts,” “Competition,” “Environmental, Safety and Health
Laws and Regulations,” Item 3. Legal Proceedings and Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”), under the headings “Critical Accounting Estimates and
Assumptions,” “Certain Trends and Uncertainties” and elsewhere in
MD&A.
We
could be negatively impacted by the competitiveness of the markets in which we
compete and declines in the market demand for coal.
We
compete with coal producers in various regions of the United States and overseas
for domestic and international sales. Continued domestic demand for our coal and
the prices that we will be able to obtain primarily will depend upon coal
consumption patterns of the domestic electric utility industry and the domestic
steel industry. Consumption by the domestic utility industry is affected by the
demand for electricity, environmental and other governmental regulations,
technological developments and the price of competing coal and alternative fuel
supplies including nuclear, natural gas, oil and renewable energy sources,
including hydroelectric power. Consumption by the domestic steel industry is
primarily affected by economic growth and the demand for steel used in
construction as well as appliances and automobiles. In recent years, the
competitive environment for coal was impacted by sustained growth in a number of
the largest markets in the world, including the United States, China, Japan and
India, where demand for both electricity and steel supported pricing for steam
and metallurgical coal. The economic stability of these markets has a
significant effect on the demand for coal and the level of competition in
supplying these markets. The cost of ocean transportation and the value of the
United States dollar in relation to foreign currencies significantly impact the
relative attractiveness of our coal as we compete on price with other foreign
coal producing sources. During the last several years, the United States coal
industry has experienced increased consolidation, which has contributed to the
industry becoming more competitive. Increased competition by competing coal
producers or producers of alternate fuels in the markets in which we serve could
cause a decrease in demand and/or pricing for our coal, adversely impacting our
cash flows, results of operations or financial condition.
Portions
of our coal reserves possess quality characteristics that enable us to mine,
process and market them as either metallurgical coal or high quality steam coal,
depending on the prevailing conditions in the markets for metallurgical and
steam coal. A decline in the metallurgical market relative to the steam market
could cause us to shift coal from the metallurgical market to the steam market,
potentially reducing the price we could obtain for this coal and adversely
impacting our cash flows, results of operations or financial
condition.
Demand
for our coal depends on its price and quality and the cost of transporting it to
our customers.
Coal
prices are influenced by a number of factors and may vary dramatically by
region. The two principal components of the price of coal are the price of coal
at the mine, which is influenced by mine operating costs and coal quality, and
the cost of transporting coal from the mine to the point of use. The cost of
mining the coal is influenced by geologic characteristics such as seam
thickness, overburden ratios and depth of underground reserves. Underground
mining is generally more expensive than surface mining as a result of higher
costs for labor (including reserves for future costs associated with labor
benefits and health care) and capital costs (including costs for mining
equipment and construction of extensive ventilation systems). As of January 31,
2010, we operated 42 active underground mines, including two which employ both
room and pillar and longwall mining, and 14 active surface mines, with 12
highwall miners.
Transportation
costs represent a significant portion of the delivered cost of coal and, as a
result, the cost of delivery is a critical factor in a customer’s purchasing
decision. Increases in transportation costs could make coal a less competitive
source of energy. Such increases could have a material impact on our ability to
compete with other energy sources and on our cash flows, results of operations
or financial condition. Conversely, significant decreases in transportation
costs could result in increased competition from coal producers in other parts
of the country or the world, including coal imported into the United States. For
instance, coal mines in the western United States could become an increasingly
attractive source of coal to consumers in the eastern part of the United States
if the costs of transporting coal from the west were significantly reduced
and/or rail capacity was increased.
A
significant decline in coal prices in general could adversely affect our
operating results and cash flows.
Our
results are highly dependent upon the prices we receive for our coal. Decreased
demand for coal, both domestically and internationally, could cause spot prices
and the prices we are able to negotiate on long-term contracts to decline. The
lower
prices could negatively affect our cash flows, results of operations or
financial condition, if we are unable to increase productivity and/or decrease
costs in order to maintain our margins.
We
depend on continued demand from our customers.
Reduced
demand from or the loss of our largest customers could have an adverse impact on
our ability to achieve projected revenue. Decreases in demand may result from,
among other things, a reduction in consumption by the electric generation
industry and/or the steel industry, the availability of other sources of fuel at
cheaper costs and a general slow-down in the economy. When our contracts with
customers expire, there can be no assurance that the customers either will
extend or enter into new long-term contracts or, in the absence of long-term
contracts, that they will continue to purchase the same amount of coal as they
have in the past or on terms, including pricing terms, as favorable as under
existing arrangements. In the event that a large customer account is lost or a
long-term contract is not renewed, profits could suffer if alternative buyers
are not willing to purchase our coal on comparable terms.
There
may be adverse changes in price, volume or terms of our existing coal supply
agreements.
Many of
our coal supply agreements contain provisions that permit the parties to adjust
the contract price upward or downward at specified times. These contracts may be
adjusted based on inflation or deflation and/or changes in the factors affecting
the cost of producing coal, such as taxes, fees, royalties and changes in the
laws regulating the mining, production, sale or use of coal. In a limited number
of contracts, failure of the parties to agree on a price under those provisions
may allow either party to terminate the contract. Coal supply agreements also
typically contain force majeure provisions allowing temporary suspension of
performance by us or the customer for the duration of specified events beyond
the control of the affected party. Most coal supply agreements contain
provisions requiring us to deliver coal meeting quality thresholds for certain
characteristics such as Btu, sulfur content, ash content, grindability and ash
fusion temperature. Failure to meet these specifications could result in
economic penalties, including price adjustments, the rejection of deliveries or
termination of the contracts.
Our
financial condition may be adversely affected if we are required by some of our
customers to provide performance assurances for certain below-market sales
contracts.
Contracts
covering a significant portion of our contracted sales tons contain provisions
that could require us to provide performance assurances if we experience a
material adverse change or, under certain other contracts, if the customer
believes our creditworthiness has become unsatisfactory. Generally, under such
contracts, performance assurances are only required if the contract price per
ton of coal is below the current market price of the coal. In addition, we may
from time to time enter into coal sale agreements that require a posting of
collateral to the extent we are “out of the money” on the total contracted sales
in excess of $15 million (as of December 31, 2009, no posting was required).
Certain of the contracts limit the amount of performance assurance to a per ton
amount in excess of the contract price, while others have no limit. The
performance assurances are generally provided by the posting of a letter of
credit, cash collateral, other security, or a guaranty from a creditworthy
guarantor. As of December 31, 2009, we have not received any requests from any
of our customers to provide performance assurances. If we are required to post
performance assurances on some or all of our contracts with performance
assurances provisions, there could be a material adverse impact on our cash
flows, results of operations or financial condition.
The
level of our indebtedness could adversely affect our ability to grow and compete
and prevent us from fulfilling our obligations under our contracts and
agreements.
At
December 31, 2009, we had $1,319.1 million of total indebtedness outstanding,
which represented 51.2% of our total book capitalization. We have significant
debt, lease and royalty obligations. Our ability to satisfy debt service, lease
and royalty obligations and to effect any refinancing of indebtedness will
depend upon future operating performance, which will be affected by prevailing
economic conditions in the markets that we serve as well as financial, business
and other factors, many of which are beyond our control. We may be unable to
generate sufficient cash flow from operations and future borrowings, or other
financings may be unavailable in an amount sufficient to enable us to fund our
debt service, lease and royalty payment obligations or our other liquidity
needs. We also may be able to incur substantial additional
indebtedness in the future under the terms of our $175 million asset-based loan
credit facility (“ABL Facility”) or by other means. Our ABL Facility
provides for a revolving line of credit of up to $175.0 million, of which
$98.4 million was available as of December 31, 2009. The addition of
new debt to our current debt levels could increase the related risks that we now
face.
Our
relative amount of debt could have material consequences to our business,
including, but not limited to: (i) making it more difficult to satisfy debt
covenants and debt service, lease payments and other obligations; (ii) making it
more difficult
to pay
quarterly dividends as we have in the past; (iii) increasing our vulnerability
to general adverse economic and industry conditions; (iv) limiting our ability
to obtain additional financing to fund future acquisitions, working capital,
capital expenditures or other general corporate requirements; (v) reducing the
availability of cash flows from operations to fund acquisitions, working
capital, capital expenditures or other general corporate purposes; (vi) limiting
our flexibility in planning for, or reacting to, changes in the business and the
industry in which we compete; or (vii) placing us at a competitive disadvantage
with competitors with relatively lower amounts of debt. Any of the above-listed
factors could have an adverse effect on our business, financial condition and
results of operations and our ability to meet our debt payment
obligations.
The
covenants in our credit facility and the indentures governing debt instruments
impose restrictions that may limit our operating and financial
flexibility.
Our ABL
Facility contains a number of significant restrictions and covenants that may
limit our ability and our subsidiaries’ ability to, among other things: (1)
incur additional indebtedness; (2) increase common stock dividends above
specified levels; (3) make loans and investments; (4) prepay, redeem or
repurchase debt; (5) engage in mergers, consolidations and asset dispositions;
(6) engage in affiliate transactions; (7) create any lien or security interest
in any real property or equipment; (8) engage in sale and leaseback
transactions; and (9) make distributions from subsidiaries. A decline in our
operating results or other adverse factors, including a significant increase in
interest rates, could result in us being unable to comply with certain covenants
contained in the ABL Facility, which become operative only when our Average
Excess Availability (as defined in the ABL Facility) is less than $30 million.
These financial covenants include a Minimum Consolidated Fixed Charge Ratio of
1.00 to 1.00 and a minimum Consolidated Net Worth of $550 million under the
terms of the ABL Facility (currently approximately $400 million as adjusted for
Accounting Changes).
The
indentures governing certain of our senior notes also contain a number of
significant restrictions and covenants that may limit our ability and our
subsidiaries’ ability to, among other things: (1) incur additional indebtedness;
(2) subordinate indebtedness to other indebtedness unless such subordinated
indebtedness is also subordinated to the notes; (3) pay dividends or make other
distributions or repurchase or redeem our stock or subordinated indebtedness;
(4) make investments; (5) sell assets and issue capital stock of restricted
subsidiaries; (6) incur liens; (7) enter into agreements restricting our
subsidiaries’ ability to pay dividends; (8) enter into sale and leaseback
transactions; (9) enter into transactions with affiliates; and (10) consolidate,
merge or sell all or substantially all of our assets. If we violate these
covenants and are unable to obtain waivers from our lenders, our debt under
these agreements would be in default and could be accelerated by the lenders
and, in the case of an event of default under our ABL Facility, it could permit
the lenders to foreclose on our assets securing the loans under the ABL
Facility. If the indebtedness is accelerated, we may not be able to repay our
debt or borrow sufficient funds to refinance it. Even if we are able to obtain
new financing, it may not be on commercially reasonable terms or on terms that
are acceptable to us. If our debt is in default for any reason, our cash flows,
results of operations or financial condition could be materially and adversely
affected. In addition, complying with these covenants may also cause us to take
actions that are not favorable to our shareholders and holders of our senior
notes and may make it more difficult for us to successfully execute our business
strategy and compete against companies that are not subject to such
restrictions.
We
are subject to being adversely affected by the potential inability to renew or
obtain surety bonds.
Federal
and state laws require bonds to secure our obligations to reclaim lands used for
mining, to pay federal and state workers’ compensation and to satisfy other
miscellaneous obligations. These bonds are typically renewable annually. Surety
bond issuers and holders may not continue to renew the bonds or may demand
additional collateral upon those renewals. We are also subject to increases in
the amount of surety bonds required by federal and state laws as these laws
change or the interpretation of these laws changes. Our failure to maintain, or
inability to acquire, surety bonds that are required by state and federal law
would have a material adverse impact on us, possibly by prohibiting us from
developing properties that we desire to develop. That failure could result from
a variety of factors including the following: (i) lack of availability,
higher expense or unfavorable market terms of new bonds; (ii) restrictions
on availability of collateral for current and future third-party surety bond
issuers under the terms of our senior notes or revolving credit facilities;
(iii) our inability to meet certain financial tests with respect to a
portion of the post-mining reclamation bonds; and (iv) the exercise by
third-party surety bond issuers of their right to refuse to renew or issue new
bonds.
We
depend on our ability to continue acquiring and developing economically
recoverable coal reserves.
A key
component of our future success is our ability to continue acquiring coal
reserves for development that have the geological characteristics that allow
them to be economically mined. Replacement reserves may not be available or, if
available, may not be capable of being mined at costs comparable to those
characteristics of the depleting mines. An inability to continue acquiring
economically recoverable coal reserves could have a material impact on our cash
flows, results of operations or financial condition.
We
face numerous uncertainties in estimating economically recoverable coal
reserves, and inaccuracies in estimates could result in lower than expected
revenues, higher than expected costs and decreased profitability.
There are
numerous uncertainties inherent in estimating quantities and values of
economically recoverable coal reserves, including many factors beyond our
control. As a result, estimates of economically recoverable coal reserves are by
their nature uncertain. Information about our reserves consists of estimates
based on engineering, economic and geological data assembled and analyzed by us.
Some of the factors and assumptions that impact economically recoverable reserve
estimates include: (1) geological conditions; (2) historical
production from the area compared with production from other producing areas;
(3) the effects of regulations and taxes by governmental agencies;
(4) future prices; and (5) future operating costs.
Each of
these factors may vary considerably from the assumptions used in estimating
reserves. For these reasons, estimates of the economically recoverable
quantities of coal attributable to a particular group of properties may vary
substantially. As a result, our estimates may not accurately reflect our actual
reserves. Actual production, revenues and expenditures with respect to reserves
will likely vary from estimates, and these variances may be
material.
Mining
in Central Appalachia is more complex and involves more regulatory constraints
than mining in other areas of the United States, which could affect our mining
operations and cost structures in these areas.
The
geological characteristics of Central Appalachian coal reserves, such as depth
of overburden and coal seam thickness, make them complex and costly to mine. As
mines become depleted, replacement reserves may not be available when required
or, if available, may not be capable of being mined at costs comparable to those
characteristic of the depleting mines. In addition, as compared to mines in
other regions, permitting, licensing and other environmental and regulatory
requirements are more costly and time consuming to satisfy. These factors could
materially adversely affect the mining operations and cost structures of, and
our customers' ability to use coal produced by, our mines in Central
Appalachia.
Defects
in title or loss of any leasehold interests in our properties could limit our
ability to mine our properties or result in significant unanticipated
costs.
A
significant portion of our mining operations occurs on properties that we lease.
Title defects or the loss of leases could adversely affect our ability to mine
the reserves covered by those leases. Our current practice is to obtain a title
review from a licensed attorney prior to leasing property. We generally have not
obtained title insurance in connection with acquisitions of coal reserves. In
some cases, the seller or lessor warrants property title. Separate title
confirmation sometimes is not required when leasing reserves where mining has
occurred previously. Our right to mine some of our reserves may be adversely
affected if defects in title or boundaries exist. In order to obtain leases to
conduct our mining operations on property where these defects exist, we may have
to incur unanticipated costs. In addition, we may not be able to successfully
negotiate new leases for properties containing additional reserves, or maintain
our leasehold interests in properties where we have not commenced mining
operations during the term of the lease.
If
the coal industry experiences overcapacity in the future, our profitability
could be impaired.
An
increase in the demand for coal could attract new investors to the coal
industry, which could spur the development of new mines, and result in added
production capacity throughout the industry. Higher price levels of coal could
also encourage the development of expanded capacity by new or existing coal
producers. Any resulting increases in capacity could reduce coal prices and
reduce our margins.
An
inability of brokerage sources or contract miners to fulfill the delivery terms
of their contracts with us could reduce our profitability.
We
sometimes obtain coal from brokerage sources and contract miners to fulfill
deliveries under our coal supply agreements. Some of our brokerage sources
and contract miners may experience adverse geologic mining, escalated operating
costs and/or financial difficulties that make their delivery of coal to us at
the contracted price difficult or uncertain. Our profitability or exposure to
loss on transactions or relationships such as these may be affected based upon
the reliability of the supply or the ability to substitute, when economical,
third-party coal sources, with internal production or coal purchased in the
market and other factors.
Decreased
availability or increased costs of key equipment, supplies or commodities such
as diesel fuel, steel, explosives, magnetite and tires could decrease our
profitability.
Our
operations are dependant on reliable supplies of mining equipment, replacement
parts, explosives, diesel fuel, tires, magnetite and steel-related products
(including roof bolts). If the cost of any mining equipment or key supplies
increases significantly, or if they should become unavailable due to higher
industry-wide demand or less production by suppliers, there could be an adverse
impact on our cash flows, results of operations or financial condition. The
supplier base providing mining materials and equipment has been relatively
consistent in recent years, although there continues to be consolidation. This
consolidation has resulted in a situation where purchases of explosives and
certain underground mining equipment are concentrated with single suppliers. In
recent years, mining industry demand growth has exceeded supply growth for
certain surface and underground mining equipment and heavy equipment tires. As a
result, lead times for certain items have generally increased.
Transportation
disruptions could impair our ability to sell coal.
We are
dependent on our transportation providers to provide access to markets.
Disruption of transportation services because of weather-related problems,
strikes, lockouts, fuel shortages or other events could temporarily impair our
ability to supply coal to customers. Our ability to ship coal could be
negatively impacted by a reduction in available and timely rail service. Lack of
sufficient resources to meet a rapid increase in demand, a greater demand for
transportation to export terminals and rail line congestion all could contribute
to a disruption and slowdown in rail service. We continue to experience rail
service delays and disruptions in service which are negatively impacting our
ability to deliver coal to customers and which may adversely affect our results
of operations.
Severe
weather may affect our ability to mine and deliver coal.
Severe
weather, including flooding and excessive ice or snowfall, when it occurs, can
adversely affect our ability to produce, load and transport coal, which may
negatively impact our cash flows, results of operations or financial
condition.
Federal,
state and local laws and government regulations applicable to operations
increase costs and may make our coal less competitive than other coal
producers.
We incur
substantial costs and liabilities under increasingly strict federal, state and
local environmental, health and safety and endangered species laws, regulations
and enforcement policies. Failure to comply with these laws and regulations may
result in the assessment of administrative, civil and criminal penalties, the
imposition of cleanup and site restoration costs and liens, the issuance of
injunctions to limit or cease operations, the suspension or revocation of
permits and other enforcement measures that could have the effect of limiting
production from our operations. The costs of compliance with applicable
regulations and liabilities assessed for compliance failure could have a
material adverse impact on our cash flows, results of operations or financial
condition.
New
legislation and new regulations may be adopted which could materially adversely
affect our mining operations, cost structure or our customers’ ability to use
coal. New legislation and new regulations may also require us, as well as our
customers, to change operations significantly or incur increased costs. The
United States Environmental Protection Agency (the “EPA”) has undertaken broad
initiatives to increase compliance with emissions standards and to provide
incentives to our customers to decrease their emissions, often by switching to
an alternative fuel source or by installing scrubbers or other expensive
emissions reduction equipment at their coal-fired plants.
Concerns
about the environmental impacts of coal combustion, including perceived impacts
on global climate change, are resulting in increased regulation of coal
combustion in many jurisdictions, and interest in further regulation, which
could significantly affect demand for our products.
The Clean
Air Act and similar state and local laws extensively regulate the amount of
sulfur dioxide, particulate matter, nitrogen oxides and other compounds emitted
into the air from electric power plants, which are the largest end-users of our
coal. Such regulation may require significant emissions control expenditures for
many coal-fired power plants. As a result, the generators may switch to other
fuels that generate less of these emissions or install more effective pollution
control equipment, possibly reducing future demand for coal and the construction
of coal-fired power plants. The majority of our coal supply agreements contain
provisions that allow a purchaser to terminate its contract if legislation is
passed that either restricts the use or type of coal permissible at the
purchaser’s plant or results in specified increases in the cost of coal or its
use.
Global
climate change continues to attract considerable public and scientific
attention. Widely publicized scientific reports, such as the Fourth Assessment
Report of the Intergovernmental Panel on Climate Change released in 2007, have
also engendered widespread concern about the impacts of human activity,
especially fossil fuel combustion, on global climate change. A considerable and
increasing amount of attention in the United States is being paid to global
climate change and to reducing greenhouse gas emissions, particularly from coal
combustion by power plants. According to the EIA report, “Emissions of
Greenhouse Gases in the United States 2007,” coal combustion accounts for 30% of
man-made greenhouse gas emissions in the United States. Legislation was
introduced in Congress in the past several years to reduce greenhouse gas
emissions in the United States and, although no bills to reduce such emissions
have yet to pass both houses of Congress, bills to reduce such emissions
remain pending and others are likely to be introduced. President Obama
campaigned in favor of a “cap-and-trade” program to require mandatory greenhouse
gas emissions reductions and since his election has continued to express support
for such legislation, contrary to the previous administration. The United
States Supreme Court’s 2007 decision in Massachusetts v. Environmental
Protection Agency ruled that EPA improperly declined to address carbon
dioxide impacts on climate change in a rulemaking related to new motor vehicles.
The reasoning of the court decision could affect other federal regulatory
programs, including those that directly relate to coal use. In July 2008, EPA
published an Advanced Notice of Proposed Rulemaking (ANPR) seeking comments
regarding the regulation of greenhouse gas emissions; and in February 2009 the
newly appointed administrator of EPA granted a petition by environmental
advocacy groups to reconsider an interpretive memorandum by her predecessor in
December 2008 that concluded the Clean Air Act’s Prevention of Significant
Deterioration program does not extend to carbon dioxide emissions, a decision
that could lead to carbon dioxide emissions from coal-fired power plants being a
consideration in permitting decisions. In addition, a growing number of states
in the United States are taking steps to require greenhouse gas emissions
reductions from coal-fired power plants. Enactment of laws and promulgation of
regulations regarding greenhouse gas emissions by the United States or some of
its states, or other actions to limit carbon dioxide emissions, could result in
electric generators switching from coal to other fuel sources.
In
December 2009, 192 countries attended the Copenhagen Climate Change Summit to
discuss actions to be taken to combat global climate change. Leaders from more
than two dozen countries representing over 80 percent of the world’s SO2 emissions
negotiated the Copenhagen Accord, which puts a non-binding expectation on all of
the major emitting countries to officially record their commitments to reduce
SO2
emissions by January 31, 2010. The United States participated in the conference
and stated a goal to reduce emissions in the range of 17 percent below 2005
levels by 2020, 42 percent below 2005 levels by 2030, and 83 percent below 2005
levels by 2050, which is substantially in line with the energy and climate
legislation passed by the United States House of Representatives in
2009. The ultimate outcome of the Copenhagen Accord and any treaty or
other arrangement ultimately adopted by the United States or other countries,
may have a material adverse impact on the global supply and demand for coal.
This is particularly true if cost effective technology for the capture and
sequestration of carbon dioxide is not sufficiently developed. Technologies that
may significantly reduce emissions into the atmosphere of greenhouse gases from
coal combustion, such as carbon capture and sequestration (which captures carbon
dioxide at major sources such as power plants and subsequently stores it in
nonatmospheric reservoirs such as depleted oil and gas reservoirs, unmineable
coal seams, deep saline formations, or the deep ocean) have attracted and
continue to attract the attention of policy makers, industry participants, and
the public. For example, in July 2008, EPA proposed rules that would establish,
for the first time, requirements specifically for wells used to inject carbon
dioxide into geologic formations. No regulations have been promulgated yet, but
the issue of carbon sequestration results in considerable uncertainty, not only
regarding rules that may become applicable to carbon dioxide injection wells but
also concerning liability for potential impacts of injection, such as
groundwater contamination or seismic activity. In addition, technical,
environmental, economic, or other factors may delay, limit, or preclude
large-scale commercial deployment of such technologies, which could ultimately
provide little or no significant reduction of greenhouse gas emissions from coal
combustion.
Further
developments in connection with legislation, regulations or other limits on
greenhouse gas emissions and other environmental impacts from coal combustion,
both in the United States and in other countries where we sell coal, could have
a material adverse effect on our cash flows, results of operations or financial
condition.
Our
operations may adversely impact the environment which could result in material
liabilities to us.
The
processes required to mine coal may cause certain impacts or generate certain
materials that might adversely affect the environment from time to time. The
mining processes we use could cause us to become subject to claims for toxic
torts, natural resource damages and other damages as well as for the
investigation and clean up of soil, surface water, groundwater, and other media.
Such claims may arise, for example, out of conditions at sites that we currently
own or operate, as well as at sites that we previously owned or operated, or may
acquire. Our liability for such claims may be joint and several, so that we may
be held responsible for more than our share of the contamination or other
damages, or even for the entire share.
Certain
coal that we mine needs to be cleaned at preparation plants, which generally
require coal refuse areas and/or slurry impoundments. Such areas and
impoundments are subject to extensive regulation and monitoring. Slurry
impoundments have been known to fail, releasing large volumes of coal slurry
into nearby surface waters and property, resulting in damage to the environment
and natural resources, as well as injuries to wildlife. We maintain coal refuse
areas and slurry impoundments at a number of our mining complexes. If one of our
impoundments were to fail, we could be subject to substantial claims for the
resulting environmental impact and associated liability, as well as for fines
and penalties.
Drainage
flowing from or caused by mining activities can be acidic with elevated levels
of dissolved metals, a condition referred to as acid mine drainage
(“AMD”). Although we do not currently face material costs associated
with AMD, it is possible that we could incur significant costs in the
future.
These and
other similar unforeseen impacts that our operations may have on the
environment, as well as exposures to certain substances or wastes associated
with our operations, could result in costs and liabilities that could materially
and adversely affect us and could have a material adverse impact on our cash
flows, results of operations or financial condition.
The
Mine Safety and Health Administration (“MSHA”) or other federal or state
regulatory agencies may order certain of our mines to be temporarily or
permanently closed, which could adversely affect our ability to meet our
customers’ demands.
MSHA or
other federal or state regulatory agencies may order certain of our mines to be
temporarily or permanently closed. Our customers may challenge our issuance of
force majeure notices in connection with such closures. If these challenges are
successful, we may have to purchase coal from third-party sources to satisfy
those challenges; negotiate settlements with customers, which may include price
reductions, the reduction of commitments or the extension of the time for
delivery, terminate customers’ contracts or face claims initiated by our
customers against us. The resolution of these challenges could have a material
adverse impact on our cash flows, results of operations or financial
condition.
We
must obtain governmental permits and approvals for mining operations, which can
be a costly and time-consuming process, can result in restrictions on our
operations, and is subject to litigation that may delay or prevent us from
obtaining necessary permits.
Our
operations are principally regulated under surface mining permits issued
pursuant to the Surface Mining Control and Reclamation Act (the “SMCRA”) and
state counterpart laws. Such permits are issued for terms of five years with the
right of successive renewal. Additionally, the Clean Water Act requires permits
for operations that discharge into waters of the United States. Valley fills and
refuse impoundments are authorized under permits issued by the United States
Army Corps of Engineers. Such permitting under the Clean Water Act has been a
frequent subject of litigation by environmental advocacy groups that has
resulted in periodic declines in such permits issued by the United States Army
Corps of Engineers. Additionally, certain surface mines and preparation plants
have permits issued pursuant to the Clean Air Act and state counterpart laws
allowing and controlling the discharge of air pollutants. Regulatory authorities
exercise considerable discretion in the timing of permit issuance. Requirements
imposed by these authorities may be costly and time-consuming and may result in
delays in, or in some instances preclude, the commencement or continuation of
development or production operations. Adverse outcomes in lawsuits challenging
permits or failure to comply with applicable regulations could result in the
suspension, denial or revocation of required permits, which could have a
material adverse impact on our cash flows, results of operations or financial
condition.
The
loss of key personnel or the failure to attract qualified personnel could affect
our ability to operate the Company effectively.
The
successful management of our business is dependent on a number of key personnel.
Our future success will be affected by our continued ability to attract and
retain highly skilled and qualified personnel. There are no assurances that key
personnel will continue to be employed by us or that we will be able to attract
and retain qualified personnel in the future. Failure to retain or attract key
personnel could have an adverse affect on our cash flows, results of operations
or financial condition.
Shortages of skilled labor in the
Central Appalachian coal industry may pose a risk in achieving high levels of
productivity at competitive costs.
Coal
mining continues to be a labor-intensive industry. From time to time, we have
encountered a shortage of experienced mine workers when the demand and prices
for all specifications of coal we mine increased appreciably. During those
periods, the hiring of these less experienced workers negatively impacted our
productivity and cash costs. A lack of
skilled
miners could have an adverse impact on our labor productivity and cost and our
ability to meet current production requirements to fulfill existing sales
commitments or to expand production to meet the increased demand for
coal.
Union
represented labor creates an increased risk of work stoppages and higher labor
costs.
At
December 31, 2009, approximately 1.3% of our total workforce was represented by
the United Mine Workers of America (the “UMWA”). Our unionized workforce is
spread out amongst five of our coal preparation plants. In 2009, these
preparation plants handled approximately 15.8% of our coal production. We are
currently in the process of negotiating successor collective bargaining
agreements for ones that have expired. In connection with these negotiations and
with respect to our unionized operations generally, there may be an increased
risk of strikes and other labor disputes, as well as higher labor costs. If some
or all of our current open shop operations were to become unionized, we could be
subject to additional risk of work stoppages, other labor disputes and higher
labor costs, which could adversely affect the stability of production and reduce
net income.
Legislation
has been proposed to the United States Congress to enact a law allowing for
workers to choose union representation solely by signing election cards (“Card
Check”), which would eliminate the use of secret ballots to elect union
representation. While the impact is uncertain, if Card Check legislation is
enacted into law, it will be administratively easier for the UMWA to unionize
coal mines and may lead to more coal mines becoming unionized.
Inflationary
pressures on supplies and labor may adversely affect our profit
margins.
Although
inflation in the United States has been relatively low in recent years, over the
course of the last two to three years, we have been significantly impacted by
price inflation in many of the components of our cost of produced coal revenue,
such as fuel, steel and labor. If the prices for which we sell our coal do not
increase in step with rising costs or if these costs do not decline
sufficiently, our profit margins would be reduced and our cash flows, results of
operations or financial condition would be adversely affected.
We
are subject to various legal proceedings, which may have a material effect on
our business.
We are
parties to a number of legal proceedings incident to normal business activities.
Some of the allegations brought against us are with merit, while others are not.
There is always the potential that an individual matter or the aggregation of
many matters could have a material adverse effect on our cash flows, results of
operations or financial position. See Note 18 of the Notes to Consolidated
Financial Statements.
We
have significant reclamation and mine closure obligations. If the assumptions
underlying our accruals are materially inaccurate, we could be required to
expend greater amounts than anticipated.
SMCRA
establishes operational, reclamation and closure standards for all aspects of
surface mining as well as most aspects of deep mining. Estimates of our total
reclamation and mine-closing liabilities are based upon permit requirements and
our engineering expertise related to these requirements. The estimate of
ultimate reclamation liability is reviewed periodically by management and
engineers. The estimated liability can change significantly if actual costs vary
from assumptions or if governmental regulations change
significantly.
Our
future expenditures for postretirement benefit and pension obligations could be
materially higher than we have predicted if our underlying assumptions are
incorrect.
We are
subject to long-term liabilities under a variety of benefit plans and other
arrangements with current and former employees. These obligations have been
estimated based on actuarial assumptions, including actuarial estimates, assumed
discount rates, estimates of life expectancy, expected returns on pension plan
assets and changes in healthcare costs.
If our
assumptions relating to these benefits change in the future or are incorrect, we
may be required to record additional expenses, which would reduce our
profitability. In addition, future regulatory and accounting changes relating to
these benefits could result in increased obligations or additional costs, which
could also have a material adverse impact on our cash flows, results of
operations or financial condition. See also Notes 5, 10 and 11 of the Notes to
Consolidated Financial Statements for further discussion.
Our
pension plans are currently underfunded and we may have to make significant cash
payments to the plans, reducing the cash available for our
business.
We
sponsor a qualified non-contributory defined benefit pension plan, which covers
substantially all administrative and non-union employees. We
currently expect to make voluntary contributions in 2010 of approximately $20
million. If the performance of the assets in our pension plans does not meet our
expectations, or if other actuarial assumptions are modified, our contributions
could be higher than we expect.
The value
of the assets held in our pension plans has been adversely affected by the
recent disruptions in the financial markets, and the applicable discount rates
applied in determining our pension liabilities have also been negatively
affected by the crisis in the financial markets. As a result, as of
December 31, 2009, our annual measurement date, our pension plan was
underfunded by $55.6 million (based on the actuarial assumptions used in the
application of GAAP). Our pension plans are subject to the Employee Retirement
Income Security Act of 1974 (“ERISA”). Under ERISA, the Pension Benefit Guaranty
Corporation, or PBGC, has the authority to terminate an underfunded pension plan
under limited circumstances. In the event our pension plan is terminated for any
reason while the plan is underfunded, we will incur a liability to the PBGC that
may be equal to the entire amount of the underfunding.
Provisions
in our restated certificate of incorporation and restated bylaws, the agreements
governing our indebtedness and Delaware law may discourage a takeover attempt
even if doing so might be beneficial to our shareholders.
Provisions
contained in our restated certificate of incorporation and restated bylaws could
impose impediments to the ability of a third-party to acquire us even if a
change of control would be beneficial to our shareholders. Provisions of our
restated certificate of incorporation and restated bylaws impose various
procedural and other requirements, which could make it more difficult for
stockholders to effect certain corporate actions. For example, our restated
certificate of incorporation authorizes our Board of Directors to determine the
rights, preferences, privileges and restrictions of unissued series of preferred
stock, without any vote or action by our stockholders. Thus, our Board of
Directors can authorize and issue shares of preferred stock with voting or
conversion rights that could adversely affect the voting or other rights of
holders of Common Stock. We are also subject to provisions of Delaware law that
prohibit us from engaging in any business combination with any “interested
stockholder,” meaning, generally, that a stockholder who beneficially owns more
than 15% of Common Stock cannot acquire us for a period of three years from the
date this person became an interested stockholder unless various conditions are
met, such as approval of the transaction by our Board of Directors. These
provisions may have the effect of delaying or deterring a change of control of
our Company, and could limit the price that certain investors might be willing
to pay in the future for shares of Common Stock.
If a
“fundamental change” (as defined in the indenture governing the 3.25%
convertible senior notes due 2015 (“3.25% Notes”)) occurs, holders of the 3.25%
Notes will have the right, at their option, either to convert their 3.25% Notes
or require us to repurchase all or a portion of their 3.25% Notes, and holders
of the 2.25% convertible senior notes due 2024 (“2.25% Notes”) will have the
right to require us to repurchase all or a portion of their notes. In the event
of a “make-whole fundamental change” (as defined in the indenture governing the
3.25% Notes), we also may be required to increase the conversion rate applicable
to any 3.25% Notes surrendered for conversion. In addition, the indentures for
the convertible notes prohibit us from engaging in certain mergers or
acquisitions unless, among other things, the surviving entity is a
U.S. entity that assumes our obligations under the convertible notes.
Certain of our debt instruments impose similar restrictions on us, including
with respect to mergers or consolidations with other companies and the sale of
substantially all of our assets. These provisions could prevent or deter a
third-party from acquiring us even where the acquisition could be beneficial to
you.
We
may not realize all or any of the anticipated benefits from acquisitions we
undertake, as acquisitions entail a number of inherent risks.
From time
to time we expand our business and reserve position through acquisitions of
businesses and assets, mergers, joint ventures or other transactions. Such
transactions involve various inherent risks, such as:
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uncertainties
in assessing the value, strengths and potential profitability of, and
identifying the extent of all weaknesses, risks, contingent and other
liabilities (including environmental liabilities) of, acquisition or other
transaction candidates;
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the
potential loss of key customers, management and employees of an acquired
business;
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the
ability to achieve identified operating and financial synergies
anticipated to result from an acquisition or other
transaction;
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problems
that could arise from the integration of the acquired
business;
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the
risk of obtaining mining permits for acquired coal assets;
and
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unanticipated
changes in business, industry or general economic conditions that affect
the assumptions underlying the acquisition or other transaction
rationale.
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Any one
or more of these and other factors could cause us not to realize the benefits
anticipated to result from the acquisition of businesses or assets or could
result in unexpected liabilities associated with these
acquisitions.
Foreign
currency fluctuations could adversely affect the competitiveness of our coal
abroad.
We rely
on customers in other countries for a portion of our sales, with shipments to
countries in North America, South America, Europe, Asia and Africa. We compete
in these international markets against coal produced in other countries. Coal is
sold internationally in United States dollars. As a result, mining costs in
competing producing countries may be reduced in United States dollar terms based
on currency exchange rates, providing an advantage to foreign coal producers.
Currency fluctuations among countries purchasing and selling coal could
adversely affect the competitiveness of our coal in international
markets.
Terrorist
attacks and threats, escalation of military activity in response to such attacks
or acts of war may negatively affect our cash flows, results of operations or
financial condition.
Our
business is affected by general economic conditions, fluctuations in consumer
confidence and spending, and market liquidity, which can decline as a result of
numerous factors outside of our control, such as terrorist attacks and acts of
war. Future terrorist attacks against United States targets, rumors or threats
of war, actual conflicts involving the United States or its allies, or military
or trade disruptions affecting customers may materially adversely affect
operations. As a result, there could be delays or losses in transportation and
deliveries of coal to customers, decreased sales of coal and extension of time
for payment of accounts receivable from customers. Strategic targets such as
energy-related assets may be at greater risk of future terrorist attacks than
other targets in the United States. In addition, such disruption may lead to
significant increases in energy prices that could result in government-imposed
price controls. It is possible that any, or a combination, of these occurrences
could have a material impact on cash flows, results of operations or financial
condition.
Coal
mining is subject to inherent risks, some for which we maintain third-party
insurance and some for which we self-insure.
Our
operations are subject to certain events and conditions that could disrupt
operations, including fires and explosions, accidental mine water discharges,
coal slurry releases and impoundment failures, natural disasters, equipment
failures, maintenance problems and flooding. We maintain insurance policies that
provide limited coverage for some, but not all, of these risks. Even where
insurance coverage applies, there can be no assurance that these risks would be
fully covered by insurance policies and insurers may contest their obligations
to make payments. Failures by insurers to make payments could have a material
adverse effect on our cash flows, results of operations or financial condition.
We self-insure our highwall miners and underground equipment, including our
longwalls. We do not currently carry business interruption
insurance.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
We own
and lease properties totaling approximately 1 million acres in West Virginia,
Kentucky, Virginia, Pennsylvania and Tennessee. In addition, certain of our
owned or leased properties are leased or subleased to third-party tenants. Our
current practice is to obtain a title review from a licensed attorney prior to
purchasing or leasing property. We generally have not obtained title insurance
in connection with acquisitions of coal reserves. In some cases, the seller or
lessor warrants property title. We have not required title confirmation in
certain cases under long-standing lease agreements where we are now the current
lessee and the lease covers property where mining has occurred
previously. We currently own or lease the equipment that is utilized
in mining operations. The following table describes the location and general
character of our major existing facilities, exclusive of mines, coal preparation
plants and their adjoining offices.
Administrative
Offices:
Richmond,
Virginia
|
Owned
|
Massey
Corporate Headquarters
|
Julian,
West Virginia
|
Owned
|
Massey
Operational Headquarters
|
For a
description of mining properties, see Item 1. Business, under the heading
“Mining Operations” and “Coal Reserves.”
Item 3. Legal
Proceedings
We are
parties to a number of legal proceedings, incident to our normal business
activities. These matters include, but are not limited to, contract disputes,
personal injury, property damage and employment matters. While we cannot predict
the outcome of these proceedings, based on our current estimates, we do not
believe that any liability arising from these matters individually or in the
aggregate should have a material impact upon our consolidated cash flows,
results of operations or financial condition. However, it is reasonably possible
that the ultimate liabilities in the future with respect to these lawsuits and
claims may be material to our cash flows, results of operations or financial
condition.
We are
also party to lawsuits and other legal proceedings related to the non-coal
businesses previously conducted by Fluor Corporation (renamed Massey Energy
Company) but now conducted by New Fluor. Under the terms of the Distribution
Agreement entered into by New Fluor and us as of November 30, 2000, in
connection with the Spin-Off of New Fluor, New Fluor agreed to indemnify us with
respect to all such legal proceedings and has assumed their
defense.
Additional
legal proceedings required by this Item 3 are contained in Note 18,
“Contingencies” to the Notes to Consolidated Financial Statements in this Annual
Report on Form 10-K, which is incorporated herein by reference.
Part II
Item 5. Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Common
Stock
Common
Stock is listed on the New York Stock Exchange (“NYSE”) and trades under the
symbol MEE. As of February 15, 2010, there were 86,545,037 shares outstanding
and approximately 6,189 shareholders of record of Common Stock.
The
following table sets forth the high and low sales prices per share of Common
Stock on the NYSE for the past two years, based upon published financial
sources, and the dividends declared on each share of Common Stock for the
quarter indicated.
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
Fiscal
Year 2008
|
|
|
|
|
|
|
|
|
|
Quarter
ended March 31, 2008
|
|
$ |
44.00 |
|
|
$ |
26.22 |
|
|
$ |
0.05 |
|
Quarter
ended June 30, 2008
|
|
$ |
95.70 |
|
|
$ |
35.33 |
|
|
$ |
0.05 |
|
Quarter
ended September 30, 2008
|
|
$ |
94.09 |
|
|
$ |
31.15 |
|
|
$ |
0.05 |
|
Quarter
ended December 31, 2008
|
|
$ |
35.00 |
|
|
$ |
10.05 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended March 31, 2009
|
|
$ |
18.69 |
|
|
$ |
9.62 |
|
|
$ |
0.06 |
|
Quarter
ended June 30, 2009
|
|
$ |
26.46 |
|
|
$ |
9.80 |
|
|
$ |
0.06 |
|
Quarter
ended September 30, 2009
|
|
$ |
33.51 |
|
|
$ |
15.85 |
|
|
$ |
0.06 |
|
Quarter
ended December 31, 2009
|
|
$ |
44.40 |
|
|
$ |
25.52 |
|
|
$ |
0.06 |
|
Dividends
On
February 16, 2010, our Board of Directors declared a dividend of $0.06 per
share, payable on March 31, 2010, to shareholders of record on March 17,
2010.
Our
current dividend policy anticipates the payment of quarterly dividends in the
future. Our Board of Directors increased the regular quarterly dividend to $0.06
per share in the fourth quarter of 2008. The ABL Facility and our 6.875% senior
notes due 2013 (the “6.875% Notes”) contain provisions that restrict us from
paying dividends in excess of certain amounts. The ABL Facility limits the
payment of dividends to $50 million annually on Common Stock. The 6.875% Notes
limit the payment of dividends to $25 million annually on Common Stock, plus the
availability in the Restricted Payments Baskets (as defined in the Indenture
governing the 6.875% Notes). In addition, dividends can be paid only so long as
no default exists under the ABL Facility or the 6.875% Notes, as the case may
be, or would result thereunder from paying such dividend. There are no other
restrictions, other than those set forth under the corporate laws of the State
of Delaware, where we are incorporated, on our ability to declare and pay
dividends. The declaration and payment of dividends to holders of Common Stock
will be at the discretion of the Board of Directors and will be dependent upon
our future earnings, financial condition, and capital requirements.
Convertible
Debt Securities
Our 2.25%
Notes are convertible by holders into shares of Common Stock during certain
periods under certain circumstances. None of the 2.25% Notes were eligible for
conversion at December 31, 2009. If all of the notes outstanding at December 31,
2009 had been eligible and were converted, we would have been required to issue
287,113 shares of Common Stock. No conversions occurred during the year. See
Note 6 to the Notes to Consolidated Financial Statements for further discussion
of conversion features of the 2.25% Notes.
Our 3.25%
Notes are convertible under certain circumstances and during certain periods
into (i) cash, up to the aggregate principal amount of the 3.25% Notes
subject to conversion and (ii) cash, Common Stock or a combination thereof,
at our election in respect to the remainder (if any) of our conversion
obligation. Effective December 31, 2009, the conversion rate has been adjusted
to 11.4420 shares of Common Stock per $1,000 principal amount of 3.25% Notes.
The adjustment of the conversion rate is a result of us increasing our cash
dividend from $0.05 to $0.06 per share of Common Stock in the fourth quarter of
2008. As of December 31, 2009, the price per share of Common Stock had not
reached the specified threshold for conversion. No conversions occurred during
the year. See Note 6 to the Notes to Consolidated Financial Statements for
further discussion of conversion features of the 3.25% Notes.
Repurchase
Program
On
November 14, 2005, our Board of Directors authorized a stock repurchase program
(the “Repurchase Program”), authorizing us to repurchase shares of Common Stock.
We may repurchase Common Stock from time to time, as determined by authorized
officers, up to an aggregate amount not to exceed $500 million (excluding
commissions) with free cash flow as existing financing covenants may permit.
Existing covenants currently allow for up to approximately $611 million of share
repurchases.
As of December 31, 2009, we had $420 million available under the current
authorization. The stock repurchases may be conducted on the open market,
through privately negotiated transactions, through derivative transactions or
through purchases made in accordance with Rule 10b5-1 of the Securities Exchange
Act of 1934, as amended (“Exchange Act”), in compliance with the SEC’s
regulations and other legal requirements. The Repurchase Program does not
require us to acquire any specific number of shares and may be terminated at any
time. Through December 31, 2009, 2,874,800 shares have been repurchased at an
average price of $27.80 per share and classified as Treasury stock. All of the
2,874,800 shares held as Treasury stock were issued as part of the 4,370,000
shares of Common Stock which we publicly offered and sold in August 2008. No
additional share repurchases have been made since that time.
The
following table summarizes information about shares of Common Stock that were
purchased during the fourth quarter of 2009.
Period
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1 through October 31
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
November
1 through November 30
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
December
1 through December 31
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
Total
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
10,903,427
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Calculated
using $420 million that may yet be purchased under our share repurchase program
and $38.52, the closing price of Common Stock as reported on the New York Stock
Exchange on January 31, 2010.
Common Stock Offering
Program
On
February 3, 2009, pursuant to Rule 424(b)(5), we filed a prospectus supplement
with the Securities and Exchange Commission (“SEC”) allowing us to sell up to
5.0 million shares of Common Stock from time to time in our discretion.
The proceeds from any shares of Common Stock sold will be used for general
corporate purposes, which may include funding for acquisitions or investments in
business, products, technologies, and repurchases and repayment of our
indebtedness. As of January 31, 2010, no shares of Common Stock had been sold
pursuant to this program.
Transfer
Agent and Registrar
The
transfer agent and registrar for Common Stock is American Stock Transfer &
Trust Company, LLC, Shareholder Services Group, 6201 15th
Avenue, Brooklyn, New York 11219, toll free (800) 813-2847, or if outside the
United States at (718) 921-8124.
Item
6. Selected Financial Data
SELECTED
FINANCIAL DATA
|
|
Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
Adjusted (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except per share, per ton, and number of employees
amounts)
|
|
CONSOLIDATED
STATEMENT OF INCOME DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
coal revenue
|
|
$ |
2,318.5 |
|
|
$ |
2,559.9 |
|
|
$ |
2,054.4 |
|
|
$ |
1,902.3 |
|
|
$ |
1,777.7 |
|
Total
revenue
|
|
|
2,691.2 |
|
|
|
2,989.8 |
|
|
|
2,413.5 |
|
|
|
2,219.9 |
|
|
|
2,204.3 |
|
Income
(loss) before interest and income taxes
|
|
|
227.0 |
|
|
|
128.7 |
|
|
|
179.7 |
|
|
|
111.0 |
|
|
|
(20.9 |
) |
Income
(loss) before cumulative effect of accounting change
|
|
|
104.4 |
|
|
|
47.8 |
|
|
|
94.1 |
|
|
|
41.6 |
|
|
|
(101.6 |
) |
Net
income (loss)
|
|
|
104.4 |
|
|
|
47.8 |
|
|
|
94.1 |
|
|
|
41.0 |
|
|
|
(101.6 |
) |
Income
(loss) per share - Basic (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before cumulative effect of accounting change
|
|
$ |
1.23 |
|
|
$ |
0.58 |
|
|
$ |
1.17 |
|
|
$ |
0.51 |
|
|
$ |
(1.33 |
) |
Net
income (loss)
|
|
$ |
1.23 |
|
|
$ |
0.58 |
|
|
$ |
1.17 |
|
|
$ |
0.50 |
|
|
$ |
(1.33 |
) |
Income
(loss) per share - Diluted (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before cumulative effect of accounting change
|
|
$ |
1.22 |
|
|
$ |
0.58 |
|
|
$ |
1.17 |
|
|
$ |
0.51 |
|
|
$ |
(1.33 |
) |
Net
income (loss)
|
|
$ |
1.22 |
|
|
$ |
0.58 |
|
|
$ |
1.17 |
|
|
$ |
0.50 |
|
|
$ |
(1.33 |
) |
Dividends
declared per share
|
|
$ |
0.24 |
|
|
$ |
0.21 |
|
|
$ |
0.17 |
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$ |
869.7 |
|
|
$ |
731.3 |
|
|
$ |
522.6 |
|
|
$ |
445.2 |
|
|
$ |
670.8 |
|
Total
assets
|
|
|
3,799.7 |
|
|
|
3,672.4 |
|
|
|
2,860.7 |
|
|
|
2,740.7 |
|
|
|
2,986.5 |
|
Long-term
debt
|
|
|
1,295.6 |
|
|
|
1,310.2 |
|
|
|
1,102.7 |
|
|
|
1,102.3 |
|
|
|
1,102.6 |
|
Shareholders'
equity (3)
|
|
|
1,256.3 |
|
|
|
1,126.6 |
|
|
|
784.0 |
|
|
|
697.3 |
|
|
|
841.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
(4)
|
|
$ |
227.0 |
|
|
$ |
128.7 |
|
|
$ |
179.7 |
|
|
$ |
111.0 |
|
|
$ |
(20.9 |
) |
EBITDA
(4)
|
|
$ |
497.2 |
|
|
$ |
386.1 |
|
|
$ |
425.7 |
|
|
$ |
341.5 |
|
|
$ |
213.6 |
|
Average
cash cost per ton sold (5)
|
|
$ |
50.48 |
|
|
$ |
46.65 |
|
|
$ |
41.20 |
|
|
$ |
40.95 |
|
|
$ |
34.00 |
|
Produced
coal revenue per ton sold
|
|
$ |
63.26 |
|
|
$ |
62.50 |
|
|
$ |
51.55 |
|
|
$ |
48.71 |
|
|
$ |
42.02 |
|
Capital
expenditures
|
|
$ |
274.5 |
|
|
$ |
736.5 |
|
|
$ |
270.5 |
|
|
$ |
298.1 |
|
|
$ |
346.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
tons sold
|
|
|
36.7 |
|
|
|
41.0 |
|
|
|
39.9 |
|
|
|
39.1 |
|
|
|
42.3 |
|
Tons
produced
|
|
|
38.0 |
|
|
|
41.1 |
|
|
|
39.5 |
|
|
|
38.6 |
|
|
|
43.1 |
|
Number
of employees
|
|
|
5,851 |
|
|
|
6,743 |
|
|
|
5,407 |
|
|
|
5,517 |
|
|
|
5,709 |
|
(1)
|
Amounts
for the twelve months ended December 31, 2008, have been adjusted in
accordance with new accounting guidance related to our 3.25% Notes,
effective January 1, 2009. See Note 6 in the Notes to Consolidated
Financial Statements for further
discussion.
|
(2)
|
In
accordance with GAAP, the effect of certain dilutive securities was
excluded from the calculation of the diluted income (loss) per common
share for the years ended December 31, 2009, 2008, 2007, 2006, and 2005,
as such inclusion would result in
antidilution.
|
(3)
|
Certain
accounting pronouncements adopted in 2007 and 2006 affect the
comparability of the 2007 and 2006 financial statements to prior years.
The adoption of accounting guidance related to income taxes on January 1,
2007 increased equity by $5.2 million. The adoption of accounting guidance
related to stripping costs on January 1, 2006 decreased equity by $93.8
million and the adoption of accounting guidance related to pension and
other postretirement plans on December 31, 2006 decreased equity by $40.2
million.
|
(4)
|
EBIT is defined as Income
(loss) before interest and taxes. EBITDA is defined as Income (loss)
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 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 (loss) to EBIT and to
EBITDA.
|
|
|
Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
As
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
Net
income (loss)
|
|
$ |
104.4 |
|
|
$ |
47.8 |
|
|
$ |
94.1 |
|
|
$ |
41.0 |
|
|
$ |
(101.6 |
) |
Cumulative
effect of accounting change, net of tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.6 |
|
|
|
- |
|
Income
tax expense
|
|
|
32.9 |
|
|
|
1.1 |
|
|
|
35.4 |
|
|
|
3.4 |
|
|
|
26.2 |
|
Net
interest expense and loss on short-term investment
|
|
|
89.7 |
|
|
|
79.8 |
|
|
|
50.2 |
|
|
|
66.0 |
|
|
|
54.5 |
|
EBIT
|
|
|
227.0 |
|
|
|
128.7 |
|
|
|
179.7 |
|
|
|
111.0 |
|
|
|
(20.9 |
) |
Depreciation,
depletion and amortization
|
|
|
270.2 |
|
|
|
257.4 |
|
|
|
246.0 |
|
|
|
230.5 |
|
|
|
234.5 |
|
EBITDA
|
|
$ |
497.2 |
|
|
$ |
386.1 |
|
|
$ |
425.7 |
|
|
$ |
341.5 |
|
|
$ |
213.6 |
|
(5)
|
Average
cash cost per ton is calculated as the sum of Cost of produced coal
revenue (excluding Selling, general and administrative expense
(“SG&A”) and DD&A), divided by the number of produced tons sold.
In 2009, in order to conform more closely to common industry reporting
practices, we have changed our calculation of cash cost to exclude
SG&A expense. This change has been reflected in the presentation of
data for both the current and comparative past reporting periods in this
report. 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.
|
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
As
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except per ton amounts)
|
|
|
|
|
Total
costs and expenses
|
|
$ |
2,464.2 |
|
|
$ |
2,861.1 |
|
|
|
|
|
$ |
2,233.8 |
|
|
|
|
|
$ |
2,108.8 |
|
|
|
|
|
$ |
2,225.2 |
|
|
|
|
Less:
Freight and handling costs
|
|
|
218.2 |
|
|
|
306.4 |
|
|
|
|
|
|
167.6 |
|
|
|
|
|
|
156.5 |
|
|
|
|
|
|
150.9 |
|
|
|
|
Less:
Cost of purchased coal revenue
|
|
|
57.1 |
|
|
|
28.5 |
|
|
|
|
|
|
95.2 |
|
|
|
|
|
|
62.6 |
|
|
|
|
|
|
112.6 |
|
|
|
|
Less:
Depreciation, depletion and amortization
|
|
|
270.2 |
|
|
|
257.4 |
|
|
|
|
|
|
246.0 |
|
|
|
|
|
|
230.5 |
|
|
|
|
|
|
234.5 |
|
|
|
|
Less:
Selling, general and administrative
|
|
|
97.4 |
|
|
|
77.0 |
|
|
|
|
|
|
75.8 |
|
|
|
|
|
|
53.8 |
|
|
|
|
|
|
68.3 |
|
|
|
|
Less:
Other expense
|
|
|
8.7 |
|
|
|
3.2 |
|
|
|
|
|
|
7.3 |
|
|
|
|
|
|
6.2 |
|
|
|
|
|
|
8.0 |
|
|
|
|
Less:
Litigation charge
|
|
|
- |
|
|
|
250.1 |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
Less:
Loss on financing transactions
|
|
|
0.2 |
|
|
|
5.0 |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
212.4 |
|
|
|
|
Less:
(Gain) loss on derivative instruments
|
|
|
(37.6 |
) |
|
|
22.6 |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
Average
cash cost
|
|
$ |
1,850.0 |
|
|
$ |
1,910.9
(1) |
|
|
|
|
|
|
$ |
1,641.9
(1) |
|
|
|
|
|
|
$ |
1,599.2
(1) |
|
|
|
|
|
|
$ |
1,438.5
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
cash cost per ton
|
|
$ |
50.48 |
|
|
$ |
46.65
(1) |
|
|
|
|
|
|
$ |
41.20
(1) |
|
|
|
|
|
|
$ |
40.95
(1) |
|
|
|
|
|
|
$ |
34.00
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Restated Average cash
cost and Average cash cost per ton as described in Note 5 above.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) is intended to help the reader understand
Massey Energy Company, our operations and our present business environment.
MD&A is provided as a supplement to, and should be read in conjunction with,
our consolidated financial statements and the accompanying notes thereto
contained in Item 8 of this report. From time to time, we may make statements
that may constitute “forward-looking statements” within the meaning of the
“safe-harbor” provisions of the Private Securities Litigation Reform Act of
1995. These statements are based on our then current expectations and are
subject to a number of risks and uncertainties that could cause actual results
to differ materially from those addressed in the forward-looking statements.
Please see “Forward-Looking Statements” on page i hereto and are incorporated
herein and the risk factors that may cause such a difference, which are set
forth in Item 1A. Risk Factors and are incorporated herein.
Executive
Overview
We
operate coal mines and processing facilities in Central Appalachia, which
generate revenues and cash flow through the mining, processing and selling of
steam and metallurgical grade coal, primarily of low sulfur content. We also
generate income and cash flow through other coal-related businesses. Other
revenue is obtained from royalties, rentals, gas well revenues, gains on the
sale of non-strategic assets and miscellaneous income.
We
reported net income for the year ended December 31, 2009 of $104.4 million, or
$1.22 per diluted share, compared to net income for 2008 of $47.8 million, or
$0.58 per diluted share. Net income in 2009 included pre-tax gains totaling
$33.6 million for the sale and exchange of coal reserve interests and other
assets with third-parties and a net gain of $37.6 million on certain coal
contracts that do not qualify for the normal purchase normal sale ("NPNS")
exception. Net income in 2008 included pre-tax charges of $250.1
million related to the litigation with Wheeling-Pittsburgh Steel Corporation
(“Wheeling-Pittsburgh”), pre-tax gains totaling $32.4 million related to asset
and reserve exchanges with third-parties and a $22.6 million non-cash pre-tax
charge to recognize the net unrealized losses on certain coal contracts that do
not qualify for the NPNS exception.
During
2009, we completed several coal reserve trades and acquisitions that increased
our total reserve base. These transactions, in addition to
adjustments made in conjunction with normal annual review and re-evaluation of
reserves, and offset by 38 million tons of coal produced, resulted in a net
increase of 72 million tons of coal reserves during the
year. Following this increase, we estimate that we had 2.4 billion
tons of proven and probable coal reserves at December 31, 2009.
On August 27, 2009, a fire destroyed
the Bandmill preparation plant at our Logan County resource group, located near
Logan, West Virginia. This incident impacted the operations at Logan
County and, to a lesser extent, our operations as a whole during the second half
of 2009. Efforts to replace production at our other locations to help
mitigate the effects of the fire, including meeting customer commitments, are
ongoing. We maintain property insurance which is expected to cover property
losses incurred from the fire. We received $15.4 million in insurance proceeds
during 2009. A replacement preparation plant is currently under construction,
which is expected to be operational by the fall of 2010.
Produced tons sold were 36.7 million in
2009, compared to 41.0 million in 2008. We produced 38.0 million and 41.1
million tons in 2009 and 2008, respectively. The lower coal production in 2009
was primarily the result of the idling of higher cost mines and the reduction of
hours worked, mainly overtime and weekend shifts, in response to lower demand.
Exports decreased from 8.1 million tons in 2008 to 5.7 million tons in 2009.
Increasing coal stockpiles due to utilities shifting to gas fired generation and
weak demand for electric power generation and steel production in both domestic
and international markets has created challenges among our customer base to
accept shipments of coal according to contracted schedules. We are
working with our customers to modify shipment schedules and amend contract terms
where necessary or appropriate, which may affect our revenues and margins in
future periods.
During 2009, Produced coal revenue
decreased by 9% compared to 2008, reflecting lower shipments in 2009. Our
average Produced coal revenue per ton sold in 2009 increased to $63.26 compared
to $62.50 in 2008. Our average Produced coal revenue per ton in 2009 for
metallurgical tons sold decreased by 1% to $95.93 from $97.07 in 2008. The
average per ton sales price for utility and industrial coal was higher in 2009
compared to 2008, attributable to prices contracted during prior periods when
demand and pricing were elevated for these grades of coal in the United
States.
Our Average cash cost per ton sold was
$50.48 in 2009, compared to $46.65 in 2008. The increased cost level is
primarily due to higher fixed cost absorption on lower volume shipped, higher
labor costs, and higher equipment rental costs. In response to the current
difficult market conditions, we have taken certain actions to reduce overall
costs including the
idling of
several higher cost mines, limitation of overtime, selective general and
administrative cost reductions, renegotiation of supply contracts and the
implementation of significant wage and benefit reductions beginning on May 1,
2009.
While
certain general business conditions appear to be improving, the recent
recession, credit crisis and related turmoil in the global financial system has
had and may continue to have a negative impact on our business, financial
condition and liquidity. We may face significant future challenges if
conditions in the financial markets do not continue to improve. Worldwide demand
for coal has been adversely impacted by the recent global
recession. Demand for metallurgical coal has been disproportionately
affected as most steel producers responded to the recent recession by
significantly reducing production levels. This, in turn, has led to
lower sales volumes and a number requests from our customers for the deferral of
contracted shipments. These conditions have negatively impacted our
revenues. Additionally, the volatility and disruption of financial
markets has and could continue to affect the creditworthiness of our customers
and/or limit our customers’ ability to obtain adequate financing to maintain
operations. This could result in a further decrease in sales volume
that could have a further negative impact on our cash flows, results of
operations or financial condition.
The steel
industry and the global metallurgical coal markets have shown recent signs of
improvement. Several steel producers have announced plans to restart
idled blast furnaces and production capacity utilization rates have begun to
increase. The timing of any improvement is uncertain but if these trends
continue, it could have a positive impact on metallurgical coal demand and
improve our opportunities to sell our metallurgical coal.
Results
of Operations
2009
Compared with 2008
Revenues
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
%
Increase
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
coal revenue
|
|
$ |
2,318,489 |
|
|
$ |
2,559,929 |
|
|
$ |
(241,440 |
) |
|
|
(9 |
%) |
Freight
and handling revenue
|
|
|
218,203 |
|
|
|
306,397 |
|
|
|
(88,194 |
) |
|
|
(29 |
%) |
Purchased
coal revenue
|
|
|
62,721 |
|
|
|
30,684 |
|
|
|
32,037 |
|
|
|
104 |
% |
Other
revenue
|
|
|
91,746 |
|
|
|
92,779 |
|
|
|
(1,033 |
) |
|
|
(1 |
%) |
Total
revenues
|
|
$ |
2,691,159 |
|
|
$ |
2,989,789 |
|
|
$ |
(298,630 |
) |
|
|
(10 |
%) |
The
following is a breakdown, by market served, of the changes in produced tons sold
and average produced coal revenue per ton sold for 2009 compared to
2008:
|
|
Year
Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
%
Increase |
|
(In
millions, except per ton amounts)
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Produced tons sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility
|
|
|
26.6 |
|
|
|
27.0 |
|
|
|
(0.4 |
) |
|
|
(1 |
%) |
Metallurgical
|
|
|
7.4 |
|
|
|
9.9 |
|
|
|
(2.5 |
) |
|
|
(25 |
%) |
Industrial
|
|
|
2.7 |
|
|
|
4.1 |
|
|
|
(1.4 |
) |
|
|
(34 |
%) |
Total
|
|
|
36.7 |
|
|
|
41.0 |
|
|
|
(4.3 |
) |
|
|
(10 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced coal revenue per ton
sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility
|
|
$ |
53.69 |
|
|
$ |
49.92 |
|
|
$ |
3.77 |
|
|
|
8 |
% |
Metallurgical
|
|
|
95.93 |
|
|
|
97.07 |
|
|
|
(1.14 |
) |
|
|
(1 |
%) |
Industrial
|
|
|
68.33 |
|
|
|
61.78 |
|
|
|
6.55 |
|
|
|
11 |
% |
Weighted
average
|
|
|
63.26 |
|
|
|
62.50 |
|
|
|
0.76 |
|
|
|
1 |
% |
Shipments
of all grades of coal decreased in 2009, compared to 2008, due to lower customer
demand, as the United States and world economies suffered through a severe
recession during 2009. Demand for utility coal was also negatively affected by
increasing coal stockpiles due to utilities shifting to gas fired generation.
The average per ton sales price for
industrial
and utility coal was higher in 2009, compared to 2008, attributable to prices
contracted during periods when demand and pricing were elevated for all grades
of coal in the United States.
Freight
and handling revenue decreased due to a reduction in the number of contracts in
which customers were required to pay freight in 2009, compared to 2008, and by a
decrease in export tons sold from 8.1 million in 2008, to 5.7 million in
2009.
Purchased
coal revenue increased in 2009, compared to 2008, as a result of 0.5 million
tons increase in the number of purchased tons shipped.
Other
revenue includes refunds on railroad agreements, royalties related to coal lease
agreements, gas well revenue, gains on the sale of non-strategic assets and
reserve exchanges, joint venture revenue and other miscellaneous revenue. Other
revenue for 2009 includes pre-tax gains of $26.5 million on the exchange of coal
reserves and other assets, and $7.1 million for the sale of our interest in
certain coal reserves. Other revenue for 2008 includes a pre-tax gain of $32.4
million on the exchange of coal reserves (see Note 4 in the Notes to
Consolidated Financial Statements for further discussion).
Costs
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
%
Increase
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of produced coal revenue
|
|
$ |
1,850,058 |
|
|
$ |
1,910,953 |
|
|
$ |
(60,895 |
) |
|
|
(3 |
%) |
Freight
and handling costs
|
|
|
218,203 |
|
|
|
306,397 |
|
|
|
(88,194 |
) |
|
|
(29 |
%) |
Cost
of purchased coal revenue
|
|
|
57,108 |
|
|
|
28,517 |
|
|
|
28,591 |
|
|
|
100 |
% |
Depreciation,
depletion and amortization, applicable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of produced coal revenue
|
|
|
268,317 |
|
|
|
253,737 |
|
|
|
14,580 |
|
|
|
6 |
% |
Selling,
general and administrative
|
|
|
1,860 |
|
|
|
3,590 |
|
|
|
(1,730 |
) |
|
|
(48 |
%) |
Selling,
general and administrative
|
|
|
97,381 |
|
|
|
77,015 |
|
|
|
20,366 |
|
|
|
26 |
% |
Other
expense
|
|
|
8,705 |
|
|
|
3,207 |
|
|
|
5,498 |
|
|
|
171 |
% |
Litigation
charge
|
|
|
- |
|
|
|
250,061 |
|
|
|
(250,061 |
) |
|
|
(100 |
%) |
Loss
on financing transactions
|
|
|
189 |
|
|
|
5,006 |
|
|
|
(4,817 |
) |
|
|
(96 |
%) |
(Gain)
loss on derivative instruments
|
|
|
(37,638 |
) |
|
|
22,552 |
|
|
|
(60,190 |
) |
|
|
(267 |
%) |
Total
costs and expenses
|
|
$ |
2,464,183 |
|
|
$ |
2,861,035 |
|
|
$ |
(396,852 |
) |
|
|
(14 |
%) |
Cost of
produced coal revenue decreased due to fewer tons sold in 2009, compared to
2008, offset by increased productions costs, higher labor costs, and higher
equipment rental costs.
Freight
and handling costs decreased due to a reduction in the number of contracts in
which customers were required to pay freight in 2009, compared to 2008, and by a
decrease in export tons sold from 8.1 million in 2008, to 5.7 million in
2009.
Costs of
purchased coal revenue increased in 2009, compared to 2008, as a result of 0.5
million tons increase in the number of purchased tons shipped, offset by a
decrease due to a $7.6 million black lung excise tax refund recorded in
2009.
Depreciation,
depletion and amortization applicable to Cost of produced coal revenue increased
due to impact of various of our capital projects that went into service during
2008.
Selling,
general and administrative expense increased in 2009, compared to 2008,
primarily due to an increase in stock-based compensation accruals in 2009,
caused by an increase in our stock price during 2009 as compared to
2008.
Other
expense includes a $6.0 million reserve for bad debt for 2009 related to a note
receivable from a supplier.
Litigation
charge represents an accrual for a specific legal action related to the
litigation with Wheeling-Pittsburgh that was recorded in 2008.
Loss on financing transactions in 2009,
relates to the $0.2 million loss recognized from the purchase of $11.9 million
of our 3.25% Notes on the open market. Loss on financing transactions in
2008, relates to a $4.1 million gain recognized from the purchase of $19.0
million of our 3.25% Notes on the open market during the fourth quarter of 2008,
offset by a $9.1
million
of fees incurred for the tender offer on our 6.625% Notes during the third
quarter of 2008. See Note 6 in the Notes to Consolidated Financial Statements
for further discussion.
(Gain)
loss on derivative instruments represents a net gain of $37.6 million ($53.1
million of unrealized gains due to fair value measurement adjustments and $15.5
million of realized losses due to settlements on existing contracts) related to
purchase and sales contracts that did not qualify for the NPNS exception in 2009
(see Note 15 in the Notes to Consolidated Financial Statements for further
discussion).
Interest
Interest
income decreased in 2009, compared to 2008, primarily as a result of a
significant reduction in the interest rates earned on our interest bearing
investments. During 2009 and 2008, we recorded $8.7 million and $7.0 million,
respectively, of interest income on black lung excise tax refunds.
Interest
expense increased primarily as a result of $18.4 million in 2009,
compared to $6.9 million in 2008, of non-cash interest
expense for the amortization of the discount recorded on our 3.25%
Notes. Additionally, interest expense for 2008 includes $1.9 million
(pre-tax) for the write-off of unamortized financing fees and $4.2 million for
the write-off of unamortized interest rate swap termination payment (see Note 6
in the Notes to Consolidated Financial Statements for further
discussion).
Loss
on short-term investment
Loss on
short-term investment represents a pro rata share of the
estimated loss in our investment in the Primary Fund of $6.5 million (see Note
16 to the Notes to Consolidated Financial Statements for further
discussion).
Income
Taxes
Income
tax expense was $32.9 million for 2009, compared with a tax expense of $1.1
million for 2008. The income tax rates for 2009 and 2008 were favorably impacted
by percentage depletion allowances and the usage of net operating loss
carryforwards. The income tax rate in 2009 and 2008 was negatively impacted by
nondeductible penalties. Also impacting the 2009 and 2008 income tax rate were
favorable adjustments in connection with the election to forego bonus
depreciation and claim a refund for alternative minimum tax credits. Because of
the discrete tax events occurring in 2009, the tax rate for 2009 may not be
indicative of future tax rates. The income tax rate in 2008 was negatively
impacted by a nondeductible EPA settlement and an increase in deferred tax asset
valuation allowances related principally to federal net operating losses. The
2008 rate was also favorably impacted by the adjustment of reserves in
connection with the closing of a prior period audit by the IRS.
2008
Compared with 2007
Revenues
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
%
Increase
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
coal revenue
|
|
$ |
2,559,929 |
|
|
$ |
2,054,413 |
|
|
$ |
505,516 |
|
|
|
25 |
|
Freight
and handling revenue
|
|
|
306,397 |
|
|
|
167,641 |
|
|
|
138,756 |
|
|
|
83 |
|
Purchased
coal revenue
|
|
|
30,684 |
|
|
|
108,191 |
|
|
|
(77,507 |
) |
|
|
(72%) |
|
Other
revenue
|
|
|
92,779 |
|
|
|
83,278 |
|
|
|
9,501 |
|
|
|
(8%) |
|
Total
revenues
|
|
$ |
2,989,789 |
|
|
$ |
2,413,523 |
|
|
$ |
576,266 |
|
|
|
24% |
|
The
following is a breakdown, by market served, of the changes in produced tons sold
and average produced coal revenue per ton sold for 2008 compared to
2007:
|
|
Year
Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
%
Increase |
|
(In
millions, except per ton amounts)
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Produced tons sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility
|
|
|
27.0 |
|
|
|
27.4 |
|
|
|
(0.4 |
) |
|
|
(1 |
%) |
Metallurgical
|
|
|
9.9 |
|
|
|
8.5 |
|
|
|
1.4 |
|
|
|
16 |
% |
Industrial
|
|
|
4.1 |
|
|
|
4.0 |
|
|
|
0.1 |
|
|
|
2 |
% |
Total
|
|
|
41.0 |
|
|
|
39.9 |
|
|
|
1.1 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced coal revenue per ton
sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility
|
|
$ |
49.92 |
|
|
$ |
45.18 |
|
|
$ |
4.74 |
|
|
|
10 |
% |
Metallurgical
|
|
|
97.07 |
|
|
|
72.49 |
|
|
|
24.58 |
|
|
|
34 |
% |
Industrial
|
|
|
61.78 |
|
|
|
50.82 |
|
|
|
10.96 |
|
|
|
22 |
% |
Weighted
average
|
|
|
62.50 |
|
|
|
51.55 |
|
|
|
10.95 |
|
|
|
21 |
% |
Shipments
of metallurgical coal increased in 2008, compared to 2007, as demand for this
type of coal, especially in the export market, increased during 2008, allowing
certain quality coal to be shifted from the utility to the metallurgical market.
Production increased as new mines were started in 2008 as part of our expansion
plan. The average per ton sales price for utility coal continued to
improve in 2008, attributable to prices contracted during a period of increased
demand for utility coal in the United States. The higher demand resulted in
shortages of certain quality utility coal, increasing the market prices of this
coal, and allowing us to negotiate agreements containing higher-priced terms as
lower-priced contracts expired.
Freight
and handling revenue increased due to an increase in export tons sold from 4.8
million tons in 2007 to 8.1 million tons in 2008. In addition, during 2008 there
was a significant increase in freight rates, including fuel surcharges during a
large portion of the year.
Purchased
coal revenue decreased mainly due to a decrease in purchased tons sold from 2.1
million in 2007 to 0.5 million in 2008.
Other
revenue includes refunds on railroad agreements, royalties related to coal lease
agreements, gas well revenue, gains on the sale of non-strategic assets and
reserve exchanges, joint venture revenue and other miscellaneous revenue. Other
revenue for 2008 includes a pre-tax gain of $32.4 million on an exchange of coal
reserves and other assets. In addition, railroad refund income was
higher in 2008 than in 2007, offset by lower royalty earnings in 2008 compared
to 2007. Other revenue for 2007 includes a pre-tax gain of $10.3 million on an
exchange of coal reserves and $6.7 million on the sale of mineral rights
override (see Note 4 in the Notes to Consolidated Financial Statements for
further discussion).
Costs
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
%
Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
(In
thousands)
|
|
As
Adjusted
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of produced coal revenue
|
|
$ |
1,910,953 |
|
|
$ |
1,641,774 |
|
|
$ |
269,179 |
|
|
|
16 |
% |
Freight
and handling costs
|
|
|
306,397 |
|
|
|
167,641 |
|
|
|
138,756 |
|
|
|
83 |
% |
Cost
of purchased coal revenue
|
|
|
28,517 |
|
|
|
95,241 |
|
|
|
(66,724 |
) |
|
|
(70 |
%) |
Depreciation,
depletion and amortization, applicable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of produced coal revenue
|
|
|
253,737 |
|
|
|
242,755 |
|
|
|
10,982 |
|
|
|
5 |
% |
Selling,
general and administrative
|
|
|
3,590 |
|
|
|
3,280 |
|
|
|
310 |
|
|
|
9 |
% |
Selling,
general and administrative
|
|
|
77,015 |
|
|
|
75,845 |
|
|
|
1,170 |
|
|
|
2 |
% |
Other
expense
|
|
|
3,207 |
|
|
|
7,308 |
|
|
|
(4,101 |
) |
|
|
(56 |
%) |
Litigation
charge
|
|
|
250,061 |
|
|
|
- |
|
|
|
250,061 |
|
|
|
100 |
% |
Loss
on financing transactions
|
|
|
5,006 |
|
|
|
- |
|
|
|
5,006 |
|
|
|
100 |
% |
(Gain)
loss on derivative instruments
|
|
|
22,552 |
|
|
|
- |
|
|
|
22,552 |
|
|
|
100 |
% |
Total
costs and expenses
|
|
$ |
2,861,035 |
|
|
$ |
2,233,844 |
|
|
$ |
627,191 |
|
|
|
28 |
% |
Cost of
produced coal revenue increased due to increased sales-related costs on higher
produced coal revenues including production royalties and severance taxes,
increased supplies costs including diesel fuel and explosives, higher labor
costs, litigation settlements and higher indirect costs associated with
compliance with new safety regulations. Supplies costs increased both
due to a commodity driven inflationary increase and overall usage as the volume
of produced tons sold increased from 39.9 million tons in 2007 to 41.0 million
tons in 2008.
Freight
and handling costs increased due to an increase in export tons sold from 4.8
million tons in 2007 to 8.1 million tons in 2008. In addition, during 2008 there
was a significant increase in freight rates, including fuel surcharges during a
large portion of the year.
Cost of
purchased coal revenue decreased due to a decrease in purchased tons sold from
2.1 million in 2007 to 0.5 million in 2008.
Depreciation,
depletion and amortization applicable to Cost of produced coal revenue increased
due to impact of various of our capital projects which went into service during
2008.
Litigation
charge represents the court award and associated interest for the
Wheeling-Pittsburgh matter.
Loss on
financing transactions relates to $9.1 million fees incurred for the tender
offer for our 6.625% senior notes due 2010 (the “6.625% Notes”), offset by a
$4.1.million gain recognized from the purchase of $19.0 million of our 3.25%
Notes on the open market during 2008 (see Note 6 in the Notes to Consolidated
Financial Statements for further discussion).
(Gain)
loss on derivative instruments represents net unrealized losses of $22.6 million
related to purchase and sales contracts that did not qualify for the NPNS
exception in 2008 (see Note 15 in the Notes to Consolidated Financial Statements
for further discussion).
Interest
Interest
income in 2008 was comparable to the prior year at $23.6 million as the decline
during 2008 in interest rates earned on our interest bearing investments was
offset by higher cash balances on hand from August 2008 onward due to the debt
and equity issuances in the third quarter of 2008 and the recording of $7.0
million of interest income from black lung excise tax refunds in
2008.
Interest
expense was higher in 2008 compared to 2007, primarily due to: 1) a credit to
interest expense in 2007 of $11.4 million relating to the reversal of interest
accrued on the Harman matter, which was overturned by the WV Supreme Court in
2007 (see Note 18 in the Notes to Consolidated Financial Statements for further
discussion), 2) $6.9 million of non-cash interest expense in 2008 for the
amortization of the discount recorded on our 3.25% Notes, and 3) $6.1 million in
interest expense in 2008 for the write-off of debt issuance costs and the
related interest rate swap balance due to the repurchase of the 6.625% Notes
(see Note 6 in the Notes to Consolidated Financial Statements for further
discussion).
Loss
on short-term investment
Loss on
short-term investment represents a pro rata share of the
estimated loss in our investment in the Primary Fund of $6.5 million (see Note
16 to the Notes to Consolidated Financial Statements for further
discussion).
Income
Taxes
Income
tax expense was $1.1 million for 2008, compared with a tax expense of $35.4
million for 2007. The income tax rates for 2008 and 2007 were favorably impacted
by percentage depletion allowances and the usage of net operating loss
carryforwards. The income tax rate in 2008 was negatively impacted by
nondeductible penalties and an increase in deferred tax asset valuation
allowances related principally to federal net operating losses. Also impacting
the 2008 income tax rate were favorable adjustments in connection with the
election to forego bonus depreciation and claim a refund for alternative minimum
tax credits. The income tax rate in 2007 was negatively impacted by a
nondeductible EPA settlement and an increase in deferred tax asset valuation
allowances related principally to federal net operating losses. The 2007 rate
was also favorably impacted by the adjustment of reserves in connection with the
closing of a prior period audit by the IRS.
Liquidity
and Capital Resources
At
December 31, 2009, our available liquidity was $764.2 million, comprised of Cash
and cash equivalents of $665.8 million and $98.4 million of availability from
our ABL. We also had a $10.9 million investment in the Primary Fund, which was
recorded in Short-term investment. During January 2010, subsequent to the
balance sheet date, we received a distribution in the amount of $14.6 million
from the Primary Fund (see Note 16 in the Notes to Consolidated Financial
Statements for further discussion). Our total debt-to-book capitalization ratio
was 51.2% at December 31, 2009.
Debt was
comprised of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
As
Adjusted
|
|
|
|
(In
Thousands)
|
|
6.875%
senior notes due 2013, net of discount
|
|
$ |
756,727 |
|
|
$ |
756,041 |
|
3.25%
convertible senior notes due 2015, net of discount
|
|
|
526,435 |
|
|
|
517,538 |
|
6.625%
senior notes due 2010
|
|
|
21,949 |
|
|
|
21,949 |
|
2.25%
convertible senior notes due 2024
|
|
|
9,647 |
|
|
|
9,647 |
|
4.75%
convertible senior notes due 2023
|
|
|
- |
|
|
|
70 |
|
Capital
lease obligations
|
|
|
4,328 |
|
|
|
6,912 |
|
Total
debt
|
|
|
1,319,086 |
|
|
|
1,312,157 |
|
Amounts
due within one year
|
|
|
(23,531 |
) |
|
|
(1,976 |
) |
Total
long-term debt
|
|
$ |
1,295,555 |
|
|
$ |
1,310,181 |
|
See Note
6 in the Notes to Consolidated Financial Statements for further discussion of
our debt and debt-related covenants.
Convertible
Debt Securities
On
January 1, 2009, new accounting guidance became effective relating to our 3.25%
Notes, which was retroactively applied, as required. We separately account for
the liability and equity components in a manner reflective of our nonconvertible
debt borrowing rate, which was determined to be 7.75% at the date of issuance of
the 3.25% Notes. The discount associated with the 3.25% Notes is being amortized
via the effective-interest method increasing the reported liability until the
notes are carried at par value on their maturity date. We recognized $18.4
million and $6.9 million of non-cash interest expense for the amortization
of the discount for the twelve months ended December 31, 2009 and 2008,
respectively.
3.25%
Notes
In
November 2009, we concluded an open market purchase, retiring $11.9 million of
principal amount of the 3.25% Notes at a cost of $10.0 million, plus accrued
interest of $0.1 million. The retirement also resulted in write-offs
of $2.4 million of debt discount and $0.3 million of equity component, resulting
in a loss of $0.2 million in Loss on financing transactions. Depending on market
conditions and covenant restrictions, we may continue to make debt repurchases
from time to time through open market purchases, private transactions or
otherwise.
4.75%
Notes
During
May 2009, we redeemed at par the remaining $70,000 of the 4.75%
Notes.
6.625%
Notes
During
January 2010, subsequent to the balance sheet date, we redeemed at par the
remaining $21.9 million of the 6.625% Notes.
Asset-Based Credit
Facility
We
maintain an asset-based revolving credit agreement, the ABL Facility, which
provides for available borrowings, including letters of credit, of up to $175
million, depending on the level of eligible inventory and accounts receivable.
As of December 31, 2009, we had $98.4 million of availability from our
asset-based revolving credit facility. The ABL Facility expires on August 15,
2011.
Debt
Ratings
Moody’s
Investors Service (“Moody’s”) and Standard & Poor’s Rating Services
(“S&P”) rate our long-term debt. As of January 31, 2010, the outlook for
both our S&P and Moody’s ratings was Stable.
Current Ratings:
|
|
Moody’s
|
|
S&P
|
6.875%
Notes
|
|
|
B2 |
|
BB-
|
3.25%
Notes
|
|
|
B2 |
|
BB-
|
2.25%
Notes
|
|
|
B2 |
|
BB-
|
Cash
Flow
Net cash
provided by operating activities was $288.9 million for 2009, compared to $385.1
million for 2008. Cash provided by operating activities reflects Net income
adjusted for non-cash charges and changes in working capital requirements.
During 2009, we posted $72.0 million of cash as collateral for an appeal bond in
the Harman litigation (see Note 18 to the Notes to Consolidated Financial
Statements for more information) which is included in Other current assets as of
December 31, 2009.
Net cash
utilized by investing activities was $211.6 million and $776.5 million for 2009
and 2008, respectively. The cash used in investing activities reflects capital
expenditures in the amount of $274.6 million and $736.5 million for 2009 and
2008, respectively. These capital expenditures are for replacement of mining
equipment, the expansion of mining and shipping capacity, and projects to
improve the efficiency of mining operations. Additionally, 2009 and 2008
included $19.0 million and $6.0 million, respectively, of proceeds provided by
the sale of assets (see Note 4 to the Notes to Consolidated Financial Statements
for further discussion).
Net cash
utilized by financing activities was $18.5 million for 2009, compared to net
cash provided by financing activities of $633.2 million for 2008. Financing
activities reflect changes in debt levels, common stock offerings, exercising of
stock options, payments of dividends and cash receipts generated from
sale-leaseback transactions. Financing activities for 2009 primarily reflects
$10.0 million utilized for the purchase of our 3.25% Notes on the open market.
Financing activities for 2008 primarily reflects the $674.1 million of proceeds
provided by the issuance of the 3.25% Notes, $258.2 million of proceeds provided
by the issuance of Common Stock, $322.1 million utilized for the tender payment
for the 6.625% Notes, and the $10.4 million utilized for the purchase of our
3.25% Notes on the open market.
We
believe that cash on hand, cash generated from operations and our borrowing
capacity will be sufficient to meet our working capital requirements, scheduled
debt payments, potential share repurchases and debt repurchases, anticipated
dividend payments, expected settlements and final awards of outstanding
litigation and anticipated capital expenditures (other than
major acquisitions) for at least the next twelve months. Nevertheless, our
ability to satisfy our debt service obligations, repurchase shares and debt, pay
dividends, pay settlements and final awards of outstanding litigation, or fund
planned capital expenditures will substantially depend upon our future operating
performance, which will be affected by prevailing economic conditions in the
coal industry, debt covenants and financial, business and other factors, some of
which are beyond our control.
(See also
“Concentration of Credit Risk and Major Customers” in Note 14 in the Notes to
Consolidated Financial Statements.) We frequently evaluate potential
acquisitions. In the past, we have funded acquisitions primarily with cash
generated
from operations. As a result of the cash needs we have described above and
possible acquisition opportunities, in the future we may consider a variety of
financing sources, including debt or equity financing. Currently, other than our
ABL, we have no commitments for any additional financing. We cannot
be certain that we can obtain additional financing on terms that we find
acceptable, if at all, through the issuance of equity securities or the
incurrence of additional debt. Additional equity financing may dilute
our stockholders, and debt financing, if available, may, among other things,
restrict our ability to repurchase Common Stock, declare and pay dividends and
raise future capital. If we are unable to obtain additional needed
financing, it may prohibit us from making acquisitions, capital expenditures
and/or investments, which could materially and adversely affect our prospects
for long-term growth.
Common Stock Offering
Program
On
February 3, 2009, pursuant to Rule 424(b)(5), we filed a prospectus supplement
with the Securities and Exchange Commission (“SEC”) allowing us to sell up to
5.0 million shares of Common Stock from time to time in our discretion.
The proceeds from any shares of Common Stock sold will be used for general
corporate purposes, which may include funding for acquisitions or investments in
business, products, technologies, and repurchases and repayment of our
indebtedness. As of January 31, 2010, no shares of Common Stock had been sold
pursuant to this program.
Share
Repurchases
The Board
of Directors has authorized a total of $500 million (excluding commissions) to
repurchase our Common Stock under our share repurchase program. Through December
31, 2009, 2,874,800 shares have been repurchased at an average price of $27.80
per share and classified as Treasury stock. All of the 2,874,800 shares held as
Treasury stock were re-issued as part of the 4,370,000 shares of Common Stock
which were offered and sold in an underwritten public offering in August 2008.
No additional share repurchases have been made since that time. As of December
31, 2009, we had $420 million available under the current
authorization. We may repurchase shares of Common Stock from time to
time in compliance with the SEC’s regulations and other legal requirements, and
subject to market conditions and other factors. The share repurchase program
does not require us to acquire any specific number of shares and may be
terminated at any time.
Contractual
Obligations
We have
various contractual obligations that are recorded as liabilities within the
Consolidated Financial Statements in this Annual Report on Form 10-K. Other
obligations, such as certain purchase commitments, operating lease agreements,
and other executory contracts are not recognized as liabilities within the
Consolidated Financial Statements but are required to be disclosed. The
following table is a summary of our significant obligations as of December 31,
2009 and the future periods in which such obligations are expected to be settled
in cash. The table does not include current liabilities accrued within the
Consolidated Financial Statements, such as Accounts payable and Payroll and
employee benefits.
|
|
Payments
Due by Period (In Thousands)
|
|
|
|
Total
|
|
|
Within 1
Year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
Beyond 5
Years
|
|
Long-term
debt (1)
|
|
$ |
1,784,580 |
|
|
$ |
96,018 |
|
|
$ |
147,773 |
|
|
$ |
855,523 |
|
|
$ |
685,266 |
|
Capital
lease obligations
(2)
|
|
|
4,569 |
|
|
|
1,759 |
|
|
|
2,740 |
|
|
|
70 |
|
|
|
- |
|
Operating
lease obligations (3)
|
|
|
252,452 |
|
|
|
75,412 |
|
|
|
119,304 |
|
|
|
50,135 |
|
|
|
7,601 |
|
Coal
lease obligations (4)
|
|
|
134,602 |
|
|
|
18,835 |
|
|
|
31,280 |
|
|
|
26,406 |
|
|
|
58,081 |
|
Purchased
coal obligations (5)
|
|
|
59,250 |
|
|
|
59,250 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
purchase obligations (6)
|
|
|
167,985 |
|
|
|
126,614 |
|
|
|
32,617 |
|
|
|
8,754 |
|
|
|
- |
|
Total
Obligations
|
|
$ |
2,403,438 |
|
|
$ |
377,888 |
|
|
$ |
333,714 |
|
|
$ |
940,888 |
|
|
$ |
750,948 |
|
(1)
|
Long-term
debt obligations reflect the future interest and principal payments of our
fixed rate senior unsecured notes outstanding as of December 31, 2009. See
Note 6 to the Notes to Consolidated Financial Statements for additional
information.
|
(2)
|
Capital
lease obligations include the amount of imputed interest over the terms of
the leases. See Note 13 to the Notes to Consolidated Financial Statements
for additional information.
|
(3)
|
See
Note 13 to the Notes to Consolidated Financial Statements for additional
information.
|
(4)
|
Coal
lease obligations include minimum royalties paid on leased coal rights.
Certain coal leases do not have set expiration dates but extend until
completion of mining of all merchantable and mineable coal reserves. For
purposes of this table, we have generally assumed that minimum royalties
on such leases will be paid for a period of 20
years.
|
(5)
|
Purchased
coal obligations represent commitments to purchase coal from external
production sources under firm contracts as of December 31,
2009.
|
(6)
|
Other
purchase obligations primarily include capital expenditure commitments for
surface mining and other equipment as well as purchases of materials and
supplies. We have purchase agreements with vendors for most types of
operating expenses. However, our open purchase orders (which are not
recognized as a liability until the purchased items are received) under
these purchase agreements, combined with any other open purchase orders,
are not material and are excluded from this table. Other purchase
obligations also include contractual commitments under transportation
contracts. Since the actual tons to be shipped under these contracts are
not set and will vary, the amount included in the table reflects the
minimum payment obligations required by the
contracts.
|
Additionally,
we have liabilities relating to pension and other postretirement benefits, work
related injuries and illnesses, and mine reclamation and closure. As of December
31, 2009, payments related to these items are estimated to be:
Payments
Due by Years (In Thousands)
|
|
Within
1 Year
|
|
|
1
- 3 Years
|
|
|
3
- 5 Years
|
|
$ |
81,478 |
|
|
$ |
132,072 |
|
|
$ |
136,269 |
|
Our
determination of these noncurrent liabilities is calculated annually and is
based on several assumptions, including then-prevailing conditions, which may
change from year to year. In any year, if our assumptions are inaccurate, we
could be required to expend greater amounts than anticipated. Moreover, in
particular for periods after 2009, the estimates may change from the amounts
included in the table, and may change significantly, if assumptions change to
reflect changing conditions. These assumptions are discussed in the Notes to
Consolidated Financial Statements and in Critical Accounting Estimates and
Assumptions of this Management’s Discussion and Analysis of Financial Condition
and Results of Operations section.
Off-Balance
Sheet Arrangements
In the
normal course of business, we are a party to certain off-balance sheet
arrangements including guarantees, operating leases, indemnifications, and
financial instruments with off-balance sheet risk, such as bank letters of
credit and performance or surety bonds. Liabilities related to these
arrangements are not reflected in the consolidated balance sheets, and, except
for the operating leases, which are discussed in Note 13 to the Notes to
Consolidated Financial Statements, we do not expect any material impact on our
cash flows, results of operations or financial condition to result from these
off-balance sheet arrangements.
From time
to time we use bank letters of credit to secure our obligations for workers’
compensation programs, various insurance contracts and other obligations. At
December 31, 2009, we had $121.6 million of letters of credit outstanding of
which $45.1 million was collateralized by $46.0 million of cash deposited in
restricted, interest bearing accounts pledged to issuing banks and $76.5 million
was issued under our asset based lending arrangement. No claims were outstanding
against those letters of credit as of December 31, 2009.
We use
surety bonds to secure reclamation, workers’ compensation, wage payments and
other miscellaneous obligations. As of December 31, 2009, we had $401.1 million
of outstanding surety bonds. These bonds were in place to secure obligations as
follows: post-mining reclamation bonds of $315.6 million, an appeal bond of
$72.0 million of cash as collateral in the Harman litigation (see Note 18 to the
Notes to Consolidated Financial Statements for more information), and other
miscellaneous obligation bonds of $13.5 million. Outstanding surety bonds of
$46.1 million are secured with letters of credit.
Generally,
the availability and market terms of surety bonds continue to be challenging. If
we are unable to meet certain financial tests applicable to some of our surety
bonds, or to the extent that surety bonds otherwise become unavailable, we would
need to replace the surety bonds or seek to secure them with letters of credit,
cash deposits, or other suitable forms of collateral.
Certain
Trends and Uncertainties
Our
inability to satisfy contractual obligations may adversely affect
profitability.
From time
to time, we have disputes with customers over the provisions of sales agreements
relating to, among other things, coal pricing, quality, quantity, delays and
force majeure declarations. Our inability to satisfy contractual obligations
could result in the purchase of coal from third-party sources to satisfy those
obligations, the negotiation of settlements with customers, which may include
price reductions, the reduction of commitments or the extension of the time for
delivery, and customers terminating contracts, declining to do future business
with us, or initiating claims against us. A few of our customers have notified
us of losses they have allegedly incurred due to alleged shortfalls in
contracted coal shipments. We believe that factors beyond our control or
responsibility account for most or all of the shortfalls. However, we may not be
able to resolve all of these disputes, or other disputes with customers over
sales agreements, in a satisfactory manner, which could result in the payment of
substantial damages or otherwise harm our reputation and our relationships with
our customers (see Note 18 to the Notes to Consolidated Financial Statements for
further discussion).
The
global financial crisis may have an impact on our business, financial condition
and liquidity in ways that we currently cannot predict.
The
continuing credit crisis and related turmoil in the global financial markets,
which has begun to ease in recent months, has had and may continue to have an
impact on our business, financial condition and liquidity.
The
current difficult economic market environment has caused contraction in the
availability of credit in the marketplace. In addition to the impact
that the global financial crisis has already had on us, we may face significant
challenges if conditions in the financial markets do not continue to improve or
worsen. In addition, our ability to access the capital markets may be severely
restricted at a time when we would like, or need, to access these markets, which
could have an impact on our flexibility to react to changing economic and
business conditions and could potentially reduce our sources of
liquidity. Moreover, volatility and disruption of financial markets
could limit our customers’ ability to obtain adequate financing to maintain
operations and result in a decrease in sales volume that could have a negative
impact on our cash flows, results of operations or financial
condition.
Capital
and credit market volatility may affect our costs of borrowing.
While we maintain business
relationships with a diverse group of financial institutions, their continued
viability is not certain. Difficulties at one or more such financial
institutions could lead them not to honor their contractual credit commitments
under our ABL Facility or to renew their extensions of credit or provide new
sources of credit. Recently, the capital and credit markets have been
highly volatile as a result of adverse conditions that have caused the failure
and near failure of a number of large financial services
companies. If the capital and credit markets continue to experience
volatility and the availability of funds remains limited, we may incur increased
costs associated with borrowings. While we believe that recent
governmental and regulatory actions should reduce the risk of a further
deterioration or systemic contraction of capital and credit markets, there can
be no certainty that our liquidity will not be negatively impacted by
adverse conditions in the capital and credit markets.
We
may be adversely affected by a decline in the financial condition and
creditworthiness of our customers.
In an
effort to mitigate credit-related risks in all customer classifications, we
maintain a credit policy, which requires scheduled reviews of customer
creditworthiness and continuous monitoring of customer news events that might
have an impact on their financial condition. Negative credit performance or
other events may trigger the application of tighter terms of sale, requirements
for collateral or guaranties or, ultimately, a suspension of credit privileges.
The creditworthiness of customers can limit who we can do business with and at
what price. For the year ended December 31, 2009, approximately 99% of coal
sales volume was pursuant to long-term contracts. We anticipate that in
2010, the percentage of our sales pursuant to long-term contracts will be
comparable with the percentage of our sales for 2009. For 2010, approximately
50% of our projected sales tons are contracted to be sold to our 10 largest
customers. Many of our customers, including many of our large customers,
experienced lower demand and weaker financial performance due to the recent
economic downturn. If one or more of our larger customers fails to make payment
for our sales to them, there could be an adverse effect on our cash flows,
results of operations or financial condition.
We have
contracts to supply coal to energy trading and brokering companies who resell
the coal to the ultimate users. We are subject to being adversely affected by
any decline in the financial condition and creditworthiness of these energy
trading and brokering companies. In addition, as one of the largest suppliers of
metallurgical coal to the United States steel
industry
and a significant exporter to foreign users, we are subject to being adversely
affected by any decline in the financial condition or production volume of both
United States and foreign steel producers.
Some
of our customers may be unwilling to take all of their contracted tonnage or may
request a price lower than their contracted price.
Many of
our customers experienced lower demand for their products and services due to
the recent economic downturn and have been switching of electricity generation
from coal burning plants to natural gas plants. The lower demand for
our customers’ products resulted and may continue to result in lower demand for
the coal used in their business. Some of our customers have requested
and others may request deferrals of shipments, reduction of contracted sales
tonnages and/or reduction of the contracted sales price. If we believe it is in
our best interests to agree to any reduction in contracted price and/or tons
from our customers, there could be an adverse effect on our cash flows, results
of operations or financial condition.
We
must obtain governmental permits and approvals for mining operations, which can
be a costly and time-consuming process, can result in restrictions on our
operations, and is subject to litigation that may delay or prevent us from
obtaining necessary permits.
Our
operations are principally regulated under surface mining permits issued
pursuant to the Surface Mining Control and Reclamation Act and state counterpart
laws. Such permits are issued for terms of five years with the right of
successive renewal. Separately, the Clean Water Act requires permits for
operations that discharge into waters of the United States. Valley fills and
refuse impoundments are authorized under permits issued by the U.S. Army Corps
of Engineers (the “Corps”). The Environmental Protection Agency (the “EPA”) has
the authority, which it has rarely exercised until recently, to object to
permits issued by the Corps. While the Corps is authorized to issue
permits even when the EPA has objections, the EPA does have the ability to
override the Corps decision and “veto” the permits. In September 2009, the EPA
announced it had identified 79 pending permit applications for Appalachian
surface coal mining, under a coordination process with the Corps and the United
States Department of the Interior entered into in June 2009, that EPA believes
warrant further review because of its continuing concerns about water quality
and/or regulatory compliance issues. These include five of our permit
applications. While the EPA has stated that its identification of
these 79 permits does not constitute a determination that the mining involved
cannot be permitted under the Clean Water Act and does not constitute a final
recommendation from the EPA to the Corps on these projects, it is unclear how
long the further review will take for our five permits or what the final
outcome
will be. It is also unclear what impact this process may have on our
future applications for surface coal mining permits. Permitting under the Clean
Water Act has been a frequent subject of litigation by environmental advocacy
groups that has resulted in periodic delays in such permits issued by the Corps.
Additionally, certain operations (particularly preparation plants) have permits
issued pursuant to the Clean Air Act and state counterpart laws allowing and
controlling the discharge of air pollutants. Regulatory authorities exercise
considerable discretion in the timing of permit issuance. Requirements imposed
by these authorities may be costly and time-consuming and may result in delays
in, or in some instances preclude, the commencement or continuation of
development or production operations. Adverse outcomes in lawsuits challenging
permits or failure to comply with applicable regulations could result in the
suspension, denial or revocation of required permits, which could have a
material adverse impact on our cash flows, results of operations or financial
condition. See also Note 18, “Contingencies – Surface Mining Fills” to the Notes
to Consolidated Financial Statements.
Concerns
about the environmental impacts of coal combustion, including perceived impacts
on global climate change, are resulting in increased regulation of coal
combustion in many jurisdictions, and interest in further regulation, which
could significantly affect demand for our products.
The Clean
Air Act and similar state and local laws extensively regulate the amount of
sulfur dioxide, particulate matter, nitrogen oxides and other compounds emitted
into the air from electric power plants, which are the largest end-users of our
coal. Such regulation may require significant emissions control expenditures for
many coal-fired power plants. As a result, the generators may switch to other
fuels that generate less of these emissions or install more effective pollution
control equipment, possibly reducing future demand for coal and the construction
of coal-fired power plants. The majority of our coal supply agreements contain
provisions that allow a purchaser to terminate its contract if legislation is
passed that either restricts the use or type of coal permissible at the
purchaser’s plant or results in specified increases in the cost of coal or its
use.
Global
climate change continues to attract considerable public and scientific
attention. Widely publicized scientific reports, such as the Fourth Assessment
Report of the Intergovernmental Panel on Climate Change released in 2007, have
also engendered widespread concern about the impacts of human activity,
especially fossil fuel combustion, on global climate
change. A
considerable and increasing amount of attention in the United States is being
paid to global climate change and to reducing greenhouse gas emissions,
particularly from coal combustion by power plants. According to the EIA report,
“Emissions of Greenhouse Gases in the United States 2007,” coal combustion
accounts for 30% of man-made greenhouse gas emissions in the United States. In
April 2009, the EPA released a proposed rule making an "endangerment finding"
with respect to six greenhouse gases, including carbon dioxide, due to effects
on public health and welfare; if finalized, such a finding would trigger the
process under the Clean Air Act for developing air quality standards for these
greenhouse gases and establishing emission standards for sources. In June of
2009, the U.S. House of Representatives passed the so-called “Waxman-Markey”
bill, which provides for substantial reductions in greenhouse gases, including
carbon dioxide, through a “cap and trade” system. “Cap and Trade” legislation
was also introduced in the U.S. Senate in the fall of 2009. Further developments
in connection with legislation, regulations or other limits on greenhouse gas
emissions and other environmental impacts from coal combustion, both in the
United States and in other countries where we sell coal, could have a material
adverse effect on our cash flows, results of operations or financial
condition.
Critical Accounting Estimates and
Assumptions
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect reported amounts. These estimates
and assumptions are based on information available as of the date of the
financial statements. Significant changes to the estimates and assumptions used
in determining certain liabilities described below could introduce substantial
volatility to our costs. The following critical accounting estimates and
assumptions were used in the preparation of the financial
statements:
Defined
Benefit Pension Plans
The
estimated cost and benefits of non-contributory defined benefit pension plans
are determined by independent actuaries, who, with management’s review and
approval, use various actuarial assumptions, including discount rate, future
rate of increase in compensation levels and expected long-term rate of return on
pension plan assets. The discount rate is an estimate of the current interest
rate at which the applicable liabilities could be effectively settled as of the
measurement date. In estimating the discount rate, forecasted cash flows were
discounted using each year’s associated spot interest rate on high quality fixed
income investments. At December 31, 2009 and 2008, the discount rate used to
determine defined benefit pension liability was 6.00% and 6.10%, respectively.
The impact of lowering the discount rate 0.25% for 2009 would have increased the
2009 net periodic pension expense by approximately $2.0 million. The rate of
increase in compensation levels is
determined based upon our long-term plans for such increases. The rate of
increase in compensation levels used was 3.0% and 4.0% for the years ended
December 31, 2009 and 2008, respectively. The expected long-term rate of return
on pension plan assets is based on long-term historical return information and
future estimates of long-term investment returns for the target asset allocation
of investments that comprise plan assets. During 2009, we made a temporary shift
in our pension investments’ targeted asset allocation in response to the
volatility and uncertainty in the financial markets. We invested a large
percentage of plan assets in debt securities with a fixed duration with the
intent to return to the long-term targeted asset allocation upon maturity of the
fixed duration investments. As we plan to return to our targeted asset
allocation, we believe the expected long-term rate of return on plan assets of
8.0% continues to be appropriate. The expected long-term rate of return on plan
assets used to determine expense in each period was 8.0% for both of the years
ended December 31, 2009 and 2008. A 0.5% decrease in the expected long-term rate
of return assumption would have increased the 2009 net periodic pension expense
by approximately $1.0 million. The actuarial assumptions we use may differ
materially from actual results due to changing market and economic conditions,
higher or lower withdrawal rates or longer or shorter life spans of
participants. While we believe that the assumptions used are appropriate,
differences in actual experience or changes in assumptions might materially
affect our financial position or results of operations. See Note 5 to the Notes
to Consolidated Financial Statements for further discussion on our pension
plans.
Coal
Workers’ Pneumoconiosis
We are
responsible under the Federal Coal Mine Health and Safety Act of 1969, as
amended, and various states’ statutes, for the payment of medical and disability
benefits to eligible recipients resulting from occurrences of coal workers’
pneumoconiosis disease (black lung). An annual evaluation is prepared by
independent actuaries, who, after review and approval by management, use various
assumptions regarding disability incidence, medical costs trend, cost of living
trend, mortality, death benefits, dependents and interest rates. We record
expense related to this obligation using the service cost method. At December
31, 2009 and 2008, the discount rate used to determine the black lung liability
was 6.00% and 6.10%, respectively. Included in Note 11 to the Notes to
Consolidated Financial Statements is a medical cost trend and cost of living
trend sensitivity analysis.
Workers’
Compensation
Our
operations have workers’ compensation coverage through a combination of either
self-insurance, participation in a state run program, or commercial insurance.
We accrue for the self-insured liability by recognizing cost when it is probable
that the liability has been incurred and the cost can be reasonably estimated.
To assist in the determination of this estimated liability we utilize the
services of third-party administrators who derive claim reserves from historical
experience. These third parties provide information to independent actuaries,
who after review and consultation with management with regards to actuarial
assumptions, including discount rate, prepare an evaluation of the self-insured
liabilities. At December 31, 2009 and 2008, the discount rate used to determine
the self-insured workers’ compensation liability obligation was 4.75% and 5.00%,
respectively. A decrease in the assumed discount rate increases the workers’
compensation self-insured liability and related expense. Actual experience in
settling these liabilities could differ from these estimates, which could
increase our costs. See Note 11 to the Notes to Consolidated Financial
Statements for further discussion on workers’ compensation.
Other
Postretirement Benefits
Our
sponsored health care plans provide retiree health benefits to eligible union
and non-union retirees who have met certain age and service requirements.
Depending on year of retirement, benefits may be subject to annual deductibles,
coinsurance requirements, lifetime limits, and retiree contributions. These
plans are not funded. We pay costs as incurred by participants. The estimated
cost and benefits of the retiree health care plans are determined by independent
actuaries, who, after review and approval by management, use various actuarial
assumptions, including discount rate, expected trend in health care costs and
per capita claims costs. At December 31, 2009 and 2008, the discount rate used
to determine the other postretirement benefit liability was 6.00% and 6.10%,
respectively. The impact of lowering the discount rate 0.25% for 2009 would have
increased the 2009 net periodic postretirement benefit cost by approximately
$0.4 million. At December 31, 2009, assumptions of our health care plans’ cost
trend were projected at annual rates of 8.3% for pre-Medicare claims, 8.6% for
Medicare-eligible claims and 7.0% for Medicare supplemental plans, all ranging
down to 4.5% by 2029 and remaining level thereafter. The impact of
increasing the health care cost trend rate by 1.0% would have increased the 2009
net periodic postretirement benefit cost by approximately $1.8 million. Included
in Note 10 to the Notes to Consolidated Financial Statements is a sensitivity
analysis on the health care trend rate assumption.
Reclamation
and Mine Closure Obligations
The SMCRA
establishes operational, reclamation and closure standards for all aspects of
surface mining as well as most aspects of deep mining. Total reclamation and
mine-closing liabilities are based upon permit requirements and engineering
estimates related to these requirements. GAAP requires that asset retirement
obligations be recorded as a liability based on fair value, which is calculated
as the present value of the estimated future cash flows. Management and
engineers periodically review the estimate of ultimate reclamation liability and
the expected period in which reclamation work will be performed. In estimating
future cash flows, we considered the estimated current cost of reclamation and
applied inflation rates and a third-party profit, as necessary. The third-party
profit is an estimate of the approximate markup that would be charged by
contractors for work performed on our behalf. The discount rate applied is based
on the rates of treasury bonds with maturities similar to the estimated future
cash flow, adjusted for our credit standing. The estimated liability can change
significantly if actual costs vary from assumptions or if governmental
regulations change significantly.
Contingencies
We are
parties to a number of legal proceedings, incident to our normal business
activities. These matters include contract disputes, personal injury, property
damage and employment matters. While we cannot predict the outcome of these
proceedings, based on our current estimates, we do not believe that the
estimated liability arising from these matters individually or in the
aggregate should have a material impact upon our consolidated cash flows,
results of operations or financial condition. However, it is reasonably possible
that the ultimate liabilities in the future with respect to these lawsuits and
claims may be material to our cash flows, results of operations or financial
condition. See Item 3. Legal Proceedings and Note 18 to the Notes to
Consolidated Financial Statements for further discussion on our
contingencies.
Income
Taxes
GAAP
requires that deferred tax assets and liabilities be recognized using enacted
tax rates for the effect of temporary differences between the book and tax bases
of recorded assets and liabilities. GAAP also requires that deferred tax assets
be reduced by a valuation allowance if it is more likely than not that some
portion of the deferred tax asset will not be realized. In evaluating the need
for a valuation allowance, we take into account various factors, including tax
attribute carrybacks, the future reversals of existing taxable temporary
differences, the expected level of future taxable income and available
tax
planning
strategies. If actual results differ from the assumptions made in the evaluation
of our valuation allowance, we record a change in valuation allowance through
income tax expense in the period such determination is made.
We are
required to establish reserves based upon management’s assessment of exposure
associated with tax positions taken relative to temporary and permanent tax
differences and tax credits, plus penalties and interest, if any, on the accrued
uncertain tax positions. The tax reserves are analyzed periodically and
adjustments are made as events occur to warrant adjustment to the reserves.
Management believes that we have adequately provided for any income taxes that
may ultimately be paid with respect to all open tax years.
Coal Reserve
Values
There are
numerous uncertainties inherent in estimating quantities and values of
economically recoverable coal reserves. Many of these uncertainties are beyond
our control. As a result, estimates of economically recoverable coal reserves
are by their nature uncertain. Information about our reserves consists of
estimates based on engineering, economic and geological data assembled and
analyzed by our internal engineers, geologists and financial associates. Some of
the factors and assumptions that impact economically recoverable reserve
estimates include: (i) geological conditions; (ii) historical production from
similar areas with similar conditions; (iii) the assumed effects of regulations
and taxes by governmental agencies; (iv) assumptions governing future prices;
and (v) future operating costs.
Each of
these factors may in fact vary considerably from the assumptions used in
estimating reserves. For these reasons, estimates of the economically
recoverable quantities of coal attributable to a particular group of properties,
and classifications of these reserves based on risk of recovery and estimates of
future net cash flows, may vary substantially. Actual production, revenue and
expenditures with respect to reserves will likely vary from estimates, and these
variances may be material. Variances would affect both the Consolidated
Statements of Income, in the form of revenue and expenditures, as well as the
Consolidated Balance Sheets, in the form of valuation of coal reserves,
depletion rates and potential impairment.
Derivative
Instruments
Upon
entering into each coal sales and coal purchase contract, we evaluate each of
our contracts to determine if they qualify for the NPNS exception prescribed by
current accounting guidance. The majority of our contracts qualify for the NPNS
exception and therefore are not reflected in the Consolidated Balance
Sheets and Consolidated Statements of Income. For those contracts that do not
qualify for the NPNS exception at inception or at some point during the duration
of the contract, the contracts are required to be accounted for as derivative
instruments and must be recognized as assets or liabilities and measured at fair
value. To establish fair values for these contracts, we use bid/ask price
quotations obtained from independent third-party brokers. We also consider the
risk of nonperformance of or nonpayment by the counterparties when determining
the fair values for these contracts by evaluating the credit quality and
financial condition of each counterparty. If the
number of third-party brokers should decrease or market liquidity is reduced, we
could experience difficulty in determining the fair value of our derivative
instruments. The net change in the fair value of our contracts that did
not qualify for the NPNS exception at December 31, 2009 and 2008, was recognized
as an unrealized (gain) loss in the Consolidated Statements of Income under the
caption (Gain) loss on derivative instruments.
In
evaluating our contracts for the NPNS exception at inception, we consider many
factors, including management’s intent and ability to physically deliver or take
physical delivery of the coal, as well as the counterparty’s intent and ability
to physically accept or deliver coal. These factors may change over
the duration of a contract, due to, for example, the counterparty’s inability to
physically accept or deliver coal or to our decision to net settle a portion or
all of a forward contract by entering into an offsetting
contract. These facts and circumstances may cause a contract to no
longer qualify for the NPNS exception. If a contract originally
evaluated as qualifying for the NPNS exception no longer qualifies, it is
prospectively accounted for as a derivative instrument and recognized as an
asset or liability and measured at fair value. To the extent there is
an increase in the number of contracts that do not qualify for the NPNS
exception, it could have a significant impact on our results of operations or
financial condition. See Note 15 to the Notes to Consolidated
Financial Statements for further discussion of our derivative
instruments.
Recent
Accounting Pronouncements
Refer to
Note 1 in the Notes to Consolidated Financial Statements for information
concerning the effect of recent accounting pronouncements.
Item
7A. Quantitative and Qualitative Discussions about Market Risk
Our net
interest expense is currently not sensitive to changes in the general level of
short-term interest rates. At December 31, 2009, all of the outstanding $1,319.1
million of our debt was under fixed-rate instruments. However, if it should
become necessary to borrow under our ABL Facility, those borrowings would be
made at a variable rate. Interest income is sensitive to changes in short-term
interest rates.
In 2009,
we primarily managed market price risk for coal through the use of long-term
coal supply agreements, which are contracts with a term of one year or more in
duration, rather than through the use of derivative instruments. We estimate
that the percentage of tons sold pursuant to these long-term contracts was 99%
for our fiscal year ended December 31, 2009. We anticipate that in 2010, the
percentage of our tons sold pursuant to long-term contracts will be comparable
with the percentage of our sales for 2009. The prices for coal shipped under
long-term contracts may be below the current market price for similar types of
coal at any given time. As a consequence of the substantial volume of our sales
that are subject to these long-term agreements, we have less coal available with
which to capitalize on stronger coal prices if and when they arise. In addition,
because long-term contracts may allow the customer to elect volume flexibility
based on requirements, our ability to realize the higher prices that may be
available in the spot market may be restricted when customers elect to purchase
higher volumes under such contracts, or our exposure to market-based pricing may
be increased should customers elect to purchase fewer tons.
From time
to time we may also purchase coal directly from third parties to supplement our
produced and processed coal in order to provide coal to meet customer
requirements under sales contracts. Certain of our purchase and sale
contracts do not qualify for the NPNS exception and are accordingly measured at
fair value in current period earnings. The use of purchase and sales contracts
which do not qualify for the NPNS exception could materially affect our results
of operations as a result of the requirement to mark them to market at the end
of each reporting period.
These
transactions give rise to commodity price risk, which represents the potential
gain or loss that can be caused by an adverse change in the price of coal.
Outstanding purchase and sales contracts at December 31, 2009, that do not
qualify for the NPNS exception are summarized as follows:
|
|
Price
Range
|
|
|
Tons
Outstanding
|
|
Delivery
Period
|
Purchase
Contracts
|
|
|
$51.00
- $60.25 |
|
|
|
980,000 |
|
01/01/10
- 12/31/10
|
Sales
Contracts
|
|
|
$56.35
- $127.00 |
|
|
|
1,120,000 |
|
01/01/10
- 12/31/11
|
As of
December 31, 2009, a hypothetical increase of 10% in the forward market price
would result in an additional fair value loss recorded for these derivative
instruments of $1.0 million. A hypothetical decrease of 10% in the
forward market price would result in a reduction in the fair value loss recorded
for these derivative instruments of $1.0 million.
Item
8. Financial Statements and Supplementary Data
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Massey Energy Company
We have
audited the accompanying consolidated balance sheets of Massey Energy Company as
of December 31, 2009 and 2008, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2009. Our audits also included the financial statement
schedule listed in Item 15(a). These financial statements and schedule are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Massey Energy Company
at December 31, 2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As
discussed in Note 6 to the consolidated financial statements, in 2009 the
Company changed its method for accounting for convertible debt instruments with
the adoption of the guidance originally issued in the accounting provisions of
Financial Accounting Standards Board (FASB) Staff Position ABP 14-1, Accounting
for Convertible Debt Instruments That May be Settled in Cash upon Conversion
(codified in FASB ASC Topic 470, Debt) effective January 1,
2009. Also, as discussed in Note 7 to the consolidated financial
statements, in 2007 the Company changed its method for accounting for income
taxes to comply with the guidance originally issued in FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes (codified in FASB ASC Topic 740,
Income Taxes).
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Massey Energy Company’s internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 1, 2010
expressed an unqualified opinion thereon.
/s/Ernst
& Young LLP
Richmond,
Virginia
March 1,
2010
MASSEY
ENERGY COMPANY
|
|
CONSOLIDATED
STATEMENTS OF INCOME
|
|
(In
Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
As
Adjusted
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Produced
coal revenue
|
|
$ |
2,318,489 |
|
|
$ |
2,559,929 |
|
|
$ |
2,054,413 |
|
Freight
and handling revenue
|
|
|
218,203 |
|
|
|
306,397 |
|
|
|
167,641 |
|
Purchased
coal revenue
|
|
|
62,721 |
|
|
|
30,684 |
|
|
|
108,191 |
|
Other
revenue
|
|
|
91,746 |
|
|
|
92,779 |
|
|
|
83,278 |
|
Total
revenues
|
|
|
2,691,159 |
|
|
|
2,989,789 |
|
|
|
2,413,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of produced coal revenue
|
|
|
1,850,058 |
|
|
|
1,910,953 |
|
|
|
1,641,774 |
|
Freight
and handling costs
|
|
|
218,203 |
|
|
|
306,397 |
|
|
|
167,641 |
|
Cost
of purchased coal revenue
|
|
|
57,108 |
|
|
|
28,517 |
|
|
|
95,241 |
|
Depreciation,
depletion and amortization, applicable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of produced coal revenue
|
|
|
268,317 |
|
|
|
253,737 |
|
|
|
242,755 |
|
Selling,
general and administrative
|
|
|
1,860 |
|
|
|
3,590 |
|
|
|
3,280 |
|
Selling,
general and administrative
|
|
|
97,381 |
|
|
|
77,015 |
|
|
|
75,845 |
|
Other
expense
|
|
|
8,705 |
|
|
|
3,207 |
|
|
|
7,308 |
|
Litigation
charge
|
|
|
- |
|
|
|
250,061 |
|
|
|
- |
|
Loss
on financing transactions
|
|
|
189 |
|
|
|
5,006 |
|
|
|
- |
|
(Gain)
loss on derivative instruments
|
|
|
(37,638 |
) |
|
|
22,552 |
|
|
|
- |
|
Total
costs and expenses
|
|
|
2,464,183 |
|
|
|
2,861,035 |
|
|
|
2,233,844 |
|
Income
before interest and taxes
|
|
|
226,976 |
|
|
|
128,754 |
|
|
|
179,679 |
|
Interest
income
|
|
|
12,583 |
|
|
|
23,576 |
|
|
|
23,969 |
|
Interest
expense
|
|
|
(102,294 |
) |
|
|
(96,866 |
) |
|
|
(74,145 |
) |
Loss
on short-term investment
|
|
|
- |
|
|
|
(6,537 |
) |
|
|
- |
|
Income
before taxes
|
|
|
137,265 |
|
|
|
48,927 |
|
|
|
129,503 |
|
Income
tax expense
|
|
|
(32,832 |
) |
|
|
(1,098 |
) |
|
|
(35,405 |
) |
Net
income
|
|
$ |
104,433 |
|
|
$ |
47,829 |
|
|
$ |
94,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.23 |
|
|
$ |
0.58 |
|
|
$ |
1.17 |
|
Diluted
|
|
$ |
1.22 |
|
|
$ |
0.58 |
|
|
$ |
1.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used to calculate income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
84,992 |
|
|
|
81,816 |
|
|
|
80,123 |
|
Diluted
|
|
|
85,598 |
|
|
|
82,895 |
|
|
|
80,654 |
|
See Notes
to Consolidated Financial Statements
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(In
Thousands, Except Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
As
Adjusted
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
665,762 |
|
|
$ |
606,997 |
|
|
Short-term
investment
|
|
|
10,864 |
|
|
|
39,383 |
|
|
Trade
and other accounts receivable, less allowance of $1,303 and
$873,
|
|
|
|
|
|
|
|
|
|
respectively
|
|
|
121,577 |
|
|
|
233,266 |
|
|
Inventories
|
|
|
269,826 |
|
|
|
233,168 |
|
|
Income
taxes receivable
|
|
|
10,546 |
|
|
|
6,621 |
|
|
Other
current assets
|
|
|
235,990 |
|
|
|
116,061 |
|
|
Total
current assets
|
|
|
1,314,565 |
|
|
|
1,235,496 |
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
2,344,770 |
|
|
|
2,297,696 |
|
Other
noncurrent assets
|
|
|
140,336 |
|
|
|
139,186 |
|
|
Total
assets
|
|
$ |
3,799,671 |
|
|
$ |
3,672,378 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable, principally trade and bank overdrafts
|
|
$ |
164,979 |
|
|
$ |
244,201 |
|
|
Short-term
debt
|
|
|
23,531 |
|
|
|
1,976 |
|
|
Payroll
and employee benefits
|
|
|
63,590 |
|
|
|
56,959 |
|
|
Other
current liabilities
|
|
|
192,835 |
|
|
|
201,017 |
|
|
Total
current liabilities
|
|
|
444,935 |
|
|
|
504,153 |
|
Noncurrent
Liabilities
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
1,295,555 |
|
|
|
1,310,181 |
|
|
Deferred
income taxes
|
|
|
209,230 |
|
|
|
177,294 |
|
|
Pension
obligation
|
|
|
55,610 |
|
|
|
63,304 |
|
|
Other
noncurrent liabilities
|
|
|
538,058 |
|
|
|
490,834 |
|
|
Total
noncurrent liabilities
|
|
|
2,098,453 |
|
|
|
2,041,613 |
|
|
Total
liabilities
|
|
|
2,543,388 |
|
|
|
2,545,766 |
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
|
|
Preferred
– authorized 20,000,000 shares without par value; none
issued
|
|
|
- |
|
|
|
- |
|
|
Common
– authorized 150,000,000 shares of $0.625 par value;
issued
|
|
|
|
|
|
|
|
|
|
86,213,582
and 85,447,970 shares, respectively
|
|
|
53,868 |
|
|
|
53,378 |
|
|
Additional
capital
|
|
|
568,995 |
|
|
|
542,519 |
|
|
Retained
earnings
|
|
|
716,089 |
|
|
|
632,077 |
|
|
Accumulated
other comprehensive loss
|
|
|
(82,669 |
) |
|
|
(101,362 |
) |
|
Total
shareholders’ equity
|
|
|
1,256,283 |
|
|
|
1,126,612 |
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
3,799,671 |
|
|
$ |
3,672,378 |
|
See Notes
to Consolidated Financial Statements.
|
|
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
As
Adjusted
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
104,433 |
|
|
$ |
47,829 |
|
|
$ |
94,098 |
|
Adjustments
to reconcile Net income to Cash provided by operating
|
|
|
|
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
270,177 |
|
|
|
257,327 |
|
|
|
246,035 |
|
Bond
discount amortization
|
|
|
19,054 |
|
|
|
8,028 |
|
|
|
- |
|
Share-based
compensation expense
|
|
|
12,747 |
|
|
|
13,856 |
|
|
|
17,095 |
|
Deferred
income taxes
|
|
|
18,407 |
|
|
|
5,573 |
|
|
|
27,403 |
|
Gain
on disposal of assets
|
|
|
(15,984 |
) |
|
|
(2,926 |
) |
|
|
(6,751 |
) |
Gain
on reserve exchanges
|
|
|
(26,537 |
) |
|
|
(32,449 |
) |
|
|
(10,284 |
) |
Reserve
on note receivable
|
|
|
6,000 |
|
|
|
- |
|
|
|
- |
|
Loss
on financing transactions
|
|
|
369 |
|
|
|
11,431 |
|
|
|
- |
|
Net
unrealized (gains) losses in derivative instruments
|
|
|
(53,116 |
) |
|
|
22,552 |
|
|
|
- |
|
Unrealized
loss on short-term investment
|
|
|
- |
|
|
|
6,537 |
|
|
|
- |
|
Accretion
of asset retirement obligations
|
|
|
13,991 |
|
|
|
11,844 |
|
|
|
11,758 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
(increase) in accounts receivable
|
|
|
100,020 |
|
|
|
(77,953 |
) |
|
|
19,253 |
|
(Increase)
decrease in inventories
|
|
|
(36,658 |
) |
|
|
(49,808 |
) |
|
|
7,696 |
|
(Increase)
decrease in income taxes receivable
|
|
|
(2,350 |
) |
|
|
10,048 |
|
|
|
(35,714 |
) |
(Increase)
decrease in other current assets
|
|
|
(67,075 |
) |
|
|
49,079 |
|
|
|
6,382 |
|
Increase
in other assets
|
|
|
(1,589 |
) |
|
|
(9,621 |
) |
|
|
(5,362 |
) |
(Decrease)
increase in accounts payable
|
|
|
(79,222 |
) |
|
|
95,995 |
|
|
|
31,049 |
|
Increase
(decrease) in other accrued liabilities
|
|
|
9,882 |
|
|
|
21,189 |
|
|
|
(558 |
) |
Increase
in pension obligation
|
|
|
10,796 |
|
|
|
1,625 |
|
|
|
5,171 |
|
Increase
(decrease) in other noncurrent liabilities
|
|
|
10,916 |
|
|
|
(118 |
) |
|
|
(212 |
) |
Asset
retirement obligation payments
|
|
|
(5,352 |
) |
|
|
(4,957 |
) |
|
|
(11,061 |
) |
Cash
provided by operating activities
|
|
|
288,909 |
|
|
|
385,081 |
|
|
|
395,998 |
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(274,552 |
) |
|
|
(736,529 |
) |
|
|
(270,461 |
) |
Redesignation
of cash equivalent to short-term investment
|
|
|
- |
|
|
|
(217,900 |
) |
|
|
- |
|
Proceeds
from redemption of short-term investment
|
|
|
28,519 |
|
|
|
171,980 |
|
|
|
- |
|
Proceeds
from sale of assets
|
|
|
19,010 |
|
|
|
5,958 |
|
|
|
28,118 |
|
Proceeds
from insurance recovery
|
|
|
15,395 |
|
|
|
- |
|
|
|
- |
|
Cash
utilized by investing activities
|
|
|
(211,628 |
) |
|
|
(776,491 |
) |
|
|
(242,343 |
) |
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
- |
|
|
|
258,188 |
|
|
|
- |
|
Stock
repurchase
|
|
|
- |
|
|
|
- |
|
|
|
(29,991 |
) |
Repayments
of capital lease obligations
|
|
|
(2,584 |
) |
|
|
(1,911 |
) |
|
|
(2,409 |
) |
Proceeds
from issuance of 3.25% convertible senior notes
|
|
|
- |
|
|
|
674,136 |
|
|
|
- |
|
Repurchase
of 3.25% convertible senior notes
|
|
|
(9,982 |
) |
|
|
(10,450 |
) |
|
|
- |
|
Tender
payment for 6.625% senior notes
|
|
|
- |
|
|
|
(322,139 |
) |
|
|
- |
|
Redemption
of 4.75% convertible senior notes
|
|
|
(70 |
) |
|
|
- |
|
|
|
- |
|
Proceeds
from sale-leaseback transactions
|
|
|
- |
|
|
|
41,318 |
|
|
|
13,146 |
|
Cash
dividends paid
|
|
|
(20,421 |
) |
|
|
(21,310 |
) |
|
|
(12,837 |
) |
Proceeds
from stock options exercised
|
|
|
11,306 |
|
|
|
16,519 |
|
|
|
4,001 |
|
Excess
income tax benefit (expense) from stock option exercises
|
|
|
3,235 |
|
|
|
(1,164 |
) |
|
|
410 |
|
Cash
(utilized) provided by financing activities
|
|
|
(18,516 |
) |
|
|
633,187 |
|
|
|
(27,680 |
) |
Increase
in cash and cash equivalents
|
|
|
58,765 |
|
|
|
241,777 |
|
|
|
125,975 |
|
Cash
and cash equivalents at beginning of period
|
|
|
606,997 |
|
|
|
365,220 |
|
|
|
239,245 |
|
Cash
and cash equivalents at end of period
|
|
$ |
665,762 |
|
|
$ |
606,997 |
|
|
$ |
365,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for income taxes
|
|
$ |
13,539 |
|
|
$ |
4,219 |
|
|
$ |
34,502 |
|
See Notes
to Consolidated Financial Statements.
MASSEY
ENERGY COMPANY
|
|
CONSOLIDATED
STATEMENT OF SHAREHOLDERS' EQUITY
|
|
(In Thousands, Except
Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Shareholders'
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Stock
|
|
|
Equity
|
|
Balance
at December 31, 2006
|
|
|
81,066 |
|
|
$ |
51,458 |
|
|
$ |
220,650 |
|
|
$ |
515,894 |
|
|
$ |
(40,716 |
) |
|
$ |
(49,995 |
) |
|
$ |
697,291 |
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,098 |
|
|
|
|
|
|
|
|
|
|
|
94,098 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
and postretirement plans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of deferred tax of $8,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,692 |
|
|
|
|
|
|
|
13,692 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,790 |
|
Adoption
of accounting standards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertainty
in income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,182 |
|
|
|
|
|
|
|
|
|
|
|
5,182 |
|
Dividends
declared ($0.17 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,587 |
) |
|
|
|
|
|
|
|
|
|
|
(13,587 |
) |
Stock
option expense
|
|
|
|
|
|
|
|
|
|
|
8,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,308 |
|
Exercise
of stock options
|
|
|
299 |
|
|
|
188 |
|
|
|
3,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,001 |
|
Stock
option tax benefit
|
|
|
|
|
|
|
|
|
|
|
410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
410 |
|
Restricted
stock
|
|
|
155 |
|
|
|
97 |
|
|
|
4,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,600 |
|
Share
repurchase
|
|
|
(1,576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,991 |
) |
|
|
(29,991 |
) |
Balance
at December 31, 2007
|
|
|
79,944 |
|
|
$ |
51,743 |
|
|
$ |
237,684 |
|
|
$ |
601,587 |
|
|
$ |
(27,024 |
) |
|
$ |
(79,986 |
) |
|
$ |
784,004 |
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,829 |
|
|
|
|
|
|
|
|
|
|
|
47,829 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
and postretirement plans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of deferred tax of $47,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74,338 |
) |
|
|
|
|
|
|
(74,338 |
) |
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,509 |
) |
Adoption
of accounting standards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
component of 3.25%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
senior notes
|
|
|
|
|
|
|
|
|
|
|
98,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,397 |
|
Dividends
declared ($0.21 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,339 |
) |
|
|
|
|
|
|
|
|
|
|
(17,339 |
) |
Stock
option expense
|
|
|
|
|
|
|
|
|
|
|
8,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,204 |
|
Exercise
of stock options
|
|
|
787 |
|
|
|
492 |
|
|
|
16,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,519 |
|
Stock
option tax expense
|
|
|
|
|
|
|
|
|
|
|
(1,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,164 |
) |
Restricted
stock
|
|
|
300 |
|
|
|
185 |
|
|
|
5,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,652 |
|
Issuance
of stock for debt conversion
|
|
|
34 |
|
|
|
21 |
|
|
|
639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
660 |
|
Issuance
of additional common shares
|
|
|
4,370 |
|
|
|
937 |
|
|
|
177,265 |
|
|
|
|
|
|
|
|
|
|
|
79,986 |
|
|
|
258,188 |
|
Balance
at December 31, 2008 (As Adjusted)
|
|
|
85,435 |
|
|
$ |
53,378 |
|
|
$ |
542,519 |
|
|
$ |
632,077 |
|
|
$ |
(101,362 |
) |
|
$ |
- |
|
|
$ |
1,126,612 |
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,433 |
|
|
|
|
|
|
|
|
|
|
|
104,433 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
and postretirement plans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of deferred tax of $9,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,693 |
|
|
|
|
|
|
|
18,693 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,126 |
|
Dividends
declared ($0.24 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,421 |
) |
|
|
|
|
|
|
|
|
|
|
(20,421 |
) |
Stock
option expense
|
|
|
|
|
|
|
|
|
|
|
6,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,197 |
|
Exercise
of stock options
|
|
|
515 |
|
|
|
321 |
|
|
|
10,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,306 |
|
Stock
option tax benefit
|
|
|
|
|
|
|
|
|
|
|
3,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,235 |
|
Restricted
stock
|
|
|
262 |
|
|
|
169 |
|
|
|
6,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,550 |
|
Equity
component of 3.25%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
senior notes |
|
|
|
|
|
|
|
|
|
|
(322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(322 |
) |
Balance
at December 31, 2009
|
|
|
86,212 |
|
|
$ |
53,868 |
|
|
$ |
568,995 |
|
|
$ |
716,089 |
|
|
$ |
(82,669 |
) |
|
$ |
- |
|
|
$ |
1,256,283 |
|
See Notes
to Consolidated Financial Statements.
1.
Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements include the accounts of Massey
Energy Company (“we”, “our”, or “us”), its wholly owned and sole, direct
operating subsidiary A.T. Massey Coal Company, Inc. (“A.T. Massey”) and A.T.
Massey’s wholly owned direct and indirect subsidiaries. Inter-company
transactions and accounts are eliminated in consolidation. We have no
independent assets or operations. We do not have a controlling interest in any
separate independent operations. Investments in business entities in which we do
not have control, but have the ability to exercise significant influence over
the operating and financial policies, are accounted for under the equity
method.
A.T.
Massey and substantially all of our indirect operating subsidiaries, each such
subsidiary being indirectly 100% owned by us, fully and unconditionally, jointly
and severally, guarantees our obligations under the 6.625% senior notes due 2010
(“6.625% Notes”), the 6.875% senior notes due 2013 (“6.875% Notes”), the 3.25%
convertible senior notes due 2015 (“3.25% Notes”) and the 2.25% convertible
senior notes due 2024 (“2.25% Notes”). The subsidiaries not providing
a guarantee of the 6.625% Notes, the 6.875% Notes, the 3.25% Notes and the 2.25%
Notes are minor (as defined under Securities and Exchange Commission (“SEC”)
Rule 3-10(h)(6) of Regulation S-X). See Note 6 for a more complete discussion of
debt.
In May
2009, the Financial Accounting Standards Board (“FASB”) issued accounting
guidance, effective for financial statements issued for interim and annual
periods ending after June 15, 2009, which requires us to disclose the date
through which we have evaluated subsequent events and whether the date
corresponds with the release of our financial statements. We have evaluated
subsequent events through the date the financial statements were
issued.
Codification
Use
of Estimates
The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect reported amounts. These estimates are based on
information available as of the date of the financial statements. Therefore,
actual results could differ from those estimates. The most significant estimates
used in the preparation of the consolidated financial statements are related to
defined benefit pension plans, coal workers’ pneumoconiosis (“black lung”),
workers’ compensation, other postretirement benefits, reclamation and mine
closure obligations, contingencies, income taxes, coal reserve estimates, stock
options and derivative instruments.
Fair
Value Measurements
We
adopted new accounting guidance on January 1, 2008 and 2009, for financial and
non-financial assets and liabilities, respectively, that requires their
categorization based upon three levels of judgment associated with the inputs
used to measure their fair value. Neither adoption had a material impact on our
financial position or results of operations. See Note 16 to the Notes to
Consolidated Financial Statements for more information.
Revenue
Recognition
Produced
coal revenue is realized and earned when title passes to the customer. Coal
sales are made to our customers under the terms of coal supply agreements, most
of which are long-term (one year or greater). Under the typical terms of these
coal supply agreements, title and risk of loss transfer to the customer at the
mine, dock, or port, where coal is loaded to the rail, barge, ocean-going
vessel, truck or other transportation source(s) that serves each of our mines.
We incur certain “add-on” taxes and fees on coal sales. Coal sales reported in
Produced coal revenues include these “add-on” taxes and fees charged by various
federal and state governmental bodies.
Freight
and handling revenue consists of shipping and handling costs invoiced to coal
customers and paid to third-party carriers. These revenues are directly offset
by Freight and handling costs.
Purchased
coal revenue represents revenue recognized from the sale of coal purchased from
third-party production sources. We take title to the purchased coal, which we
then resell to our customers. Typically, title and risk of loss transfer to the
customer at the mine, dock or port, where coal is loaded to the rail, barge,
ocean-going vessel, truck or other transportation source(s).
Other
revenue includes refunds on railroad agreements, royalties related to coal lease
agreements, gas well revenue, gains on the sale of non-strategic assets and
reserve exchanges, joint venture revenue and other miscellaneous revenue.
Royalty income generally results from the lease or sublease of mineral rights to
third parties, with payments based upon a percentage of the selling price or an
amount per ton of coal produced. Certain agreements require minimum lease
payments regardless of the extent to which minerals are produced from the
leasehold. The terms of these agreements generally range from specified periods
of 5 to 10 years, or can be for an unspecified period until all reserves are
depleted.
Derivative
Instruments
Effective
January 1, 2009, we adopted new accounting guidance related to disclosures about
derivative instruments, which was issued to require disclosures providing an
enhanced understanding of how and why derivative instruments are used, how they
are accounted for and their effect on an entity’s financial condition,
performance and cash flows. See Note 15 to the Notes to Consolidated Financial
Statements for more information. Our coal sales and coal purchase
contracts that do not qualify for the normal purchase normal sale (“NPNS”)
exception as prescribed by current accounting guidance are offset on a
counterparty-by-counterparty basis for derivative instruments executed with the
same counterparty under a master netting arrangement.
Cash
and Cash Equivalents
Cash and
cash equivalents are stated at cost, which approximates fair value. Cash
equivalents are primarily invested in money market funds, which consist of
highly liquid investments with maturities of 90 days or less at the date of
purchase.
Short-Term
Investment
Short-term
investment is comprised of an investment in The Reserve Primary Fund (“Primary
Fund”), a money market fund that suspended redemptions in September 2008
and is being liquidated. Upon suspension of redemptions, we determined that our
investment in the Primary Fund did not meet the definition of a security, within
the scope of current accounting guidance, since the equity investment no longer
had a readily determinable fair value. Therefore, the investment has been
classified as a short-term investment, subject to the cost method of accounting,
on our Consolidated Balance Sheets.
Trade
Receivables
Trade
accounts receivable are recorded at the invoiced amount and are non-interest
bearing. We maintain a bad debt reserve based upon the expected collectibility
of our accounts receivable. The reserve includes specific amounts for accounts
that are likely to be uncollectible, as determined by such variables as customer
creditworthiness, the age of the receivables, bankruptcies and disputed amounts.
Account balances are charged off against the reserve after all means of
collection have been exhausted and the potential for recovery is considered
remote.
Inventories
Produced
coal and supplies inventories generally are stated at the lower of average cost
or net realizable value. Coal inventory costs include labor, supplies,
equipment, operating overhead and other related costs. Purchased coal
inventories are stated at the lower of cost, computed on the first-in, first-out
method, or net realizable value.
Surface
mine stripping costs
We
account for the costs of removing overburden and waste materials (stripping
costs) at surface mines differently, depending upon whether the costs are
incurred prior to producing coal (pre-production) versus after a more than de
minimis amount of shippable product is produced (post-production).
Production-related stripping costs are only included as a component of inventory
if they are associated with extracted or saleable
inventories. Pre-production stripping costs are capitalized
in mine development and amortized over the life of the developed pit consistent
with coal industry practices. Post-production stripping costs are
expensed as incurred and recorded as Cost of produced coal
revenue.
Pre-production
stripping costs – At existing surface operations, additional pits may be added
to increase production capacity in order to meet customer requirements. These
expansions may require significant capital to purchase additional equipment,
expand the workforce, build or improve existing haul roads and create the
initial pre-production box cut to remove overburden (i.e. advance stripping
costs) for new pits at existing operations. If these pits operate in a separate
and distinct area of the mine, the costs associated with initially uncovering
coal (i.e. advance stripping costs incurred for the initial box cuts) for
production are capitalized in mine development and amortized over the life of
the developed pit consistent with coal industry practices.
Post-production
stripping costs – Where new pits are routinely developed as part of a contiguous
mining sequence, we expense such costs as incurred. The development of a
contiguous pit typically reflects the planned progression of an existing pit,
thus maintaining production levels from the same mining area utilizing the same
employee group and equipment.
Income
Taxes
We
account for income taxes under the liability method, which requires that
deferred tax assets and liabilities be recognized using enacted tax rates for
the effect of temporary differences between the book and tax bases of recorded
assets and liabilities. It also requires that deferred tax assets be reduced by
a valuation allowance if it is more likely than not that some portion of the
deferred tax asset will not be realized. In evaluating the need for a valuation
allowance, we take into account various factors, including carrybacks, the
expected level of future taxable income and available tax planning strategies.
If actual results differ from the assumptions made in the evaluation of our
valuation allowance, we record a change in valuation allowance through income
tax expense in the period such determination is made.
A tax
position is initially recognized in the financial statements when it is more
likely than not the position will be sustained upon examination by applicable
taxing authorities. Such tax positions are initially and subsequently measured
as the largest amount of tax benefit that is more likely than not to be realized
upon ultimate settlement with the taxing authority assuming full knowledge of
the position and all relevant facts. We accrue interest and penalties, if any,
related to unrecognized tax benefits in Other noncurrent liabilities and
recognize the related expense in Income tax expense.
Property,
Plant and Equipment
Property,
plant and equipment are carried at cost and stated net of accumulated
depreciation. Expenditures that extend the useful lives of existing buildings
and equipment are capitalized. Maintenance and repairs are expensed as incurred.
Coal exploration costs are expensed as incurred. Costs incurred to maintain
current production capacity at a mine and exploration expenditures are charged
to operating costs as incurred, including costs related to drilling and study
costs incurred to convert or upgrade mineral resources to reserves. Development
costs, including pre-production stripping costs, applicable to the opening of
new coal mines and certain mine expansion projects are capitalized until
production begins. When properties are retired or otherwise disposed, the
related cost and accumulated depreciation are removed from the respective
accounts and any profit or loss on disposition is credited or charged to Other
revenue.
Our coal
reserves are controlled either through direct ownership or through leasing
arrangements. Mining properties owned in fee represent owned coal properties
carried at cost. Leased mineral rights represent leased coal properties carried
at the cost of acquiring those leases. The leases are generally long-term in
nature (original term five to fifty years or until the mineable and merchantable
coal reserves are exhausted), and substantially all of the leases contain
provisions that allow for automatic extension of the lease term as long as
mining continues.
Depreciation
of buildings, plants and equipment is calculated on the straight-line method
over their estimated useful lives or lease terms as follows:
|
Years |
Buildings
and plants
|
20
to 30
|
Equipment
|
3
to 20
|
Capital
leases
|
4
to 7
|
Ownership
of assets under capital leases transfers to us at the end of the lease term.
Depreciation of assets under capital leases is included within Depreciation,
depletion and amortization.
Amortization
of development costs is computed using the units-of-production method over the
estimated proven and probable reserve tons.
Depletion
of mining properties owned in fee and leased mineral rights is computed using
the units-of-production method over the estimated proven and probable reserve
tons (as adjusted for recoverability factors). As of December 31, 2009,
approximately $168.9 million of costs associated with mining properties owned in
fee and leased mineral rights are not currently subject to depletion as mining
has not begun or production has been temporarily idled on the associated coal
reserves.
We
capitalize certain costs incurred in the development of internal-use software,
including external direct material and service costs. All costs capitalized are
amortized using the straight-line method over the estimated useful life not to
exceed 7 years.
Impairment
of Long-Lived Assets
Impairment
of long-lived assets is recorded when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets’ carrying value. The carrying value of the assets is then
reduced to their estimated fair value, which is usually measured based on an
estimate of future discounted cash flows. There were no material impairment
losses recorded during the periods covered by the consolidated financial
statements.
Advance
Mining Royalties
Coal
leases that require minimum annual or advance payments and are recoverable from
future production are generally deferred and charged to expense as the coal is
subsequently produced. At December 31, 2009 and 2008, advance mining royalties
included in Other noncurrent assets totaled $40.4 million and $35.3 million, net
of an allowance of $12.8 million and $14.7 million, respectively.
Reclamation
We record
asset retirement obligations (“ARO”) as a liability based on fair value, which
is calculated as the present value of the estimated future cash flows, in the
period in which it is incurred. Management and engineers periodically review the
estimate of ultimate reclamation liability and the expected period in which
reclamation work will be performed. In estimating future cash flows, we consider
the estimated current cost of reclamation and apply inflation rates and a
third-party profit, as necessary. The third-party profit is an estimate of the
approximate markup that would be charged by contractors for work performed on
our behalf. When the liability is initially recorded, the offset is capitalized
by increasing the carrying amount of the related long-lived asset. Over time,
the liability is accreted to its present value each period, and the capitalized
cost is depreciated over the useful life of the related asset. Accretion expense
is included in Cost of produced coal revenue. To settle the liability, the
obligation is paid, and to the extent there is a difference between the
liability and the amount of cash paid, a gain or loss upon settlement is
incurred. Additionally, we perform a certain amount of required reclamation of
disturbed acreage as an integral part of our normal mining process; these costs
are expensed as incurred. See Note 9 for a more complete discussion of our
reclamation liability.
Pension
Plans
We
sponsor a noncontributory defined benefit pension plan covering substantially
all administrative and non-union employees. Our policy is to annually fund the
defined benefit pension plan at or above the minimum amount required by law. We
also sponsor a nonqualified supplemental benefit pension plan for certain
salaried employees, which is unfunded.
Costs of
benefits to be provided under our defined benefit pension plans are accrued over
the employees’ estimated remaining service life. These costs are determined on
an actuarial basis. We recognize the funded status of our benefit
plans in our Consolidated Balance Sheet and recognize as a component of
Accumulated other comprehensive loss, net of tax, the gains or losses and prior
service costs or credits that arise during the period but are not recognized as
components of net periodic benefit cost. These amounts will be adjusted as they
are subsequently recognized as components of net periodic benefit cost. See Note
5 for a more complete discussion of our pension plans.
Black
Lung Benefits
We are
responsible under the Federal Coal Mine Health and Safety Act of 1969, as
amended, and under various states’ statutes for the payment of medical and
disability benefits to employees and their dependents resulting from occurrences
of black lung. We provide for federal and state black lung claims principally
through a self-insurance program.
Costs of
benefits to be provided under our accumulated black lung obligations are accrued
over the employees’ estimated remaining service life. These costs are determined
on an actuarial basis. We recognize the funded status of our black lung
obligations in our Consolidated Balance Sheet and recognize as a component of
Accumulated other comprehensive loss, net of tax, the gains or losses and prior
service costs or credits that arise during the period but are not recognized as
components of net periodic benefit cost. We use the service cost method to
account for our self-insured black lung obligation. The liability measured under
the service cost method represents the discounted future estimated cost for
former employees either receiving or projected to receive benefits, and the
portion of the projected liability relative to prior service for active
employees projected to receive benefits. Expense for black lung under the
service cost method represents the service cost, which is the portion of the
present value of benefits allocated to the current year, interest on the
accumulated benefit obligation, and amortization of unrecognized actuarial gains
and losses. We amortize unrecognized actuarial gains and losses over a five-year
period. See Note 11 for a more complete discussion of black lung
benefits.
Workers’
Compensation
We are
liable for workers’ compensation benefits for traumatic injuries under state
workers’ compensation laws in states in which we have operations. Our operations
have workers’ compensation coverage through a combination of either a
self-insurance program, or commercial insurance through a deductible or first
dollar insurance policy. We record our self-insured liability on a discounted
actuarial basis using various assumptions, including discount rate and future
cost trends. See Note 11 for a more complete discussion of workers’ compensation
benefits.
Postretirement
Benefits Other than Pensions
We
sponsor defined benefit health care plans that provide postretirement medical
benefits to eligible union and non-union members. Costs of benefits to be
provided under our postretirement benefits other than pensions are accrued over
the employees’ estimated remaining service life. These costs are determined on
an actuarial basis. We recognize the funded status of our benefit plans in our
Consolidated Balance Sheet and recognize as a component of Accumulated other
comprehensive loss, net of tax, the gains or losses and prior service costs or
credits that arise during the period but are not recognized as components of net
periodic benefit cost. These amounts will be adjusted as they are subsequently
recognized as components of net periodic benefit cost.
Under the
Coal Industry Retiree Health Benefits Act of 1992 (the “Coal Act”), coal
producers are required to fund medical and death benefits of certain retired
union coal workers based on premiums assessed by the United Mine Workers of
America (“UMWA”) Benefit Funds. We treat our obligation under the Coal Act as
participation in a multi-employer plan as permitted by GAAP and record the cost
of our obligation as expense as payments are assessed. See Note 10 for a more
complete discussion of postretirement benefits other than pensions.
Stock-based
Compensation
We
measure the compensation cost of equity instruments based on their grant-date
fair value, which is recognized as expense on a straight-line basis over the
corresponding vesting period. We use the Black-Scholes option-pricing model to
determine the fair value of stock options as of the date of grant and certain
liability awards with option characteristics (i.e., stock appreciation rights,
or “SARs”). See Note 12 for a more complete discussion of stock-based
compensation.
Convertible
Debt Securities
On
January 1, 2009, new accounting guidance became effective relating to our 3.25%
Notes. The guidance applies to all convertible debt instruments that have a
‘‘net settlement feature,’’ which means that such convertible debt instruments,
by their terms, may be settled either wholly or partially in cash upon
conversion. Issuers of convertible debt instruments that may be settled wholly
or partially in cash upon conversion are required to separately account for the
liability and equity components in a manner reflective of the issuers’
nonconvertible debt borrowing rate. The issuer must determine the estimated fair
value of a similar debt instrument as of the date of the issuance without the
conversion feature but inclusive of any other embedded features and assign that
value to the debt component of the instrument, which results in a discount being
recorded. The debt discount is subsequently accreted through interest
expense to its par value over its expected life using the
market
rate at the date of issuance. The residual value between the initial
proceeds and the value allocated to the debt is reflected in equity as
additional paid in capital. Upon adoption on January 1, 2009, the provisions
were retroactively applied, as required.
The
adoption impacted the historical accounting for our 3.25% Notes which resulted
in the adjustment of our Consolidated Statement of Income for the year ended
December 31, 2008 and our Consolidated Balance Sheet as of December 31, 2008, as
noted in the following tables. The reconciliation of Net income to Cash provided
by operating activities for the year ended December 31, 2008 has been adjusted
within our Consolidated Statement of Cash Flows for the retroactive application
of this adoption.
|
|
Year
Ended December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
As
Originally
|
|
|
|
|
Consolidated Statement
of Income
|
|
Presented
|
|
|
As
Adjusted
|
|
|
|
(In
Thousands, Except Per Share Amounts)
|
|
|
|
|
Loss
on financing transactions
|
|
$ |
538 |
|
|
$ |
5,006 |
|
Total
costs and expenses
|
|
|
2,856,567 |
|
|
|
2,861,035 |
|
Income
before interest and taxes
|
|
|
133,222 |
|
|
|
128,754 |
|
Interest
expense
|
|
|
(89,928 |
) |
|
|
(96,866 |
) |
Income
before taxes
|
|
|
60,333 |
|
|
|
48,927 |
|
Income
tax expense
|
|
|
(4,085 |
) |
|
|
(1,098 |
) |
Net
income
|
|
|
56,248 |
|
|
|
47,829 |
|
Net
income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.69 |
|
|
$ |
0.58 |
|
Diluted
|
|
$ |
0.68 |
|
|
$ |
0.58 |
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008 |
|
|
|
2008 |
|
|
|
As
Originally
|
|
|
|
|
|
Consolidated
Balance Sheet
|
|
Presented
|
|
|
As
Adjusted
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
Other
noncurrent assets
|
|
$ |
142,644 |
|
|
$ |
139,186 |
|
Total
assets
|
|
|
3,675,836 |
|
|
|
3,672,378 |
|
Long-term
debt
|
|
|
1,463,643 |
|
|
|
1,310,181 |
|
Deferred
taxes
|
|
|
117,268 |
|
|
|
177,294 |
|
Total
noncurrent liabilities
|
|
|
2,135,049 |
|
|
|
2,041,613 |
|
Total
liabilities
|
|
|
2,639,202 |
|
|
|
2,545,766 |
|
Additional
capital
|
|
|
444,122 |
|
|
|
542,519 |
|
Retained
earnings
|
|
|
640,496 |
|
|
|
632,077 |
|
Total
shareholders’ equity
|
|
|
1,036,634 |
|
|
|
1,126,612 |
|
Total
liabilities and shareholders’ equity
|
|
|
3,675,836 |
|
|
|
3,672,378 |
|
Earnings
per Share
The
number of shares used to calculate basic earnings per share is based on the
weighted average number of our outstanding common shares during the respective
periods. The number of shares used to calculate diluted earnings per share is
based on the number of common shares used to calculate basic earnings per share
plus the dilutive effect of stock options and other stock-based instruments held
by our employees and directors during each period and debt securities currently
convertible into our common stock, $0.625 par value (“Common Stock”) during the
period. The effect of dilutive securities in the amount of 1.2 million, 0.01
million and 0.8 million for the years ended December 31, 2009, 2008 and 2007,
respectively, was excluded from the calculation of the diluted earnings per
common share as such inclusion would result in antidilution.
The
computation for basic and diluted earnings per share is based on the following
per share information:
|
|
Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
As
Adjusted
|
|
|
|
|
|
|
(In
Thousands, Except Per Share Amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net
income - numerator for basic
|
|
$ |
104,433 |
|
|
$ |
47,829 |
|
|
$ |
94,098 |
|
Effect
of convertible notes
|
|
|
174 |
|
|
|
188 |
|
|
|
200 |
|
Net
income - numerator for diluted
|
|
$ |
104,607 |
|
|
$ |
48,017 |
|
|
$ |
94,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - denominator for basic
|
|
|
84,992 |
|
|
|
81,816 |
|
|
|
80,123 |
|
Effect
of stock options/restricted stock
|
|
|
317 |
|
|
|
772 |
|
|
|
207 |
|
Effect
of convertible notes
|
|
|
289 |
|
|
|
307 |
|
|
|
324 |
|
Adjusted
weighted average shares - denominator for diluted
|
|
|
85,598 |
|
|
|
82,895 |
|
|
|
80,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.23 |
|
|
$ |
0.58 |
|
|
$ |
1.17 |
|
Diluted
|
|
$ |
1.22 |
|
|
$ |
0.58 |
|
|
$ |
1.17 |
|
2.
Inventories
Inventories
consisted of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
Thousands)
|
|
Saleable
coal
|
|
$ |
179,081 |
|
|
$ |
144,834 |
|
Raw
coal
|
|
|
36,254 |
|
|
|
16,802 |
|
Subtotal
coal inventory
|
|
|
215,335 |
|
|
|
161,636 |
|
Supplies
inventory
|
|
|
54,491 |
|
|
|
71,532 |
|
Total
inventory
|
|
$ |
269,826 |
|
|
$ |
233,168 |
|
Saleable
coal represents coal ready for sale, including inventories designated for
customer facilities under consignment arrangements of $43.7 million and $50.7
million at December 31, 2009 and 2008, respectively. Raw coal represents coal
that generally requires further processing prior to shipment to the
customer.
3.
Other Current Assets
Other
current assets are comprised of the following:
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In
Thousands)
|
|
Longwall
panel costs
|
|
$ |
12,041 |
|
|
$ |
12,290 |
|
Deposits
|
|
|
133,794 |
|
|
|
59,648 |
|
Other
|
|
|
|
90,155 |
|
|
|
44,123 |
|
|
Total
other current assets
|
|
$ |
235,990 |
|
|
$ |
116,061 |
|
Deposits
consist primarily of funds placed in restricted accounts with financial
institutions to collateralize letters of credit that support workers’
compensation requirements, insurance and other obligations. As of December 31,
2009 and 2008, Deposits includes $46.0 million of funds pledged as collateral to
support $45.1 million of outstanding letters of credit. In addition, Deposits at
December 31, 2009 and 2008, includes $12.1 million and $13.0 million of United
States Treasury securities supporting various regulatory obligations,
respectively. During 2009, we posted $72.0 million of cash as
collateral
for an
appeal bond in the Harman litigation which is included in Deposits (see
Note 18 to the Notes to Consolidated Financial Statements for more
information).
During
2009, we committed to the divestiture of certain mining equipment assets which
are not part of our short-term mining plan. At December 31, 2009, the carrying
amount of assets held for sale totaled $22.3 million and is included in
Other current assets.
4.
Property, Plant and Equipment
Property,
plant and equipment is comprised of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
Thousands)
|
|
Land,
buildings and equipment
|
|
$ |
2,631,886 |
|
|
$ |
2,538,762 |
|
Mining
properties owned in fee and leased mineral rights
|
|
|
851,704 |
|
|
|
779,932 |
|
Mine
development
|
|
|
1,131,707 |
|
|
|
1,054,631 |
|
Total
property, plant and equipment
|
|
|
4,615,297 |
|
|
|
4,373,325 |
|
Less
accumulated depreciation, depletion and amortization
|
|
|
(2,270,527 |
) |
|
|
(2,075,629 |
) |
Property,
plant and equipment, net
|
|
$ |
2,344,770 |
|
|
$ |
2,297,696 |
|
Land,
buildings and equipment includes gross assets under capital leases of $12.9
million and $17.3 million at December 31, 2009 and 2008,
respectively.
During
2009, we exchanged coal reserves and other assets with various third parties,
recognizing a gain in Other revenue of $26.5 million (pre-tax). The acquired
coal reserves and other assets were recorded in Property, plant and equipment at
the fair value of the reserves and other assets surrendered.
During
2009, we sold our interest in certain coal reserves to a third party,
recognizing a pre-tax gain of $7.1 million in Other revenue.
During
2008, we exchanged coal reserves and other assets with various third-parties,
recognizing a gain in Other revenue of $32.4 million (pre-tax). The acquired
coal reserves were recorded in Property, plant and equipment at the fair value
of the reserves surrendered.
During
2008, we sold and leased-back certain mining equipment in several transactions
for net proceeds of $41.3 million (see Note 13 for further details). During
2009, we had no material sale-leaseback transactions.
On August
27, 2009, a fire destroyed the Bandmill preparation plant at our Logan County
resource group, located near Logan, West Virginia. We maintain property
insurance which is expected to cover property losses incurred from the fire. We
received $15.4 million in insurance proceeds during 2009. A replacement
preparation plant is currently under construction, which is expected to be
operational by the fall of 2010.
5.
Pension Plans
Defined
Benefit Pension Plans
We
sponsor a qualified non-contributory defined benefit pension plan, which covers
substantially all administrative and non-union employees. Based on a
participant’s entrance date to the plan, the participant may accrue benefits
based on one of four benefit formulas. Two of the formulas provide pension
benefits based on the employee’s years of service and average annual
compensation during the highest five consecutive years of service. The third
formula credits certain eligible employees with flat dollar contributions based
on years of service with Massey and years of service under the UMWA 1974 Pension
Plan. The fourth formula provides benefits under a cash balance formula with
contribution credits based on hours worked. This last formula has a guaranteed
rate of return on contributions of 4% for all contributions after December 31,
2003. Funding for the plan is generally at the minimum contribution level
required by applicable regulations. We made contributions of $15.0 million to
the qualified plan during 2009. No contributions were made to the qualified
plan during 2008.
An
independent trustee holds the plan assets for the qualified defined benefit
pension plan. The plan’s assets include cash and cash equivalents, corporate and
government bonds, preferred and common stocks and an investment in a group
annuity contract. We have an internal investment committee (“Investment
Committee”) that sets investment policy, selects and monitors investment
managers and monitors asset allocation. Diversification of assets is employed to
reduce risk. The long-term target asset allocation is 65% for equity securities
(including 50% domestic and 15% international) and 35% for cash and interest
bearing securities. The investment policy is based on the assumption that the
overall portfolio volatility will be similar to that of the target allocation.
Given the volatility of the capital markets, strategic adjustments in various
asset classes may be required to rebalance asset allocation back to its target
policy. Investment fund managers are not permitted to invest in certain
securities and transactions as outlined by the investment policy statements
specific to each investment category without prior Investment Committee
approval.
In
January 2009, the Investment Committee decided to reduce the targeted asset
allocation for an interim period for equity securities to 25% of current plan
assets given the recent volatility and uncertainty in the equity securities
market. The Investment Committee decided to invest $65 million of
plan assets previously invested in equity securities in a fixed duration, fixed
income strategy with an effective duration of approximately four
years. The Investment Committee expects to rebalance the asset
portfolio consistent with the long-term target asset allocation at the maturity
of the fixed income, fixed duration strategy.
To
develop the expected long-term rate of return on assets assumption, we
considered the historical returns and the future expectations for returns for
each asset class, as well as the long-term target asset allocation of the
pension portfolio. This resulted in the selection of the 8.0% long-term rate of
return on assets assumption for the year ended December 31, 2009. As we plan to
return to our targeted asset allocation, we believe the expected long-term rate
of return on plan assets of 8.0% continues to be appropriate.
The asset
allocation for our funded qualified defined benefit pension plan at the end of
2009 and 2008, is as follows:
|
|
Percentage
of Plan Assets at Year End
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
Equity
securities (domestic and international)
|
|
|
29.2% |
|
|
|
54.2% |
|
Debt
securities
|
|
|
59.3% |
|
|
|
33.7% |
|
Other
(includes cash, cash equivalents and a group annuity
contract)
|
|
|
11.5% |
|
|
|
12.1% |
|
Total
fair value of plan assets
|
|
|
100.0% |
|
|
|
100.0% |
|
Under the
fair value hierarchy, our qualified defined benefit pension plan assets fall
under Level I - quoted prices
in active markets and Level II - other observable
inputs (see Note 16 to the Notes to Consolidated Financial Statements for
more information on the fair value hierarchy). The following table provides the
fair value by each major category of plan assets at December 31,
2009:
|
|
Level
1
|
|
|
Level
2
|
|
|
|
|
(In
Thousands) |
|
Equity
securities
|
|
$ |
49,461 |
|
|
$ |
- |
|
Debt
securities
|
|
|
- |
|
|
|
145,563 |
|
Common/collective
trust
|
|
|
- |
|
|
|
19,697 |
|
Commingled
short-term investment funds
|
|
|
- |
|
|
|
13,270 |
|
Insurance
contract
|
|
|
- |
|
|
|
9,204 |
|
In
addition to the qualified defined benefit pension plan noted above, we sponsor a
nonqualified supplemental benefit pension plan for certain salaried employees.
Participants in this nonqualified supplemental benefit pension plan accrue
benefits under the same formula as the qualified defined benefit pension plan,
however, where the benefit is capped by Internal Revenue Service (“IRS”)
limitations, this nonqualified supplemental benefit pension plan compensates for
benefits in excess of the IRS limit. This supplemental benefit pension plan is
unfunded, with benefit payments made by us.
The
following table sets forth the change in benefit obligation, plan assets and
funded status of both the qualified defined benefit pension plan and
nonqualified supplemental benefit pension plan:
|
|
Year
Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
Thousands)
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
Benefit
obligation at the beginning of the period
|
|
$ |
280,128 |
|
|
$ |
252,237 |
|
Service
cost
|
|
|
9,405 |
|
|
|
8,680 |
|
Interest
cost
|
|
|
16,875 |
|
|
|
15,881 |
|
Actuarial
loss
|
|
|
8,300 |
|
|
|
14,103 |
|
Benefits
paid
|
|
|
(11,290 |
) |
|
|
(10,773 |
) |
Benefit
obligation at the end of the period
|
|
|
303,418 |
|
|
|
280,128 |
|
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
Fair
value at the beginning of the period
|
|
|
207,750 |
|
|
|
291,747 |
|
Actual
return (loss) on assets
|
|
|
25,661 |
|
|
|
(73,286 |
) |
Company
contributions
|
|
|
15,074 |
|
|
|
62 |
|
Benefits
paid
|
|
|
(11,290 |
) |
|
|
(10,773 |
) |
Fair
value of plan assets at end of period
|
|
|
237,195 |
|
|
|
207,750 |
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
$ |
(66,223 |
) |
|
$ |
(72,378 |
) |
|
|
|
|
|
|
|
|
|
Qualified
defined benefit pension plan, included in Pension
obligation
|
|
$ |
(55,610 |
) |
|
$ |
(63,304 |
) |
Nonqualified
supplemental benefit pension plan, included in Other noncurrent
liabilities
|
|
|
(10,613 |
) |
|
|
(9,074 |
) |
Accrued
Pension obligation recognized, net
|
|
$ |
(66,223 |
) |
|
$ |
(72,378 |
) |
The table
below details the changes to Accumulated other comprehensive loss related to
defined benefit pension plans:
|
|
Year
Ended
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
(In
Thousands)
|
|
|
|
Net
loss
|
|
|
Prior
service cost
|
|
|
Net
loss
|
|
|
Prior
service cost
|
|
January
1 beginning balance
|
|
|
89,260 |
|
|
|
34 |
|
|
|
22,482 |
|
|
|
60 |
|
Changes
to Accumulated other comprehensive loss
|
|
|
(11,254 |
) |
|
|
(25 |
) |
|
|
66,778 |
|
|
|
(26 |
) |
December
31 ending balance
|
|
$ |
78,006 |
|
|
$ |
9 |
|
|
$ |
89,260 |
|
|
$ |
34 |
|
We expect
the estimated net loss and prior service cost for the defined benefit pension
plan that will be amortized from accumulated other comprehensive income into net
periodic benefit cost over the next fiscal year to be $14.0 million and $5,000,
respectively.
The
assumptions used in determining pension benefit obligations for both the
qualified defined benefit pension plan and nonqualified supplemental benefit
pension plan are as follows:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Discount
rates
|
|
|
6.00% |
|
|
|
6.10% |
|
Rates
of increase in compensation levels
|
|
|
3.00% |
|
|
|
4.00% |
|
Net
periodic pension expense for both the qualified defined benefit pension plan and
nonqualified supplemental benefit pension plan includes the following
components:
|
|
Year
Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
Thousands)
|
|
Service
cost
|
|
$ |
9,405 |
|
|
$ |
8,680 |
|
|
$ |
9,716 |
|
Interest
cost
|
|
|
16,875 |
|
|
|
15,881 |
|
|
|
15,023 |
|
Expected
return on plan assets
|
|
|
(16,359 |
) |
|
|
(22,852 |
) |
|
|
(22,427 |
) |
Recognized
loss
|
|
|
17,447 |
|
|
|
770 |
|
|
|
4,068 |
|
Amortization
of prior service cost
|
|
|
41 |
|
|
|
42 |
|
|
|
39 |
|
Net
periodic pension expense
|
|
$ |
27,409 |
|
|
$ |
2,521 |
|
|
$ |
6,419 |
|
The
assumptions used in determining pension expense for both the qualified defined
benefit pension plan and nonqualified supplemental benefit pension plan are as
follows:
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Discount
rates
|
|
|
6.10% |
|
|
|
6.50% |
|
|
|
5.90% |
|
Rates
of increase in compensation levels
|
|
|
4.00% |
|
|
|
4.00% |
|
|
|
4.00% |
|
Expected
long-term rate of return on plan assets
|
|
|
8.00% |
|
|
|
8.00% |
|
|
|
8.00% |
|
We expect
that no contributions will be required in 2010 for the qualified defined benefit
pension plan. We expect to make voluntary contributions of approximately $20
million in 2010. We also expect to voluntarily contribute approximately $0.3
million for benefit payments to participants in 2010 for the nonqualified
supplemental benefit pension plan.
The
following benefit payments from both the qualified defined benefit pension plan
and the nonqualified supplemental benefit pension plan, which reflect expected
future service, as appropriate, are expected to be paid from the
plans:
|
|
Expected
Pension
|
|
|
|
Benefit
Payments
|
|
|
|
(In
Thousands)
|
|
2010
|
|
$ |
13,151 |
|
2011
|
|
|
13,754 |
|
2012
|
|
|
14,672 |
|
2013
|
|
|
15,395 |
|
2014
|
|
|
16,316 |
|
Years
2015 to 2019
|
|
|
95,714 |
|
Multi-Employer
Pension
Under
labor contracts with the UMWA, certain operations make payments into two
multi-employer defined benefit pension plan trusts established for the benefit
of certain union employees. The contributions are based on tons of coal produced
and hours worked. Such payments aggregated less than $600,000 in the years ended
December 31, 2009 and 2008, and less than $400,000 in the year ended December
31, 2007.
Defined
Contribution Plan
We
currently sponsor a defined contribution pension plan for certain union
employees. The plan is non-contributory and our contributions are based on hours
worked. Contributions to this plan were approximately $50,000 for the three
years ended December 31, 2009, 2008, and 2007, respectively.
Salary
Deferral and Profit Sharing (401(K)) Plan
We also sponsor a salary deferral and
profit sharing plan covering substantially all administrative and non-union
employees. The maximum salary deferral rate is 75% of eligible pay, subject to
IRS limitations. Prior to May 1, 2009, we contributed an amount equal to 30% of
the first 10% of each participant’s compensation contributed. Effective May 1,
2009,
we
reduced the fixed matching contribution to an amount equal to 10% of the first
10% of each participant’s compensation contributed. Our contributions aggregated
approximately $2.5 million, $4.6 million and $3.6 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
6.
Debt
Our debt
is comprised of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
As
Adjusted
|
|
|
|
(In
Thousands)
|
|
6.875%
senior notes due 2013, net of discount
|
|
$ |
756,727 |
|
|
$ |
756,041 |
|
3.25%
convertible senior notes due 2015, net of discount
|
|
|
526,435 |
|
|
|
517,538 |
|
6.625%
senior notes due 2010
|
|
|
21,949 |
|
|
|
21,949 |
|
2.25%
convertible senior notes due 2024
|
|
|
9,647 |
|
|
|
9,647 |
|
4.75%
convertible senior notes due 2023
|
|
|
- |
|
|
|
70 |
|
Capital
lease obligations
|
|
|
4,328 |
|
|
|
6,912 |
|
Total
debt
|
|
|
1,319,086 |
|
|
|
1,312,157 |
|
Amounts
due within one year
|
|
|
(23,531 |
) |
|
|
(1,976 |
) |
Total
long-term debt
|
|
$ |
1,295,555 |
|
|
$ |
1,310,181 |
|
The
weighted average effective interest rate of the outstanding borrowings was 7.3%
at both December 31, 2009 and 2008.
Convertible
Debt Securities
On
January 1, 2009, new accounting guidance became effective relating to our 3.25%
Notes, which was retroactively applied, as required. The impact to Earnings per
share was a decrease of $0.13 and $0.10 for the years ended December 31, 2009
and 2008, respectively. We separately account for the liability and equity
components in a manner reflective of our nonconvertible debt borrowing rate,
which was determined to be 7.75% at the date of issuance of the 3.25% Notes. The
discount associated with the 3.25% Notes is being amortized via the
effective-interest method increasing the reported liability until the notes are
carried at par value on their maturity date. We recognized $18.4 million and
$6.9 million of non-cash interest expense for the amortization of the
discount for the years ended December 31, 2009 and 2008,
respectively.
Financing
Transactions
On August
5, 2008, we commenced a consent solicitation and tender offer for any and all of
the outstanding $335 million of 6.625% Notes and concurrently we commenced
registered underwritten public offerings of convertible senior notes (the 3.25%
Notes) and shares of Common Stock and announced our intention to use the
proceeds of the offerings to purchase some or all of the 6.625% Notes in the
tender offer and for general corporate purposes.
On August
19, 2008, we settled with holders of $311.5 million of the 6.625% Notes,
representing approximately 93% of the outstanding 6.625% Notes, who tendered
their 6.625% Notes pursuant to our consent solicitation and tender offer for the
6.625% Notes. The total consideration for these 6.625% Notes was $1,026.57 per
$1,000 principal amount of the 6.625% Notes. The total consideration included a
consent payment of $25 per $1,000 principal amount of the 6.625% Notes. In
addition to the total consideration, holders also received interest which was
accrued and unpaid since the previous interest payment date.
As a
result of the consents of approximately 93% of the outstanding 6.625% Notes, we
received the requisite consents to execute a supplemental indenture relating to
the 6.625% Notes, which eliminated substantially all of the restrictive
covenants in the 6.625% Notes’ indenture.
On
September 3, 2008, we settled with holders of an additional $1.6 million of the
6.625% Notes, who tendered their 6.625% Notes after the consent solicitation
deadline. The total consideration for these 6.625% Notes was $1,001.57 per
$1,000 principal amount of the 6.625% Notes. In addition to the total
consideration, holders also received interest which was accrued and unpaid since
the previous interest payment date.
We
recognized charges totaling $15.2 million, including $1.9 million for the
write-off of unamortized financing fees and $4.2 million for the unamortized
interest rate swap termination payment (as discussed below) recorded in Interest
expense, and $9.1 million for the debt consent solicitation and tender offer
recorded in Loss on financing transactions.
Fair
Value Hedge Adjustment
On
December 9, 2005, we exercised our right to terminate our interest rate swap
agreement, which was designated as a hedge against a portion of the 6.625%
Notes. We paid a $7.9 million termination payment to the swap counterparty on
December 13, 2005 (“Fair value hedge adjustment”). The termination payment was
being amortized into Interest expense through November 15, 2010, the maturity
date of the 6.625% Notes. As discussed in this Note under Financing Transactions
above, on August 19, 2008, we settled with holders of approximately 93% of the
outstanding 6.625% Notes that were tendered pursuant to our consent solicitation
and tender offer for the 6.625% Notes. As a result of the acceptance
of the consent solicitation and tender offer of the 6.625% Notes, the remaining
balance of the Fair value hedge adjustment of $4.2 million was written off to
Interest expense. For the twelve months ended December 31, 2008, $5.1
million of the Fair value hedge adjustment was recorded in Interest
expense.
6.875%
Notes
The
6.875% Notes are unsecured obligations ranking equally with all other unsecured
senior indebtedness of ours and are guaranteed by substantially all of our
current and future subsidiaries, (the “Guarantors”). Interest on the 6.875%
Notes is payable on December 15 and June 15 of each year. We may redeem the
6.875% Notes, in whole or in part, for cash at any time on or after December 15,
2009 at a redemption price equal to 100% of the principal amount plus a premium
declining ratably to par, plus accrued and unpaid interest. The guarantees are
full and unconditional obligations of the Guarantors and are joint and several
among the Guarantors. The subsidiaries not providing a guarantee of the 6.875%
Notes are minor (as defined under SEC Rule 3-10(h)(6) of Regulation
S-X).
The
6.875% Notes contain a number of significant restrictions and covenants that
limit our ability and our subsidiaries’ ability to, among other things: (i)
incur liens and debt or provide guarantees in respect of obligations of any
other person; (ii) increase Common Stock dividends above specified levels; (iii)
make loans and investments; (iv) prepay, redeem or repurchase debt; (v) engage
in mergers, consolidations and asset dispositions; (vi) engage in affiliate
transactions; (vii) create any lien or security interest in any real property or
equipment; (viii) engage in sale and leaseback transactions; and (ix) restrict
distributions from subsidiaries. We are currently in compliance with all
covenants.
3.25%
Notes
On August
12, 2008, we issued $690 million of 3.25% Notes in a registered underwritten
public offering, resulting in net proceeds to us of approximately $674.1
million. The 3.25% Notes are guaranteed on a senior unsecured basis by the
Guarantors. The subsidiaries not providing a guarantee of the 3.25% Notes are
minor (as defined under SEC Rule 3-10(h)(6) of Regulation S-X). The guarantees
are full and unconditional obligations of the Guarantors and are joint and
several among the Guarantors. The 3.25% Notes and the guarantees rank equally
with all of our and the Guarantors’ existing and future senior unsecured
indebtedness and rank senior to all of our and the Guarantors’ indebtedness that
is expressly subordinated to the 3.25% Notes and the guarantees, but are
effectively subordinated to all of our and the Guarantors’ existing and future
senior secured indebtedness to the extent of the value of the assets securing
the indebtedness and to all liabilities of our subsidiaries that are not
Guarantors.
The 3.25%
Notes bear interest at a rate of 3.25% per annum, payable semi-annually in
arrears on August 1 and February 1 of each year, beginning on February 1, 2009.
The 3.25% Notes will mature on August 1, 2015, unless earlier repurchased by us
or converted.
The 3.25%
Notes are convertible in certain circumstances during certain periods at an
initial conversion rate of 11.4106 shares of Common Stock per $1,000 principal
amount of 3.25% Notes (which represented an initial conversion price of
approximately $87.64 per share), subject to adjustment in certain circumstances.
In the fourth quarter of 2008, we raised our quarterly dividend from $0.05 to
$0.06 per share of Common Stock, which mandated a change in the conversion rate
as of December 31, 2009. The conversion rate as of December 31, 2009 was 11.4420
shares of Common Stock per $1,000 principal amount of 3.25% Notes.
The 3.25%
Notes are convertible under certain circumstances and during certain periods
into (i) cash, up to the aggregate principal amount of the 3.25% Notes
subject to conversion and (ii) cash, shares of Common Stock or a
combination
thereof, at our election in respect to the remainder (if any) of our conversion
obligation. Subject to earlier repurchase, the 3.25% Notes will be
convertible only in the following circumstances and to the following
extent:
·
|
during
any calendar quarter, if the closing sale price of our shares of Common
Stock for each of 20 or more trading days in a period of 30 consecutive
trading days ending on the last trading day of the immediately preceding
calendar quarter exceeds 130% of the conversion price in effect on the
last trading day of the immediately preceding calendar
quarter;
|
·
|
during
the five consecutive business days immediately after any five consecutive
trading day period (the “note measurement period”) in which the average
trading price per $1,000 principal amount of 3.25% Notes was equal to or
less than 97% of the average conversion value of the 3.25% Notes during
the note measurement period;
|
·
|
if
we make certain distributions on our shares of Common Stock or engage in
certain transactions; and
|
·
|
at
any time from, and including, February 1, 2015 until the close of business
on the second business day immediately preceding August 1,
2015.
|
None of
the 3.25% Notes are currently eligible for conversion.
The
indenture governing the 3.25% Notes contains customary terms and covenants,
including that upon certain events of default occurring and continuing, either
the trustee for the 3.25% Notes or the holders of not less than 25% in aggregate
principal amount of the 3.25% Notes then outstanding may declare the unpaid
principal of the 3.25% Notes and any accrued and unpaid interest thereon
immediately due and payable. In the case of certain events of
bankruptcy, insolvency or reorganization relating to us, the principal amount of
the 3.25% Notes together with any accrued and unpaid interest thereon will
automatically become and be immediately due and payable.
During
2009 and 2008, we concluded open market purchases of our 3.25% Notes, reducing
the net liability outstanding by $9.5 million ($11.9 million of principal amount
less $2.4 million of debt discount) and $14.5 million ($19.0 million of
principal
amount less $4.5 million of debt discount) at a cost of $10.0 million and $10.4
million, respectively, plus accrued interest. After reversal of the equity
component of these convertible notes of $0.3 million and $0.04 million in 2009
and 2008, respectively, a loss of $0.2 million was recorded in 2009 and a
gain of $4.1 million was recorded in 2008, in Loss on financing transactions.
Depending on market conditions and covenant restrictions, we may continue to
make debt repurchases from time to time through open market purchases, private
transactions or otherwise.
6.625%
Notes
The
6.625% Notes are unsecured obligations of ours and rank equally with all other
unsecured senior indebtedness. Interest is payable semiannually on May 15 and
November 15 of each year. We may redeem the 6.625% Notes, in whole or in part,
at any time on or after November 15, 2007 at a redemption price equal to 100% of
the principal amount plus a premium declining ratably to par, plus accrued and
unpaid interest. The 6.625% Notes are guaranteed by the Guarantors. The
guarantees are full and unconditional obligations of the Guarantors and are
joint and several among the Guarantors. The subsidiaries not providing a
guarantee of the 6.625% Notes are minor (as defined under SEC Rule 3-10(h)(6) of
Regulation S-X).
During
January 2010, subsequent to the balance sheet date, we redeemed at par the
remaining $21.9 million of our 6.625% Notes.
2.25% Notes
The 2.25%
Notes are unsecured obligations of ours, rank equally with all other unsecured
senior indebtedness and are guaranteed by the Guarantors. The guarantees are
full and unconditional obligations of the Guarantors and are joint and several
among the Guarantors. The subsidiaries not providing a guarantee of the 2.25%
Notes are minor (as defined under SEC Rule 3-10(h)(6) of Regulation S-X).
Interest is payable semiannually on April 1 and October 1 of each year. We
registered the 2.25% Notes with the SEC for resale.
Holders
of the 2.25% Notes may require us to purchase all or a portion of their notes
for cash on April 1, 2011, 2014, and 2019, at a purchase price equal to 100% of
the principal amount of the notes to be redeemed, plus any accrued and unpaid
interest. In addition, if we experience certain specified types of fundamental
changes on or before April 1, 2011, the holders may require us to purchase the
notes for cash. We may redeem all or a portion of the 2.25% Notes for cash at
any time on
or after April 6, 2011, at a redemption price equal to 100% of the principal
amount of the notes to be redeemed, plus any accrued and unpaid
interest.
The 2.25%
Notes are convertible during certain periods by holders into shares of Common
Stock initially at a conversion rate of 29.7619 shares of Common Stock per
$1,000 principal amount of 2.25% Notes (subject to adjustment upon certain
events) under the following circumstances: (i) if the price of Common Stock
issuable upon conversion reaches specified thresholds; (ii) if we redeem the
2.25% Notes; (iii) upon the occurrence of certain specified corporate
transactions; or (iv) if the credit ratings assigned to the 2.25% Notes decline
below certain specified levels. Regarding the thresholds in (i) above, holders
may convert each of their notes into shares of Common Stock during any calendar
quarter (and only during such calendar quarter) if the last reported sale price
of Common Stock for at least 20 trading days during the period of 30 consecutive
trading days ending on the last trading day of the previous calendar quarter is
greater than or equal to 120% of the conversion price per share of Common Stock.
The conversion price is $33.60 per share. None of the 2.25% Notes are currently
eligible for conversion. As of December 31, 2009, if all of the notes
outstanding were eligible and were converted, we would have needed to issue
287,113 shares of Common Stock.
4.75%
Notes
During
May 2009, we redeemed at par the remaining $70,000 of the 4.75%
Notes.
Asset-Based
Lending Arrangement
On August
15, 2006, we entered into an amended and restated asset-based revolving credit
facility, which provides for available borrowings, including letters of credit
of up to $175 million, depending on the level of eligible inventory and accounts
receivables. As of December 31, 2009, this facility supported $76.6 million of
letters of credit and there were no outstanding borrowings under this facility.
Any future borrowings under this facility will be variable rate borrowings,
based on the
applicable LIBOR rate for the specified rate reset period, plus an applicable
margin. As of December 31, 2009, the applicable margin to LIBOR was 125 basis
points.
The
facility is collateralized by our accounts receivable, eligible coal
inventories located at our facilities and on consignment at customers’
facilities, and other intangibles. At December 31, 2009, total remaining
availability was $98.4 million based on qualifying inventory and accounts
receivable. The credit facility expires on August 15, 2011.
This
facility contains a number of significant restrictions and covenants that limit
our ability to, among other things: (i) incur liens and debt or provide
guarantees in respect of obligations of any other person; (ii) increase Common
Stock dividends above specified levels; (iii) make loans and investments; (iv)
prepay, redeem or repurchase debt; (v) engage in mergers, consolidations and
asset dispositions; (vi) engage in affiliate transactions; (vii) create any lien
or security interest in any real property or equipment; (viii) engage in sale
and leaseback transactions; and (ix) make distributions from subsidiaries. This
facility also contains financial covenants, which become operative only when our
Average Excess Availability (as defined in the facility documents) is less than
$30 million. These financial covenants include a Minimum Consolidated
Fixed Charge Ratio of 1.00 to 1.00 and a minimum Consolidated Net Worth of $550
million under the terms of the ABL Facility (currently approximately $400
million as adjusted for Accounting Changes). We are currently in
compliance with all covenants.
Debt
Maturity
The
aggregate amounts of scheduled long-term debt maturities assuming convertible
notes are not eligible for conversion, including capital lease obligations,
subsequent to December 31, 2009 are as follows:
|
|
(In
Thousands)
|
|
2010
|
|
$ |
23,531 |
|
2011
|
|
|
2,655 |
|
2012
|
|
|
35 |
|
2013
|
|
|
760,035 |
|
2014
|
|
|
35 |
|
Beyond
2014*
|
|
|
680,696 |
|
*
|
The
2.25% Notes in the amount of $9.6 million included herein may be redeemed
at the option of the holders in
2011.
|
Total
interest paid for the years ended December 31, 2009, 2008 and 2007, was $75.5
million, $70.3 million and $75.7 million, respectively.
Off-Balance
Sheet Arrangements
In the
normal course of business, we are a party to certain off-balance sheet
arrangements including guarantees, operating leases, indemnifications, and
financial instruments with off-balance sheet risk, such as bank letters of
credit and performance or surety bonds. Liabilities related to these
arrangements are not reflected in the consolidated balance sheets, and, except
for the operating leases, which are discussed in Note 13 to the Notes to
Consolidated Financial Statements, we do not expect any material impact on our
cash flows, results of operations or financial condition to result from these
off-balance sheet arrangements.
From time
to time we use bank letters of credit to secure our obligations for workers’
compensation programs, various insurance contracts and other obligations. At
December 31, 2009, we had $121.6 million of letters of credit outstanding of
which $45.1 million was collateralized by $46.0 million of cash deposited in
restricted, interest bearing accounts pledged to issuing banks and $76.5 million
was issued under our asset based lending arrangement. No claims were outstanding
against those letters of credit as of December 31, 2009.
We use
surety bonds to secure reclamation, workers’ compensation, wage payments and
other miscellaneous obligations. As of December 31, 2009, we had $401.1 million
of outstanding surety bonds. These bonds were in place to secure obligations as
follows: post-mining reclamation bonds of $315.6 million, an appeal bond of
$72.0 million of cash as collateral in the Harman litigation (see Note 18 to the
Notes to Consolidated Financial Statements for more information), and other
miscellaneous obligation bonds of $13.5 million. Outstanding surety bonds of
$46.1 million are secured with letters of credit.
Generally,
the availability and market terms of surety bonds continue to be challenging. If
we are unable to meet certain financial tests applicable to some of our surety
bonds, or to the extent that surety bonds otherwise become unavailable, we would
need to replace the surety bonds or seek to secure them with letters of credit,
cash deposits, or other suitable forms of collateral.
7.
Income Taxes
Income
tax expense included in the Consolidated Statements of Income is as
follows:
|
|
|
|
|
Year
Ended
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
As
Adjusted
|
|
|
|
|
|
|
(In
Thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
14,309 |
|
|
$ |
(4,597 |
) |
|
$ |
7,876 |
|
State
and local
|
|
|
116 |
|
|
|
122 |
|
|
|
126 |
|
Total
current
|
|
|
14,425 |
|
|
|
(4,475 |
) |
|
|
8,002 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
15,374 |
|
|
|
4,593 |
|
|
|
24,593 |
|
State
and local
|
|
|
3,033 |
|
|
|
980 |
|
|
|
2,810 |
|
Total
deferred
|
|
|
18,407 |
|
|
|
5,573 |
|
|
|
27,403 |
|
Income
tax expense
|
|
$ |
32,832 |
|
|
$ |
1,098 |
|
|
$ |
35,405 |
|
A
reconciliation of Income tax expense calculated at the federal statutory rate of
35% to our Income tax expense on Net income is as follows:
|
|
Year
Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
As
Adjusted
|
|
|
|
|
|
|
(In
Thousands)
|
|
U.S.
statutory federal tax expense
|
|
$ |
48,043 |
|
|
$ |
17,124 |
|
|
$ |
45,326 |
|
Increase
(Decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
taxes
|
|
550 |
|
|
|
66 |
|
|
|
(116 |
) |
Non-deductible penalties
|
|
|
4,903 |
|
|
|
6,240 |
|
|
|
8,062 |
|
Percentage depletion
|
|
|
(33,918 |
) |
|
|
(45,671 |
) |
|
|
(33,501 |
) |
Non-deductible compensation
|
|
|
805 |
|
|
|
666 |
|
|
|
711 |
|
Non-deductible refinancing and exchange offer costs
|
|
|
- |
|
|
|
- |
|
|
|
(4,809 |
) |
Valuation allowance adjustment
|
|
|
18,747 |
|
|
|
29,104 |
|
|
|
31,343 |
|
Uncertain tax positions
|
|
|
- |
|
|
|
- |
|
|
|
(2,325 |
) |
Alternative minimum tax credit refund, net of adjustment
|
|
|
(5,988 |
) |
|
|
(4,770 |
) |
|
|
- |
|
Refund from settlement of 2001 IRS audit
|
|
|
- |
|
|
|
- |
|
|
|
(4,609 |
) |
Other,
net
|
|
|
(310 |
) |
|
|
(1,661 |
) |
|
|
(4,677 |
) |
Income
tax expense
|
|
$ |
32,832 |
|
|
$ |
1,098 |
|
|
$ |
35,405 |
|
Deferred
taxes reflect the tax effects of differences between the amounts recorded as
assets and liabilities for financial reporting purposes and the amounts recorded
for income tax purposes. The tax effects of temporary differences giving rise to
deferred tax assets and liabilities are as follows:
|
|
|
Year
Ended
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
As
Adjusted
|
|
|
|
|
(In
Thousands)
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Postretirement
benefit obligations
|
|
$ |
113,757 |
|
|
$ |
117,106 |
|
Workers'
compensation
|
|
|
23,707 |
|
|
|
24,682 |
|
Reclamation
and mine closure
|
|
|
52,286 |
|
|
|
46,608 |
|
Alternative
minimum tax credit carryforwards
|
|
|
113,977 |
|
|
|
104,782 |
|
Litigation
|
|
|
|
3,534 |
|
|
|
9,777 |
|
Deferred
compensation
|
|
|
31,766 |
|
|
|
26,088 |
|
Federal
net operating loss
|
|
|
110,415 |
|
|
|
115,897 |
|
State
net operating loss
|
|
|
24,264 |
|
|
|
25,083 |
|
Other
|
|
|
|
33,032 |
|
|
|
35,718 |
|
|
Total
deferred tax assets
|
|
|
506,738 |
|
|
|
505,741 |
|
Valuation
allowance for deferred tax assets
|
|
|
(212,643 |
) |
|
|
(202,318 |
) |
|
Total
deferred tax assets, net of valuation allowance
|
|
|
294,095 |
|
|
|
303,423 |
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Plant,
equipment and mine development
|
|
|
(282,030 |
) |
|
|
(273,878 |
) |
Mining
property and mineral rights
|
|
|
(145,063 |
) |
|
|
(131,308 |
) |
Convertible
Debt
|
|
|
|
(51,725 |
) |
|
|
(60,026 |
) |
Deferred
royalties
|
|
|
|
(11,298 |
) |
|
|
(9,863 |
) |
Other
|
|
|
|
(13,209 |
) |
|
|
(5,642 |
) |
Total
deferred tax liablities
|
|
|
(503,325 |
) |
|
|
(480,717 |
) |
Deferred
income taxes
|
|
|
$ |
(209,230 |
) |
|
$ |
(177,294 |
) |
Deferred
tax assets include alternative minimum tax (“AMT”) credits of $114.0 million and
$104.8 million at December 31, 2009 and 2008, respectively, federal net
operating loss carryforwards of $315.5 million and $331.1 million as of December
31, 2009 and 2008, respectively, and net state net operating loss (“NOL”)
carryforwards of $606.6 million and
$627.1
million as of December 31, 2009 and 2008, respectively. The AMT credits have no
expiration date. Federal NOL carryforwards expire beginning in 2018 and ending
in 2023. State NOL carryforwards expire beginning in 2009 and ending in
2023.
We have
recorded a valuation allowance for a portion of deferred tax assets that
management believes, more likely than not, will not be realized. These deferred
tax assets include AMT credits, federal NOL and state NOL carryforwards that
will likely not be realized at the maximum effective tax rate. The
valuation allowance increased for the year ended December 31, 2009, primarily as
a result of the increase in AMT credit carryforwards discussed
above.
In June
2006, the FASB issued accounting guidance, effective January 1, 2007, to create
a single model to address accounting for uncertainty in income tax positions. We
increased Retained earnings by $5.2 million for the cumulative effect of
adoption of this accounting guidance as of January 1, 2007. A tax position is
initially recognized in the financial statements when it is more likely than not
the position will be sustained upon examination by applicable taxing
authorities. To determine if uncertainty exists in these income tax positions,
such tax positions are initially and subsequently measured as the largest amount
of tax benefit that is more likely than not to be realized upon ultimate
settlement with the taxing authority assuming full knowledge of the position and
all relevant facts. During the years ended December 31, 2009 and 2008 we had no
uncertain income tax positions and therefore no unrecognized tax benefits. We
accrue interest and penalties, if any, related to unrecognized tax benefits in
Other noncurrent liabilities and recognize the related expense in Income tax
expense. No interest related to unrecognized tax benefits was accrued for the
year ended December 31, 2009. We accrued $0.8 million and $3.1 million in
interest related to unrecognized tax benefits for the years ended December 31,
2008 and 2007.
We file
income tax returns in the United States federal and various state jurisdictions,
including West Virginia, Kentucky and Virginia. The Internal Revenue Service
(“IRS”) has examined our federal income tax returns, or statutes of limitations
have expired for years through 2005. In the various states where we file state
income tax returns, the state tax authorities have examined our state returns,
or statutes of limitations have expired through 2004. Management
believes that we have adequately provided for any income taxes that may
ultimately be paid with respect to all open tax years.
8.
Other Noncurrent Liabilities
Other
noncurrent liabilities are comprised of the following:
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In
Thousands)
|
|
Reclamation
(Note 9)
|
|
$ |
193,361 |
|
|
$ |
154,823 |
|
Other
postretirement benefits (Note 10)
|
|
|
155,024 |
|
|
|
161,527 |
|
Workers'
compensation and black lung (Note 11)
|
|
|
98,227 |
|
|
|
92,982 |
|
Other
|
|
|
|
91,446 |
|
|
|
81,502 |
|
|
Total
other noncurrent liabilities
|
|
$ |
538,058 |
|
|
$ |
490,834 |
|
9.
Reclamation
Our
reclamation liabilities primarily consist of spending estimates related to
reclaiming surface land and support facilities at both surface and underground
mines in accordance with federal and state reclamation laws as defined by each
mine permit. The obligation and corresponding asset are recognized in the period
in which the liability is incurred.
We
estimate our ultimate reclamation liability based upon detailed engineering
calculations of the amount and timing of the future cash flows to perform the
required work. We consider the estimated current cost of reclamation and apply
inflation rates and a third-party profit, as necessary. The third-party profit
is an estimate of the approximate markup that would be charged by contractors
for work performed on our behalf. The discount rate applied is based on the
rates of treasury bonds with maturities similar to the estimated future cash
flow, adjusted for our credit standing.
The
following table describes all changes to our reclamation liability:
|
|
Year
Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
Thousands)
|
|
Reclamation
liability at beginning of period
|
|
$ |
186,180 |
|
|
$ |
168,641 |
|
Accretion
expense
|
|
|
13,991 |
|
|
|
11,844 |
|
Liability
assumed/incurred
|
|
|
28,527 |
|
|
|
16,956 |
|
Liability
disposed
|
|
|
(505 |
) |
|
|
(212 |
) |
Revisions
in estimated cash flows
|
|
|
11,721 |
|
|
|
(6,092 |
) |
Payments
|
|
|
(5,352 |
) |
|
|
(4,957 |
) |
Reclamation
liability at end of period
|
|
|
234,562 |
|
|
|
186,180 |
|
Less
amount included in Other current liabilities
|
|
|
41,201 |
|
|
|
31,357 |
|
Total
reclamation, included in Other noncurrent liabilities
|
|
$ |
193,361 |
|
|
$ |
154,823 |
|
10.
Other Postretirement Benefits
We
sponsor defined benefit health care plans that provide postretirement medical
benefits to eligible union and non-union employees. To be eligible, retirees
must meet certain age and service requirements. Depending on year of retirement,
benefits may be subject to annual deductibles, coinsurance requirements,
lifetime limits and retiree contributions. Service costs are accrued currently
based on an annual study prepared by independent actuaries. These plans are
unfunded.
Net
periodic postretirement benefit cost includes the following
components:
|
|
Year
Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
Thousands)
|
|
Service
cost
|
|
$ |
3,913 |
|
|
$ |
3,204 |
|
|
$ |
3,668 |
|
Interest
cost
|
|
|
10,017 |
|
|
|
8,845 |
|
|
|
8,467 |
|
Amortization
of net loss
|
|
|
2,303 |
|
|
|
813 |
|
|
|
1,864 |
|
Amortization
of prior service credit
|
|
|
(750 |
) |
|
|
(750 |
) |
|
|
(750 |
) |
Net
periodic postretirement benefit cost
|
|
$ |
15,483 |
|
|
$ |
12,112 |
|
|
$ |
13,249 |
|
The
discount rate assumed to determine the net periodic postretirement benefit cost
was 6.10%, 6.50% and 5.90% for the years ended December 31, 2009, 2008 and 2007,
respectively.
The
following table sets forth the change in benefit obligation of our
postretirement benefit plans:
|
|
Year
Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
Thousands)
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
Benefit
obligation at the beginning of the period
|
|
$ |
168,629 |
|
|
$ |
147,733 |
|
Service
cost
|
|
|
3,913 |
|
|
|
3,204 |
|
Interest
cost
|
|
|
10,017 |
|
|
|
8,845 |
|
Plan
amendment
|
|
|
(27,595 |
) |
|
|
- |
|
Actuarial
loss
|
|
|
13,951 |
|
|
|
15,538 |
|
Benefits
paid
|
|
|
(6,827 |
) |
|
|
(6,691 |
) |
Benefit
obligation at the end of the period
|
|
$ |
162,088 |
|
|
$ |
168,629 |
|
|
|
|
|
|
|
|
|
|
Accrued
postretirement benefit obligation
|
|
$ |
162,088 |
|
|
$ |
168,629 |
|
Amount
included in Payroll and employee benefits
|
|
|
7,064 |
|
|
|
7,102 |
|
Postretirement
benefit obligation, included in Other noncurrent
liabilities
|
|
$ |
155,024 |
|
|
$ |
161,527 |
|
Effective
January 1, 2010, we consolidated our self-insured Medicare-age non-union retiree
plans into one insured plan. We will pay 100% of the premium for
fiscal year 2010 for each retiree. In subsequent years, retirees will be
responsible for inflationary increases in the insurance
premium. Further, members hired after January 1, 2010 will be
required to pay 100% of the applicable Medicare Supplemental Plan monthly
premium.
The table
below details the changes to Accumulated other comprehensive loss related to our
post retirement benefit plans:
|
|
Year
Ended
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
(In
Thousands)
|
|
|
|
Net
loss
|
|
|
Prior
service credit
|
|
|
Net
loss
|
|
|
Prior
service credit
|
|
January
1 beginning balance
|
|
$ |
29,111 |
|
|
$ |
(4,605 |
) |
|
$ |
20,132 |
|
|
$ |
(5,063 |
) |
Changes
to Accumulated other comprehensive loss
|
|
|
7,107 |
|
|
|
458 |
|
|
|
8,979 |
|
|
|
458 |
|
Plan
Amendment
|
|
|
- |
|
|
|
(16,833 |
) |
|
|
- |
|
|
|
- |
|
December
31 ending balance
|
|
$ |
36,218 |
|
|
$ |
(20,980 |
) |
|
$ |
29,111 |
|
|
$ |
(4,605 |
) |
We expect
to recognize $3.1 million of prior service credit and $3.3 million of net
actuarial loss in 2010.
The
discount rates used to determine the benefit obligations were 6.00% and 6.10%
for the years ended December 31, 2009 and 2008, respectively.
The
assumed health care cost trend rates used to determine the benefit obligation as
of the end of each year are as follows:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Health
care cost trend rate for next year *
|
|
8.3%
/ 8.6% / 7.0%
|
|
|
8.5%
/ 8.8% / 7.0%
|
|
Ultimate
trend rate
|
|
|
4.50% |
|
|
|
5.00% |
|
Year
that the rate reaches ultimate trend rate
|
|
|
2029 |
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
* Initial
trend rate for Pre-Medicare claims, initial trend rate for Medicare-Eligible,
and intial trend rate for the Medicare Supplement Plan.
Assumed health care cost trend rates have a
significant effect on the amounts reported for the medical plans. A
one-percentage point change in assumed health care cost trend rates would have
the following aggregate effects:
|
|
1-Percentage
Point Increase
|
|
|
1-Percentage
Point Decrease
|
|
|
|
(In
Thousands)
|
|
Effect
on total of service and interest costs components
|
|
$ |
1,799 |
|
|
$ |
(1,460 |
) |
Effect
on accumulated postretirement benefit obligation
|
|
$ |
20,215 |
|
|
$ |
(16,683 |
) |
The
following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid in the periods noted:
|
|
Expected
Benefit Payments
|
|
|
|
(In
Thousands)
|
|
2010
|
|
$ |
7,064 |
|
2011
|
|
|
7,763 |
|
2012
|
|
|
8,299 |
|
2013
|
|
|
8,916 |
|
2014
|
|
|
9,353 |
|
Years
2015 to 2019
|
|
|
52,527 |
|
Multi-Employer
Benefits
Under the
Coal Act, coal producers are required to fund medical and death benefits of
certain retired union coal workers based on premiums assessed by the UMWA
Benefit Funds. Based on available information at December 31, 2009, our
obligation under the Coal Act was estimated at approximately $22.3 million,
compared to our estimated obligation at December 31, 2008 of $19.2 million. The
obligation was discounted using a 5.00% rate each year. We treat our obligation
under the Coal Act as participation in a multi-employer plan and record the cost
of our obligation as expense as payments are assessed. The expense related to
this obligation for the years ended December 31, 2009, 2008 and 2007 totaled
$1.9 million, $2.3 million and $1.3 million, respectively. The $1.3 million
expense in 2007 was net of a $1.6 million refund from the UMWA Combined Benefit
Fund (“CBF”). The refund was a result of the Tax Relief and Retiree Health Care
Act of 2006 (“TRRHCA”) enacted on December 20, 2006, which is detailed
below.
The
TRRHCA included important changes to the Coal Act that impacts all companies
required to contribute to the CBF. Effective October 1, 2007, the Social
Security Administration (“SSA”) revoked all beneficiary assignments made to
companies that did not sign a 1988 UMWA contract (“reachback companies”) but
their premium relief is phased-in. The reachback companies paid their full
premium obligation in the current plan year that ended September 30, 2007.
However, they paid only 55% and 40% of their plan year 2008 and 2009 assessed
premiums, respectively. They will pay only 15% of their plan year 2010 assessed
premiums. General United States Treasury money will be transferred to the CBF to
make up the difference. After 2010, reachback companies will have no further
obligations to the CBF, and transfers from the United States Treasury will cover
all of the health care costs for retirees and dependents previously assigned to
reachback companies. Some of our subsidiaries are considered reachback companies
under the TRRHCA.
11.
Workers’ Compensation and Black Lung Benefits
Workers’
compensation and black lung benefit obligation consisted of the
following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
Thousands)
|
|
Accrued
self-insured black lung obligation
|
|
$ |
53,145 |
|
|
$ |
50,739 |
|
Workers'
compensation (traumatic injury)
|
|
|
61,792 |
|
|
|
64,172 |
|
Total
accrued workers' compensation and black lung
|
|
|
114,937 |
|
|
|
114,911 |
|
Less
amount included in Other current liabilities
|
|
|
16,710 |
|
|
|
21,929 |
|
Workers'
compensation & black lung in Other noncurrent
liabilities
|
|
$ |
98,227 |
|
|
$ |
92,982 |
|
The
amount of workers' compensation (traumatic liability) related to self-insurance
was $61.1 million and $59.1 million at December 31, 2009 and 2008, respectively.
Weighted average actuarial assumptions used in the determination of the
self-insured portion of workers’ compensation (traumatic injury) liability
included a discount rate of 4.75% and 5.00% at December 31, 2009 and 2008,
respectively, and the accumulated black lung obligation included a discount rate
of 6.00% and 6.10% at December 31, 2009 and 2008, respectively.
A
reconciliation of changes in the self-insured black lung obligation is as
follows:
|
|
Year
Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
Thousands)
|
|
Beginning
of year accrued self-insured black lung obligation
|
|
$ |
50,739 |
|
|
$ |
53,412 |
|
Service
cost
|
|
|
3,689 |
|
|
|
2,186 |
|
Interest
cost
|
|
|
2,872 |
|
|
|
3,390 |
|
Actuarial
gain
|
|
|
(1,535 |
) |
|
|
(6,524 |
) |
Benefit
payments
|
|
|
(2,620 |
) |
|
|
(1,725 |
) |
Accrued
self-insured black lung obligation
|
|
$ |
53,145 |
|
|
$ |
50,739 |
|
The table
below details the changes to Accumulated other comprehensive loss related to
black lung benefits:
|
|
Year
Ended
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
(In
Thousands)
|
|
|
|
Net
gain
|
|
|
Net
gain
|
|
January
1 beginning balance
|
|
$ |
(12,438 |
) |
|
$ |
(10,587 |
) |
Changes
to Accumulated other comprehensive gain (loss)
|
|
|
1,854 |
|
|
|
(1,851 |
) |
December
31 ending balance
|
|
$ |
(10,584 |
) |
|
$ |
(12,438 |
) |
We expect
to recognize $3.5 million of net actuarial gain in 2010.
Expenses
for black lung benefits and workers’ compensation related benefits include the
following components:
|
|
Year
Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
Thousands)
|
|
Self-insured
black lung benefits:
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
3,689 |
|
|
$ |
2,186 |
|
|
$ |
2,495 |
|
Interest
cost
|
|
|
2,872 |
|
|
|
3,390 |
|
|
|
3,117 |
|
Amortization
of actuarial gain
|
|
|
(4,575 |
) |
|
|
(3,489 |
) |
|
|
(3,194 |
) |
|
|
|
1,986 |
|
|
|
2,087 |
|
|
|
2,418 |
|
Other
workers' compensation benefits
|
|
|
26,816 |
|
|
|
27,965 |
|
|
|
30,842 |
|
|
|
$ |
28,802 |
|
|
$ |
30,052 |
|
|
$ |
33,260 |
|
Payments
for benefits, premiums and other costs related to black lung and workers’
compensation liabilities were $31.8 million, $24.0 million and $29.6 million for
the years ended December 31, 2009, 2008 and 2007, respectively.
The
actuarial assumptions used in the determination of self-insured black lung
benefits expense included discount rates of 6.10%, 6.50% and 5.90% for the years
ended December 31, 2009, 2008 and 2007, respectively.
Our
self-insured black lung obligation is calculated using assumptions regarding
future medical cost increases and cost of living increases. Federal black lung
benefits are subject to cost of living increases. State benefits increase only
until disability, and then remain constant. We assume a 6.50% annual medical
cost increase and a 3.0% cost of living increase in determining our black lung
obligation and the annual black lung expense. Assumed medical cost and cost of
living increases significantly affect the amounts reported for our black lung
expense and obligation. A one-percentage point change in each of assumed medical
cost and cost of living trend rates would have the following
effects:
|
|
1-Percentage
Point Increase
|
|
|
1-Percentage
Point Decrease
|
|
|
|
|
(In
Thousands) |
|
|
|
Increase/decrease
in medical cost trend rate:
|
|
|
|
|
|
|
Effect
on total of service and interest costs components
|
|
$ |
242 |
|
|
$ |
(193 |
) |
Effect
on accumulated black lung obligation
|
|
$ |
1,567 |
|
|
$ |
(1,267 |
) |
|
|
|
|
|
|
|
|
|
Increase/decrease
in cost of living trend rate:
|
|
|
|
|
|
|
|
|
Effect
on total service and interest cost components
|
|
$ |
877 |
|
|
$ |
(699 |
) |
Effect
on accumulated black lung obligation
|
|
$ |
6,020 |
|
|
$ |
(4,903 |
) |
The following
benefit payments, which reflect expected future service, as appropriate, are
expected to be paid related to the self-insured black lung
obligation:
|
|
Expected
Benefit Payments
|
|
|
|
(In
Thousands)
|
|
2010
|
|
$ |
2,818 |
|
2011
|
|
|
3,019 |
|
2012
|
|
|
3,210 |
|
2013
|
|
|
3,391 |
|
2014
|
|
|
3,573 |
|
Years
2015 to 2019
|
|
|
20,368 |
|
12.
Stock Plans
We have
stock incentive plans to encourage employees and nonemployee directors to remain
with the Company and to more closely align their interests with those of our
shareholders.
Description
of Stock Plans
The
Massey Energy Company 2006 Stock and Incentive Compensation Plan (the “2006
Plan”), which was approved by our shareholders and became effective on June 28,
2006 replaces the five stock-based compensation plans (the “Prior Plans”) we had
in place prior to the approval of the 2006 Plan, all of which had been approved
by our shareholders. On May 19, 2009, the Company’s shareholders approved adding
1,550,000 shares to our 2006 Plan. The shareholders also approved a limit to the
maximum number of shares available for awards granted in any form provided under
the 2006 Plan (other than stock options or SARS) to no more than 75%
of the total number of issuable shares. The Prior Plans include the
following:
· Massey
Energy Company 1996 Executive Stock Plan, as amended and restated effective
November 30, 2000 (the “1996 Plan”),
· Massey
Energy Company 1997 Stock Appreciation Rights Plan, as amended and restated
effective November 30, 2000 (the “SAR Plan”),
· Massey
Energy Company 1999 Executive Performance Incentive Plan, as amended and
restated effective November 30, 2000 (the “1999 Plan”),
· Massey
Energy Company Stock Plan for Non-Employee Directors, as amended and restated
effective May 24, 2005 (the “1995 Plan”), and
· Massey
Energy Company 1997 Restricted Stock Plan for Non-Employee Directors, as amended
and restated effective May 24, 2005 (the “1997 Plan”).
Stock-based
compensation has been granted under the 2006 Plan and the Prior Plans in the
manner described below. Issued and outstanding stock-based compensation has been
granted to officers and certain key employees in accordance with the provisions
of the 1996 Plan, the SAR Plan, the 1999 Plan, and the 2006 Plan. Issued and
outstanding stock-based compensation has been granted to non-employee directors
in accordance with the provisions of the 1995 Plan, the 1997 Plan and the 2006
Plan. The Compensation Committee of the Board of Directors administers the 1996
Plan, the 1999 Plan, the SAR Plan and the 2006 Plan. A committee comprised of
non-participating board members administers the 1995 Plan and the 1997
Plan.
The 1996
Plan provided for grants of stock options and restricted stock. The 1999 Plan
provided for grants of stock options, restricted stock, incentive awards and
stock units. The SAR Plan provided for grants of SARs. The 1995 Plan provided
for grants of restricted stock and restricted units. The 1997 Plan provided for
grants of restricted stock. As of June 28, 2006, grants can no longer be made
under the Prior Plans, except for the 1996 Plan, under which grants could no
longer be made as of March 2, 2006. All awards previously granted that are
outstanding under the Prior Plans will remain effective in accordance with the
terms of their grant.
The
aggregate number of shares of Common Stock that may be issued for future grant
under the 2006 Plan as of December 31, 2009 was 2,704,145 shares, which was
computed as the 3,500,000 shares specifically authorized in the 2006 Plan, plus the
1,550,000 shares added as part of the 2006 Plan amendments approved
on May 19, 2009, less grants made in 2006, 2007, 2008 and
2009, plus the number of shares that (i) were represented by restricted stock or
unexercised vested or unvested stock options that previously have been granted
and were outstanding under the Prior Plans as of June 28, 2006 and (ii) expire
or otherwise lapse, are terminated or forfeited, are settled in cash, or are
withheld or delivered to us for tax
82
purposes
at any time after June 28, 2006. The 2006 Plan provides for grants of stock
options, SARs, restricted stock, restricted units, unrestricted stock and
incentive awards.
Although
we have not expressed any intent to do so, we have the right to amend, suspend,
or terminate the 2006 Plan at any time by action of our Board of Directors.
However, no termination, amendment or modification of the 2006 Plan shall in any
manner adversely affect any award theretofore granted under the 2006 Plan,
without the written consent of the participant. If a change in control were to
occur (as defined in the plan documents), certain options may become immediately
vested, but only upon termination of the option holder’s service.
Accounting
for Stock-Based Compensation
Total
compensation expense recognized for stock-based compensation (equity awards)
during the year ended December 31, 2009, 2008 and 2007 was $12.7 million, $13.9
million and $12.7 million, respectively. The total income tax benefit recognized
in the consolidated statement of income for share based compensation
arrangements during the year ended December 31, 2009, 2008 and 2007 was
approximately $5.0 million, $5.4 million and $4.9 million, respectively. We
recognize compensation expense on a straight-line basis over the vesting period
for the entire award for any awards with graded vesting.
As of
December 31, 2009 and 2008, there was $5.8 million and $8.4 million,
respectively, of total unrecognized compensation cost related to stock options
expected to be recognized over a weighted-average period of approximately 2.2
years. In the years ended December 31, 2009 and 2008, we also reflected $3.2
million, ($1.2) million, and $0.4 million, respectively, of excess
tax benefit (expense) as a financing cash flow in the consolidated statement of
cash flows resulting from the exercise of stock options.
Equity
instruments
We have
granted stock options to employees under the 2006 Plan, the 1999 Plan and the
1996 Plan. These options typically have a requisite service period of three to
four years, though there are some awards outstanding with requisite service
periods of one year up to four years. Vesting generally occurs ratably over the
requisite service period. The maximum contractual term of stock options granted
is 10 years.
We value
stock options using the Black-Scholes valuation model, which employs certain key
assumptions. We estimate volatility using both historical and market data over
the term of the options granted. The dividend yield is calculated on the current
annualized dividend payment and the stock price at the date of grant. The
expected option life is based on historical data and exercise behavior. The
risk-free interest rate is based on the zero-coupon Treasury bond rate in effect
at the date of grant. The fair value of options granted during the three years
ended December 31, 2009, 2008 and 2007 was calculated using the following
assumptions:
|
|
Years
Ended December 31,
|
|
Options
Granted
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Number
of shares underlying options
|
|
|
234,333 |
|
|
|
798,647 |
|
|
|
556,979 |
|
Contractual
term in years
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
Assumptions
used to estimate fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
volatility
|
|
|
59%
- 66% |
|
|
|
50%
- 100% |
|
|
|
46%
- 50% |
|
Weighted
average volatility
|
|
|
66% |
|
|
|
71% |
|
|
|
50% |
|
Expected
option life in years
|
|
|
4.3 |
|
|
|
1.3
- 4.3 |
|
|
|
1.2
- 4.3 |
|
Dividend
yield
|
|
|
0.7%
- 1.8% |
|
|
|
0.4%
- 1.5% |
|
|
|
0.6%
- 0.7% |
|
Risk-free
interest rate
|
|
|
1.7%
- 1.9% |
|
|
|
0.9%
- 3.1% |
|
|
|
3.0%
- 4.7% |
|
Weighted-average
fair value estimates at grant date:
|
|
|
|
|
|
|
|
|
|
|
|
|
In
thousands
|
|
$ |
3,845 |
|
|
$ |
6,820 |
|
|
$ |
5,542 |
|
Fair
value per share
|
|
$ |
16.41 |
|
|
$ |
8.54 |
|
|
$ |
9.95 |
|
A summary
of option activity under the plans for the year ended December 31, 2009 is
presented below:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
average
|
|
|
|
Number
of
|
|
|
average
exercise
|
|
contractual
|
Aggregate
|
|
|
Options
|
|
|
price
|
|
term
(years)
|
Intrinsic
Value
|
|
|
(In
Thousands, Except Exercise Price and Contractual Term)
|
Outstanding
at December 31, 2008
|
|
|
2,613 |
|
|
$ |
25.81 |
|
|
|
Granted
|
|
|
234 |
|
|
|
32.95 |
|
|
|
Exercised
|
|
|
(515 |
) |
|
|
21.96 |
|
|
|
Forfeited/expired
|
|
|
(279 |
) |
|
|
29.74 |
|
|
|
Outstanding
at December 31, 2009
|
|
|
2,053 |
|
|
$ |
27.05 |
|
6.5
|
$30,716
|
Exercisable
at December 31, 2009
|
|
|
1,351 |
|
|
$ |
27.91 |
|
5.4
|
$19,054
|
We
received $11.3 million, $16.5 million and $4.0 million in cash proceeds from the
exercise of stock options for the years ended December 31, 2009, 2008 and 2007,
respectively. The intrinsic value of stock options exercised was $7.5 million,
$18.4 million and $4.5 million for the years ended December 31, 2009, 2008 and
2007, respectively.
We have
granted restricted stock to our employees under the 2006 Plan and 1999 Plan and
to non-employee directors under the 1995 Plan and 1997 Plan. Restricted stock
awards are valued on the date of grant based on the closing value of our stock.
As of December 31, 2009, there was $13.4 million of unrecognized compensation
cost related to restricted stock expected to be recognized over the next three
years. Unearned compensation is recorded on a net basis in Additional
capital.
A summary
of the status of restricted stock at December 31, 2009, and changes for the year
then ended is presented below:
|
|
|
|
|
Weighted
average
|
|
|
|
|
|
|
grant
date
|
|
(Shares
In Thousands)
|
|
Shares
|
|
|
fair
value
|
|
Unvested
at December 31, 2008
|
|
|
595 |
|
|
$ |
28.64 |
|
Granted
|
|
|
282 |
|
|
$ |
33.11 |
|
Vested
|
|
|
(272 |
) |
|
$ |
25.77 |
|
Forfeited
|
|
|
(29 |
) |
|
$ |
22.92 |
|
Unvested
at December 31, 2009
|
|
|
576 |
|
|
$ |
28.52 |
|
The fair
value of restricted stock vested during the years ended December 31, 2009, 2008
and 2007 was $7.0 million, $6.7 million and $3.8 million,
respectively.
Liability
instruments
We use
the fair value method to recognize compensation cost associated with SARs. At
December 31, 2009 there were 150,000 SARs outstanding and exercisable. The
weighted average exercise price of these SARs was $36.50 per SAR; the weighted
average contractual term was 5.3 years. At both December 31, 2008 and
2007, there were 262,500 vested SARs outstanding and exercisable. The weighted
average exercise price of these SARs was $29.19 per SAR; the weighted average
contractual term was 3.8 years.
We also
issue stock incentive units, which are classified as liabilities. They are
settled with a cash payment for each unit vested, equal to the fair market value
of Common Stock on the vesting date.
|
|
For
the years ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Awarded
|
|
|
218,364 |
|
|
|
399,687 |
|
Settled
|
|
|
150,829 |
|
|
|
131,981 |
|
Settlement
amount (in millions)
|
|
$ |
5.2 |
|
|
$ |
2.4 |
|
13.
Lease Obligations
We lease
certain mining and other equipment under various lease agreements. Certain of
these leases provide options for the purchase of the property at the end of the
initial lease term, generally at its then fair market value, or to extend the
terms at
its then fair rental value. Certain of these leases contain financial or other
non-performance covenants that may require an accelerated buyout of the lease if
the covenants are violated. Rental expense for the years ended December 31,
2009, 2008 and 2007 was $81.8 million, $53.1 million and $39.7 million,
respectively.
During
2008 and 2007 we sold and leased-back certain mining equipment. We received net
proceeds of $41.3 million and $13.1 million, for the years ended December 31,
2008 and 2007, respectively, resulting in net deferred gains of $2.4 million and
$1.2 million for the years ended December 31, 2008 and 2007, respectively. The
gains are being recognized ratably over the term of the leases, which range from
3.5 to 7 years. At lease termination, the leases contain renewal and purchase
options at an amount approximating fair value. The leases are being accounted
for as operating leases. We did not engage in any material sale-leaseback
transactions in 2009.
The
following presents future minimum rental payments, by year, required under
leases with initial terms greater than one year, in effect at December 31,
2009:
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
|
|
(In
Thousands)
|
|
2010
|
|
$ |
1,759 |
|
|
$ |
75,412 |
|
2011
|
|
|
2,705 |
|
|
|
64,827 |
|
2012
|
|
|
35 |
|
|
|
54,477 |
|
2013
|
|
|
35 |
|
|
|
37,533 |
|
2014
|
|
|
35 |
|
|
|
12,602 |
|
Beyond
2014
|
|
|
- |
|
|
|
7,601 |
|
Total
minimum lease payments
|
|
|
4,569 |
|
|
$ |
252,452 |
|
Less
imputed interest
|
|
|
241 |
|
|
|
|
|
Present
value of minimum capital lease payments
|
|
$ |
4,328 |
|
|
|
|
|
14.
Concentrations of Credit Risk and Major Customers
We are
engaged in the production of coal for the utility industry, steel industry and
industrial markets. The following chart lists the percentage of each type of
Produced coal revenue generated by market:
|
|
For
the years ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Utility
coal
|
|
|
62% |
|
|
|
53% |
|
|
|
60% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metallurgical
coal
|
|
|
30% |
|
|
|
37% |
|
|
|
30% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
coal
|
|
|
8% |
|
|
|
10% |
|
|
|
10% |
|
Our
mining operations are conducted in southern West Virginia, eastern Kentucky and
western Virginia. We market our produced and purchased coal to customers in the
United States and in international markets, including Canada and various
European and Asian countries. For the years ended December 31, 2009,
2008, and 2007 approximately 20%, 30%, and 16%, respectively, of Produced coal
revenue was attributable to sales to customers outside of the United
States.
For the
years ended December 31, 2009 and 2008, approximately 19% and 11%, respectively,
of Produced coal revenue was attributable to sales to Constellation Energy
Commodities Group, Inc. For the year ended December 31, 2007, approximately 11%
of Produced coal revenue was attributable to sales to affiliates of American
Electric Power Company, Inc. At December 31, 2009, approximately 61%, 19% and
20% of Trade receivables represents amounts due from utility customers,
metallurgical customers and industrial customers, respectively, compared with
75%, 13% and 12%, respectively, as of December 31, 2008.
Our Trade
and other accounts receivable are subject to potential default by customers. In
prior years, certain of our customers have filed for bankruptcy resulting in bad
debt charges. In an effort to mitigate credit-related risks in all customer
classifications, we maintain a credit policy, which requires scheduled reviews
of customer creditworthiness and continuous monitoring of customer news events
that might have an impact on their financial condition. Negative credit
performance or events may trigger the application of tighter terms of sale,
requirements for collateral or guarantees or, ultimately, a suspension of credit
privileges. We also insure the receivables of certain customers whose financial
condition puts them at a greater risk of loss; recoveries under this insurance
program are subject to 10% co-insurance and a $5 million deductible. We
establish
bad debt reserves to specifically consider customers in financial difficulty and
other potential receivable losses. In establishing the reserve, we consider the
financial condition of individual customers and probability of recovery in the
event of default. We charge off uncollectible receivables once legal potential
for recovery is exhausted. See Note 18 for a discussion of certain customer
disputes.
15.
Derivative Instruments
Upon
entering into each coal sales and coal purchase contract, we evaluate each of
our contracts to determine if they qualify for the NPNS
exception prescribed by current accounting guidance. We use purchase coal
contracts to supplement our produced and processed coal in order to provide coal
to meet customer requirements under sales contracts. The majority of our
contracts qualifiy for the NPNS exception and therefore are not reflected
in the Consolidated Balance Sheets and Consolidated Statements of Income. For
those contracts that do not qualify for the NPNS exception, at
inception or at some point during the duration of the contract, the
contracts are required to be accounted for as derivative instruments and must be
recognized
as assets or liabilities and measured at fair value. Those contracts that do not
qualify for the NPNS exception have not been designated as cash flow or
fair value hedges and, accordingly, the net change in fair value is recorded in
current period earnings. As of December 31, 2009, there were approximately
1.0 million and 1.1 million tons outstanding under these coal purchase and coal
sales contracts, respectively. As of December 31, 2008, there were approximately
1.8 million and 2.2 million tons outstanding under these coal purchase and coal
sales contracts, respectively. We have recorded a net gain of $37.6 million
($53.1 million of unrealized gains due to fair value measurement adjustments and
$15.5 million of realized losses due to settlements on existing contracts) for
the year ended December 31, 2009, and $22.6 million of unrealized losses due to
fair value measurement adjustments for the year ended December 31, 2008, related
to coal sales and purchase contracts that did not qualify for the NPNS exception
in the Consolidated Statements of Income under the caption (Gain) loss on
derivative instruments. An asset of $30.6 million is included in Other current
assets in the Consolidated Balance Sheet as of December 31, 2009. A liability of
$22.6 million is included in Other current liabilities in the Consolidated
Balance Sheet as of December 31, 2008. The fair values of our purchases and
sales derivative contracts have been aggregated in Other current assets and
Other current liabilities as of December 31, 2009 and 2008,
respectively.
We are
exposed to certain risks related to coal price volatility. The purchases and
sales contracts we enter into allow us to mitigate a portion of the underlying
risk associated with coal price volatility.
16.
Fair Value of Financial Instruments
Financial
and non-financial assets and liabilities that are required to be measured at
fair value must be categorized based upon the levels of judgment associated with
the inputs used to measure their fair value. Hierarchical levels –
directly related to the amount of subjectivity associated with the inputs used
to determine the fair value of financial assets and liabilities – are as
follows:
|
•
|
Level
1 – Inputs are unadjusted, quoted prices in active markets for identical
assets or liabilities at the measurement
date.
|
|
•
|
Level
2 – Inputs (other than quoted prices included in Level 1) are either
directly or indirectly observable for the assets or liability through
correlation with market data at the measurement date and for the duration
of the instrument’s anticipated
life.
|
|
•
|
Level
3 – Inputs reflect management’s best estimate of what market participants
would use in pricing the asset or liability at the measurement
date. Consideration is given to the risk inherent in the
valuation technique and the risk inherent in the inputs to the
model.
|
Each
major category of financial assets and liabilities measured at fair value on a
recurring basis are categorized in the tables below based upon the lowest level
of significant input to the valuations.
|
|
December
31, 2009
|
|
|
|
(In
Thousands)
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Fixed
income securities
|
|
$ |
12,147 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
12,147 |
|
Money
market funds
|
|
|
763,573 |
|
|
|
- |
|
|
|
- |
|
|
|
763,573 |
|
Short-term
investment
|
|
|
- |
|
|
|
- |
|
|
|
10,864 |
|
|
|
10,864 |
|
Derivative
instruments
|
|
|
- |
|
|
|
30,564 |
|
|
|
|
|
|
|
30,564 |
|
Total
securities
|
|
$ |
775,720 |
|
|
$ |
30,564 |
|
|
$ |
10,864 |
|
|
$ |
817,148 |
|
Fixed
income securities and money market funds
All
investments in money market funds are cash equivalents or deposits pledged as
collateral and are invested in AAA prime money market funds and Treasury-backed
funds. Included in the money market funds are $46.0 million of funds pledged as
collateral to support $45.1 million of outstanding letters of credit and $72.0
million of cash held as collateral for an appeal bond in the Harman litigation.
All fixed income securities are deposits, consisting of obligations of the U.S.
Treasury, supporting various regulatory obligations. See Note 3 to
the Notes to Consolidated Financial Statements for more information on
deposits.
Short-Term
Investment
Short-term
investment is comprised of an investment in Primary Fund, a money market fund
that has suspended redemptions and is being liquidated. We have determined that
our investment in the Primary Fund no longer meets the definition
of a security, within the scope of current accounting guidance, since the equity
investment no longer has a readily determinable fair value. Therefore, the
investment has been classified as a short-term investment, subject to the cost
method of accounting, on our Consolidated Balance Sheet. This classification as
a short-term investment is based on our assessment of each of the individual
securities that make up the underlying portfolio holdings in the Primary Fund,
which primarily consisted of commercial paper and discount notes having maturity
dates within the next 12 months, and the stated notifications from the Primary
Fund that they expect to liquidate substantially all of their holdings and make
distributions within a year.
Assets
Measured at Fair Value on a Recurring Basis Using Significant Unobservable
Inputs (Level 3):
|
|
Short-term
|
|
(In
Thousands)
|
|
Investments
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$ |
39,383 |
|
Transfers
out of Level 3, net
|
|
|
(28,519 |
) |
Change
in fair value included in earnings
|
|
|
- |
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
$ |
10,864 |
|
|
|
|
|
|
Losses
included in earnings attributable to the change in
unrealized
|
|
|
|
|
losses
relating to assets still held at December 31, 2009
|
|
$ |
- |
|
We
received distributions from the Primary Fund in the amount of $28.5 million
during 2009, leaving an investment balance of $10.9 million, net of an estimated
$6.5 million loss recorded in 2008. During January 2010, subsequent to the
balance sheet date, we receive a distribution in the amount of $14.6
million.
Derivative
Instruments
Certain
of our coal sales and coal purchase contracts that do not qualify for the NPNS
exemption at inception or at some point during the life of the contract are
accounted for as derivative instruments and are required to be recognized as
assets or liabilities and measured at fair value. To establish fair values for
these contracts, we use bid/ask price quotations obtained from independent
third-party brokers. We also consider the risk of nonperformance of or
nonpayment by the counterparties when determining the fair values for these
contracts by evaluating the credit quality and financial condition of each
counterparty. We could experience difficulty in valuing our derivative
instruments if the number of third-party brokers should decrease or market
liquidity is reduced. See Note 15 to the Notes to Consolidated Financial
Statements for more information.
Fair
Value Option
The
following methods and assumptions were used to estimate the fair value of those
financial instruments that are not required to be carried at fair value within
our Consolidated Balance Sheets:
Short-term
debt: The carrying amount reported in the Consolidated Balance Sheets for
short-term debt approximates its fair value due to the short-term maturity of
these instruments.
Long-term
debt: The fair values of long-term debt are estimated using the most recent
market prices quoted on or before December 31, 2009.
The
carrying amounts and fair values of these financial instruments are presented in
the table below. The carrying value of the 3.25% Notes reflected in Long-term
debt in the table below reflects the full face amount of $659.1 million,
which has been adjusted in the Consolidated Balance Sheets for the adoption of
new accounting guidance, which became effective January 1, 2009 (see Note 6 to
the Notes to Consolidated Financial Statements for more
information).
|
|
December
31, 2009
|
|
|
December
31, 2008 |
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
|
Fair
Value
|
|
|
|
(In
Thousands)
|
|
Short-term
debt
|
|
$ |
23,531 |
|
|
$ |
23,465 |
|
|
$ |
1,976 |
|
|
|
$ |
1,976 |
|
Long-term
debt
|
|
$ |
1,428,710 |
|
|
$ |
1,348,699 |
|
|
$ |
1,462,666 |
|
|
|
$ |
931,011 |
|
17.
Common Stock Issuance
On
August 12, 2008, we completed a registered underwritten public offering of
4,370,000 shares of Common Stock, which included 2,874,800 shares of our
Treasury stock, at a public offering price of $61.50 per share, resulting in
proceeds to us of $258.2 million, net of underwriting fees. As discussed in Note
6, we used these proceeds and the proceeds of the concurrent convertible notes
offering to purchase a portion of the 6.625% Notes in connection with the 6.625%
Notes consent solicitation and tender offer and for general corporate
purposes.
18.
Contingencies
In
December 1997, A.T. Massey’s then subsidiary, Wellmore Coal Corporation
(“Wellmore”), declared force majeure under its coal supply agreement with Harman
Mining Corporation (“Harman”) and reduced the amount of coal to be purchased
from Harman. On October 29, 1998, Harman and its sole shareholder sued A.T.
Massey and five of its other subsidiaries (the “Massey Defendants”) in the
Circuit Court of Boone County, West Virginia, alleging that the Massey
Defendants tortiously interfered with Wellmore’s agreement with Harman, causing
Harman to go out of business. On August 1, 2002, the jury awarded the plaintiffs
$50 million in compensatory and punitive damages. On October 24, 2006, the
Massey Defendants timely filed their Petition for Appeal to the Supreme Court of
Appeals of West Virginia (“WV Supreme Court”). On November 21, 2007,
the WV Supreme Court issued a 3-2 majority opinion reversing the judgment
against the Massey Defendants and remanding the case to the Circuit Court of
Boone County with directions to enter an order dismissing the case, with
prejudice, in its entirety. The Harman plaintiffs filed motions
asking the WV Supreme Court to conduct a rehearing in the case. On January 24,
2008, the WV Supreme Court decided to rehear the case, which was re-argued on
March 12, 2008. On April 3, 2008, the WV Supreme Court again reversed the
judgment against the Massey Defendants and remanded the case with direction to
enter an order dismissing the case, with prejudice, in its entirety. In July
2008, the Harman plaintiffs petitioned the United States Supreme Court (the
“U.S. Supreme Court”) to review the WV Supreme Court’s dismissal of their
claims.
In
December 2008, the U.S. Supreme Court agreed to review the case. The
U.S. Supreme Court granted review based on the question of whether a justice of
the WV Supreme Court should have recused himself from the appeal. The U.S.
Supreme Court found that the justice should have recused himself and ruled on
June 8, 2009 that the matter should be reheard by the WV Supreme
Court. The WV Supreme Court heard oral arguments on the matter on
September 8, 2009, and reversed the lower court’s decision on November 12,
2009. The Harman plaintiffs subsequently requested that the WV
Supreme Court reconsider its decision. The WV Supreme Court has yet
to rule on that request. We were required to post $72 million of cash
as collateral for an appeal bond prior to the rehearing on September 8, 2009,
and the WV Supreme Court has not released that appeal bond while the request for
reconsideration has been outstanding. Because the West Virginia
Supreme Court rarely grants requests for reconsideration, we believe at this
time that this matter will be resolved without a material adverse impact on our
cash flows, results of operations or financial condition.
Since
July 2001, we and nine of our subsidiaries were sued in 17 consolidated civil
actions filed in the Circuit Courts of Boone, Fayette, Kanawha, McDowell,
Mercer, Raleigh and Wyoming Counties, West Virginia, for alleged property
damages and personal injuries arising out of flooding on or about July 8, 2001.
Along with 32 other consolidated cases not involving us or our subsidiaries,
these cases covered approximately 1,800 plaintiffs seeking unquantified
compensatory and punitive
damages
against approximately 100 defendants. The WV Supreme Court transferred all 49
cases (the “Referred Cases”) to the Circuit Court of Raleigh County, West
Virginia, to be handled by a mass litigation panel, which consists of six
circuit court judges who have extensive experience with mass
litigation. In December 2009, the cases against us and our
subsidiaries were settled with no material adverse impact on our cash flows,
results of operations or financial condition. We had insurance coverage
applicable to these items.
Since
August 2004, five of our subsidiaries have been sued in six civil actions filed
in the Circuit Courts of Boone, McDowell, Mingo, Raleigh, Summers and Wyoming
Counties, West Virginia, for alleged property damages and personal injuries
arising out of flooding on or about May 2, 2002. These complaints cover
approximately 350 plaintiffs seeking unquantified compensatory and punitive
damages from approximately 35 defendants. During a hearing
held on February 2, 2009, the Circuit Court of Raleigh County dismissed one
of these cases without prejudice for failure to prosecute. The order
dismissing the case was entered on March 2, 2009 and the plaintiffs have one
year from the entry of that order to re-file their claim.
Since May
2006, we and twelve of our subsidiaries have been sued in three civil actions
filed in the Circuit Courts of Logan and Mingo Counties, West Virginia, for
alleged property damages and personal injuries arising out of flooding between
May 30 and June 4, 2004. Four of our subsidiaries have been dismissed without
prejudice from one of the Logan County cases. These complaints cover
approximately 425 plaintiffs seeking unquantified compensatory and punitive
damages from approximately 52 defendants.
We
believe the cases that have not been settled will be resolved without a material
adverse impact on our cash flows, results of operations or financial
condition.
Since
January 2003, an advocacy group and residents in Boone, Kanawha, Mingo and
Raleigh Counties, West Virginia, filed 17 suits in the Circuit Courts of Kanawha
and Mingo Counties, West Virginia, against twelve of our subsidiaries.
Plaintiffs alleged that defendants illegally transported coal in overloaded
trucks, causing damage to state roads, thereby interfering with plaintiffs’ use
and enjoyment of their properties and their right to use the public roads.
Plaintiffs seek injunctive relief and compensatory and punitive damages. The WV
Supreme Court referred the consolidated lawsuits, and similar lawsuits against
other coal and transportation companies not involving our subsidiaries, to the
Circuit Court of Lincoln County, West Virginia, to be handled by a mass
litigation panel judge. Plaintiffs filed motions requesting class certification.
On June 7, 2007, plaintiffs voluntarily dismissed their public nuisance claims
seeking monetary damages for road and bridge repairs. Defendants filed a motion
requesting that the mass litigation panel judge recommend to the WV Supreme
Court that the cases be sent back to the circuit courts of origin for
resolution. That motion was verbally denied as to those cases in which our
subsidiaries are defendants, and a class certification hearing was held on
October 21, 2009. To date, no decision has been rendered by the WV
Supreme Court on the class certification issues. Plaintiffs also
agreed to an order limiting any damages for nuisance to two years prior to the
filing of any suit. A motion to dismiss any remaining public nuisance claims was
resisted by plaintiffs and argued at hearings on December 14, 2007 and June 25,
2008. No date has been set for trial. We believe we have insurance coverage
applicable to these items and that they will be resolved without a material
adverse impact on our cash flows, results of operations or financial
condition.
Since
September 2004, approximately 738 plaintiffs have filed approximately 400 suits
against us and our subsidiary, Rawl Sales & Processing Co., in the Circuit
Court of Mingo County, West Virginia (“Mingo Court”), for alleged property
damage and personal injuries arising out of slurry injection and impoundment
practices allegedly contaminating plaintiffs’ water wells. Plaintiffs seek
injunctive relief and compensatory damages in excess of $170 million and
unquantified punitive damages. Specifically, plaintiffs are claiming that
defendants’ activities during the period of 1978 through 1987 rendered their
property valueless and request monetary damages to pay, inter alia, the value of
their property and future water bills. In addition, many plaintiffs are also
claiming that their exposure to the contaminated well water caused neurological
injury or physical injury, including cancers, kidney problems and gall stones.
Finally, all plaintiffs claimed entitlement to medical monitoring for the next
30 years and have requested unliquidated compensatory damages for pain and
suffering, annoyance and inconvenience and legal fees. On April 30, 2009, the
Mingo Court held a mandatory settlement conference. At that settlement
conference, all plaintiffs agreed to settle and dismiss their medical monitoring
claims. Additionally, 180 plaintiffs agreed to settle all of their remaining
claims and be dismissed from the case. The Mingo Court is currently considering
whether to dismiss the claims of an additional 179 plaintiffs who did not attend
the mandatory settlement conference. All settlements to date will be
funded by insurance proceeds. The plaintiffs are challenging the
medical monitoring settlement. A motion to enforce the medical
monitoring settlement has been filed. No ruling has been
made. There are currently 556
plaintiffs
remaining. As a result of the recent disqualification of Judge
Thornsbury, on account of having been engaged as a lawyer in the 1980s, on a
matter on behalf of a Massey subsidiary adverse to one of the plaintiffs, the WV
Supreme Court has reassigned all the cases to Judge Thomas
Evans. Judge Evans has not set a trial date. Recently, Judge Evans
requested the WV Supreme Court of West Virginia refer the cases to the statutory
mass litigation panel for further proceedings. The WV Supreme Court
has not ruled on the request.
Beginning
in December 2008, we and certain of our subsidiaries along with several other
companies were sued in numerous actions in Boone County, West Virginia involving
approximately 300 plaintiffs alleging well water contamination resulting from
coal mining operations. Mediation is scheduled for March 29,
2010.
We do not
believe there was any contamination caused by our activities or that plaintiffs
suffered any damage and, therefore, we do not believe we have a probable loss
related to this matter. We plan to vigorously contest these claims. We believe
that we have insurance coverage applicable to these matters and have initiated
litigation against our insurers to
establish
that coverage. At this time, we believe that the litigation by the plaintiffs
will be resolved without a material adverse impact on our cash flows, results of
operations or financial condition.
Since
September 2005, three environmental groups sued the United States Army Corps of
Engineers (“Corps”) in the United States District Court for the Southern
District of West Virginia (the “District Court”), asserting the Corps unlawfully
issued permits to four of our surface mines to construct mining fills. The suit
alleges the Corps failed to comply with the requirements of both Section 404 of
the Clean Water Act and the National Environmental Policy Act, including
preparing environmental impact statements for individual permits. We intervened
in the suit to protect our interests. On March 23, 2007, the District Court
rescinded four of our subsidiaries’ permits, resulting in the temporary
suspension of mining at these surface mines. We appealed that ruling to the
United States Court of Appeals for the Fourth Circuit (the “Fourth Circuit
Court”). On April 17, 2007, the District Court partially stayed its ruling,
permitting mining to resume in certain fills that were already under
construction. On June 14, 2007, the District Court issued an additional ruling,
finding the Corps improperly approved placement of sediment ponds in streams
below fills on the four permits in question. The District Court
subsequently modified its ruling to allow these ponds to remain in place, as the
ponds and fills have already been constructed. The District Court’s
ruling could impact the issuance of permits for the placement of sediment ponds
for future operations. If the permits for the fills or sediment ponds are
ultimately held to be unlawfully issued, production could be affected at these
surface mines, and the process of obtaining new Corps permits for all surface
mines could become more difficult. We appealed both rulings to the Fourth
Circuit Court. On February 13, 2009, the Fourth Circuit Court
reversed the prior rulings of the District Court and remanded the matter for
further proceedings. On March 30, 2009, the plaintiffs requested that the Fourth
Circuit Court reconsider the case. The request was denied on May 20,
2009. On August 26, 2009, the plaintiffs filed their request with the U.S.
Supreme Court to review the Fourth Circuit Court’s decision. Our subsidiaries’
response is due March 9, 2010; the U.S. Supreme Court then will decide whether
to accept the case for review.
We have
customers who claim they did not receive, or did not timely receive, all of the
coal required to be shipped to them during 2008 (“unshipped tons”). In such
cases, it is typical for a customer and coal producer to agree upon a schedule
for shipping unshipped tons in subsequent years. A few of our
customers, however, filed claims or notified us of potential claims for cover
damages, which damages are equal to the difference between the contract price of
the coal that was not delivered and the market price of replacement coal or
comparable quality coal. We have resolved the majority of these claims in 2009
and early 2010, while discussions with other customers remain
ongoing.
We
believe we have strong defenses to the remaining claims for cover
damages. In many cases, there was untimely or insufficient
delivery of railcars by the rail carrier or the customer. In other
cases, factors beyond our control caused production or shipment
problems. Additionally, we believe that certain customers previously
agreed to accept unshipped tons in subsequent years. We believe that
all of these factors, and other factors, provide defenses to claims or potential
claims for unshipped tons.
Separately,
we are currently in litigation with one customer regarding disagreements over
other contract matters. Specifically, we have a dispute with one
customer regarding whether or not binding contracts for the sale of coal were
reached. We maintain that this customer improperly terminated a
signed, higher-priced contract; the customer argues that it was only required to
purchase coal under a purported agreement reached by email. On February 12,
2010, we received a decision from an arbitration panel awarding this customer
$10.5 million on the grounds that the purported agreement by email was valid and
that the higher-priced contract was invalid. We believe that the
arbitration panel’s decision as to the
validity
of the higher-priced contract was beyond the panel’s jurisdiction and have
challenged that decision in federal court. We will vigorously pursue
this challenge and do not consider this loss as probable.
We
believe that we have strong defenses to the other claims and potential claims
and further feel that many or all of these claims may be resolved without trial.
We have recorded an accrual for our best estimate of probable losses related to
these matters. While we believe that all of these matters discussed above will
be resolved without a material adverse impact on our cash flows, results of
operations or financial condition, it is reasonably possible that our judgments
regarding some or all of these matters could change in the near term. We believe
the aggregate exposure related to these claims in excess of our accrual is up to
$62 million of charges that would affect our future operating results and
financial position.
|
Spartan
Unfair Labor Practice Matter & Related Age Discrimination Class
Action
|
In 2005,
the United Mine Workers of America (“UMWA”) filed an unfair labor practice
charge with the National Labor Relations Board (“NLRB”) alleging that one of our
subsidiaries, Spartan Mining Company (“Spartan”), discriminated on the basis of
anti-union animus in its employment offers. The NLRB issued a
complaint and an NLRB Administrative Law Judge (“ALJ”) issued a recommended
decision making detailed findings that Spartan committed a number of unfair
labor practice violations and awarding, among other relief, back pay damages to
union discriminatees. On September 30, 2009, the NLRB upheld the
ALJ’s recommended decision. Spartan has appealed the NLRB’s decision
to the United States Court of Appeals for the Fourth Circuit. We have no
insurance coverage applicable to this unfair labor practice matter; however, its
resolution is not expected to have a material impact on our cash flows, results
of operations or financial condition.
On
November 1, 2006, a class action age discrimination civil case was filed in West
Virginia’s Fayette County Circuit Court. The suit alleged that
Spartan discriminated against employment applicants on the basis of
age. The class includes approximately 229 individuals, 82 of whom are
also union discriminatees at issue in the ALJ’s decision. The plaintiffs made
claims for back pay, front pay, punitive damages, and other compensatory
damages, plus attorney fees. We have insurance coverage applicable to the class
action and, on July 28, 2009, the parties executed a Class Settlement Agreement
establishing a settlement fund from which all class claims and attorney fees
were paid. The majority of the settlement proceeds were paid by the
insurer, with Spartan’s portion of the settlement limited to its insurance
deductible of $1 million dollars plus applicable employer payroll taxes for back
pay allocated to class plaintiffs. On October 30, 2009, a final
hearing was held at which the parties’ settlement agreement was
approved. This matter concluded without a material impact on our cash
flows, results of operations or financial condition.
We are
parties to a number of other legal proceedings, incident to our normal business
activities. These include contract dispute, personal injury, property damage and
employment matters. While we cannot predict the outcome of these proceedings,
based on our current estimates we do not believe that any liability arising from
these matters individually or in the aggregate should have a material adverse
impact upon our consolidated cash flows, results of operations or financial
condition. It is possible, however, that the ultimate liabilities in the future
with respect to these lawsuits and claims, in the aggregate, may be materially
adverse to our cash flows, results of operations or financial
condition.
19.
Quarterly Information (Unaudited)
The table
below details our quarterly financial information for the previous two fiscal
years.
|
|
Three
Months Ended |
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2009
(1) |
|
|
2009 |
|
|
|
2009
(2) |
|
|
2009
(3) |
|
|
|
|
(In
Thousands, Except Per Share Amounts) |
|
|
Total
revenue
|
|
$ |
768,088 |
|
|
$ |
697,627 |
|
|
|
$ |
641,560 |
|
|
$ |
583,884 |
|
Income
before interest and taxes
|
|
|
72,750 |
|
|
|
48,705 |
|
|
|
|
45,783 |
|
|
|
59,738 |
|
Income
before taxes
|
|
|
56,391 |
|
|
|
26,059 |
|
|
|
|
20,880 |
|
|
|
33,935 |
|
Net
income
|
|
|
43,426 |
|
|
|
20,192 |
|
|
|
|
16,458 |
|
|
|
24,357 |
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.51 |
|
|
$ |
0.24 |
|
|
|
$ |
0.19 |
|
|
$ |
0.29 |
|
Diluted
|
|
$ |
0.51 |
|
|
$ |
0.24 |
|
|
|
$ |
0.19 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
|
March
31,
2008
(4)
|
|
|
June
30,
2008
(5)
|
|
|
|
September
30,
2008
(6)
|
|
|
December
31,
2008
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Adjusted
|
|
|
As
Adjusted
|
|
|
|
|
(In
Thousands, Except Per Share Amounts) |
|
|
Total
revenue
|
|
$ |
644,625 |
|
|
$ |
826,838 |
|
|
|
$ |
763,296 |
|
|
$ |
755,030 |
|
Income
(loss) before interest and taxes
|
|
|
68,975 |
|
|
|
(108,574 |
) |
|
|
|
93,490 |
|
|
|
74,863 |
|
Income
(loss) before taxes
|
|
|
53,239 |
|
|
|
(125,794 |
) |
|
|
|
61,852 |
|
|
|
59,630 |
|
Net
income (loss)
|
|
|
41,934 |
|
|
|
(93,338 |
) |
|
|
|
51,558 |
|
|
|
47,675 |
|
Net
income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.53 |
|
|
$ |
(1.16 |
) |
|
|
$ |
0.62 |
|
|
$ |
0.56 |
|
Diluted
|
|
$ |
0.52 |
|
|
$ |
(1.16 |
) |
|
|
$ |
0.61 |
|
|
$ |
0.56 |
|
(1)
|
Net
income for the first quarter of 2009 included the recognition of $12.2
million in pre-tax income ($5.1 million benefit recorded in Cost of
purchased coal revenue and $7.1 million in interest income) from the
receipt of black lung excise tax refunds as authorized by federal
legislation passed in October 2008. Additionally, during the first quarter
of 2009, we sold our interest in certain coal reserves to a third party,
recognizing a pre-tax gain of $7.1 million in Other
revenue.
|
(2)
|
Income
for the third quarter of 2009 includes a $24.9 million pre-tax gain on the
exchange of coal reserves.
|
(3)
|
The
results for the fourth quarter of 2009 included the impact of a $6.0
million reserve for bad debt related to a note receivable from a
supplier.
|
(4)
|
Income
for the first quarter of 2008 includes a $13.6 million pre-tax gain on the
exchange of coal reserves.
|
(5)
|
Loss
for the second quarter of 2008 includes $245.3 million pre-tax expense
related to litigation with Wheeling-Pittsburgh Steel Corporation and a
$15.3 million pre tax gain on the exchange of coal
reserves.
|
(6)
|
Income
for the third quarter of 2008 includes $5.8 million pre-tax expense
related to litigation with Wheeling-Pittsburgh Steel Corporation, $9.1
million pre-tax loss on financing transaction related to fees incurred for
the tender offer for our 6.625% Notes (see Note 6 for further
information), $3.6 million pre-tax gain on the exchange of coal reserves
and other assets, and a $6.5 million pre-tax loss on short-term investment
reflecting an impairment of our investment in the Primary Fund (see Note
16 for further information).
|
(7)
|
Income
for the fourth quarter of 2008 includes $12.9 million pre-tax income
related to federal legislation passed that authorized refunds of black
lung excise taxes paid in years that had been statutorily closed and $4.1
million pre-tax gain on financing transaction from the purchase of $19.0
million of our 3.25% Notes on the open market (see Note 6 for further
information.
|
|
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
There
have been no changes in, or disagreements with, accountants on accounting and
financial disclosure.
Item
9A. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures and Changes in Internal Control Over
Financial Reporting
We have
established disclosure controls and procedures to ensure that information
relating to us, including our consolidated subsidiaries, required to be
disclosed in the reports that we file or submit under the Exchange Act, is
accumulated and communicated to management, including the principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act), as of the end of the period covered by this report.
Based on
our evaluation as of December 31, 2009, the principal executive officer and
principal financial officer have concluded that the disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
are effective to ensure that the information required to be disclosed in reports
that we file or furnish under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms.
There has
been no change in our internal control over financial reporting during the
quarter ended December 31, 2009, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Management’s
Evaluation of Internal Control Over Financial Reporting
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, management is required to
include in this Form 10-K an internal control over financial reporting report
wherein management states its responsibility for establishing and maintaining
adequate internal control structure and procedures for financial reporting and
assesses the effectiveness of such structure and procedures. This management
report follows.
MANAGEMENT
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The
management of Massey Energy Company (“Massey”) is responsible for establishing
and maintaining adequate internal control over financial reporting as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended. Massey’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.
Massey’s
internal control over financial reporting includes policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect transactions and dispositions of assets of Massey; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made only in
accordance with authorizations of management and the directors of Massey; and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of Massey’s assets that could have
a material effect on the Company’s financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Massey’s
management assessed the effectiveness of Massey’s internal control over
financial reporting as of December 31, 2009. In making this assessment, Massey
used the criteria in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment based
on those criteria, Massey’s management has concluded that, as of December 31,
2009, internal control over financial reporting is effective.
The
effectiveness of our internal control over financial reporting as of December
31, 2009, has been audited by Ernst & Young LLP, an independent registered
public accounting firm, as stated in their report, which follows immediately
hereafter.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Shareholders of Massey Energy Company
We have
audited Massey Energy Company’s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Massey Energy Company’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Massey Energy Company maintained, in all material respects, effective
internal control over financial reporting as of December, 31, 2009, based on the
COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2009 consolidated financial statements of
Massey Energy Company and our report dated March 1, 2010 expressed an
unqualified opinion thereon.
/s/ Ernst
& Young LLP
Richmond,
Virginia
March 1,
2010
Item
9B. Other Information
None.
Part
III
Item
10. Directors, Executive Officers and Corporate Governance
Executive
Officers of the Registrant
Don
L. Blankenship, Age 59
Mr.
Blankenship has been a director since 1996. He has been Chairman and Chief
Executive Officer since November 2000 and also held the position of President
from November 2000 until November 2008. He has been Chairman and Chief Executive
Officer of A.T. Massey Coal Company, Inc., our wholly owned and sole, direct
operating subsidiary, since 1992 and served as its President from 1992 until
November 2008. Mr. Blankenship was formerly President and Chief Operating
Officer from 1990 to 1991 and President of our subsidiary, Massey Coal Services,
Inc., from 1989 to 1991. He joined our subsidiary, Rawl Sales & Processing
Co., in 1982. He is a director of the National Mining Association and the
United States Chamber of Commerce.
Baxter
F. Phillips, Jr., Age 63
Mr.
Phillips has been a director since 2007. He has been President since
November 2008. Mr. Phillips previously served as Executive Vice President and
Chief Administrative Officer from November 2004 to November 2008, as Senior Vice
President and Chief Financial Officer from September 2003 to November 2004 and
as Vice President and Treasurer from 2000 to August 2003. Mr. Phillips joined us
in 1981 and has also served in the roles of Corporate Treasurer, Manager of
Export Sales and Corporate Human Resources Manager, among others.
J.
Christopher Adkins, Age 46
Mr.
Adkins has been Senior Vice President and Chief Operating Officer since July
2003. Mr. Adkins joined our subsidiary, Rawl Sales & Processing Co., in 1985
to work in underground mining. Since that time, he has served as section
foreman, plant supervisor, President and Vice President of several subsidiaries,
President of our Eagle Energy subsidiary, Director of Production of Massey Coal
Services, Inc. and Vice President of Underground Production.
Mark
A. Clemens, Age 43
Mr. Clemens has been Senior Vice
President, Group Operations since July 2007. From January 2003 to July 2007, Mr.
Clemens was President of Massey Coal Services, Inc. Mr. Clemens was formerly
President of Independence Coal Company, Inc., one of our operating subsidiaries,
from 2000 through December 2002 and our Corporate Controller from 1997 to 1999.
Mr. Clemens has held a number of other accounting positions and has been with us
since 1989.
Michael
K. Snelling, Age 53
Mr.
Snelling has been Vice President, Surface Operations of our subsidiary, Massey
Coal Services, Inc. since June 2005. Mr. Snelling was formerly Director of
Surface Mining of Massey Coal Services, Inc. from July 2003 until May 2005. Mr.
Snelling joined us in 2000 and has served us in a variety of capacities,
including President of our subsidiary, Nicholas Energy Co. Prior to joining us,
Mr. Snelling held various positions in the coal industry including engineer,
production supervisor, plant supervisor, general foreman, manager of contract
mining, superintendent, mine manager and vice president of
operations.
Michael
D. Bauersachs, Age 45
Mr.
Bauersachs has been Vice President, Planning since May 2005. Mr. Bauersachs
joined us in 1998, and served as Director of Acquisitions from 1998 until 2005.
Prior to joining us, Mr. Bauersachs held various positions with Zeigler Coal
Holding Company and Arch Mineral Corporation.
Jeffrey
M. Gillenwater, Age 45
Mr.
Gillenwater has been Vice President, Human Resources since January 2009. In
October 1999, Mr. Gillenwater became Director of Human Resources at our Massey
Coal Services, Inc. subsidiary, and held the position of Director of External
Affairs & Administration from October 2002 until January 2009. Prior to
October 2002 he held the position of Human Resources Manager at several of our
subsidiaries.
Richard
R. Grinnan, Age 41
Mr.
Grinnan has been Vice President and Corporate Secretary since May 2006. He
served as Senior Corporate Counsel from July 2004 until May 2006. Prior to
joining us, Mr. Grinnan was a corporate and securities attorney at the law firm
of McGuireWoods LLP in Richmond, Virginia from August 2000 until July
2004.
M.
Shane Harvey, Age 40
Mr.
Harvey has been Vice President and General Counsel since January 2008. He served
as Vice President and Assistant General Counsel from November 2006 until January
2008 and as Corporate Counsel and Senior Corporate Counsel from April 2000 until
November 2006. Prior to joining us, Mr. Harvey was an attorney at the law firm
of Jackson Kelly PLLC in Charleston, West Virginia from May 1994 until April
2000.
Jeffrey
M. Jarosinski, Age 50
Mr.
Jarosinski was appointed Vice President, Treasurer and Chief Compliance Officer
in February 2009. Prior to that he served as Vice President, Finance since 1998
and Chief Compliance Officer since December 2002. From 1998 through December
2002, Mr. Jarosinski was Chief Financial Officer. Mr. Jarosinski was formerly
Vice President, Taxation from 1997 to 1998 and Assistant Vice President,
Taxation from 1993 to 1997. Mr. Jarosinski joined us in 1988.
John
M. Poma, Age 45
Mr. Poma
has been Vice President and Chief Administrative Officer since January
2009. Mr. Poma previously served as Vice President, Human Resources
from April 2003 to January 2009. Mr. Poma served as Corporate Counsel from 1996
until 2000 and as Senior Corporate Counsel from 2000 through March 2003. Prior
to joining us in 1996, Mr. Poma was an employment attorney with the law firms of
Midkiff & Hiner in Richmond, Virginia and Jenkins, Fenstermaker, Krieger,
Kayes & Farrell in Huntington, West Virginia.
Steve
E. Sears, Age 61
Mr. Sears
has been Vice President, Sales and Marketing, and President of our subsidiary
Massey Coal Sales Company, Inc. since December 2008. Mr. Sears served
as President of Massey Industrial and Utility Sales, a division of Massey Coal
Sales Company, Inc., from December 2006 to December 2008. Mr. Sears
has held various positions within the sales department. He joined us
in 1981.
Eric
B. Tolbert, Age 42
Mr.
Tolbert has been Vice President and Chief Financial Officer since November 2004.
Mr. Tolbert served as Corporate Controller from 1999 to 2004. He joined us in
1992 as a financial analyst and subsequently served as Director of Financial
Reporting. Prior to joining us, Mr. Tolbert worked for the public
accounting firm Arthur Andersen from 1990 to 1992.
David
W. Owings, Age 36
Mr.
Owings has been Corporate Controller and principal accounting officer since
November 2004. Mr. Owings previously served as Manager of Financial Reporting
since joining us in 2001. Prior to joining us, Mr. Owings worked at Ernst &
Young LLP, the Company’s independent registered public accounting firm, serving
as a manager from January 2001 through September 2001 and as a senior auditor
from October 1998 through January 2001 in the Assurance and Advisory Business
Services group.
The
following information is incorporated by reference from our definitive proxy
statement pursuant to Regulation 14A, which will be filed not later than 120
days after the close of Massey’s fiscal year ended December 31,
2009:
|
•
|
Information
regarding the directors required by this item is found under the heading
Election of
Directors.
|
|
•
|
Information
regarding our Audit Committee required by this item is found under the
heading Committees of
the Board.
|
|
•
|
Information
regarding Section 16(a) Beneficial Ownership Reporting Compliance required
by this item is found under the heading Section 16(a) Beneficial
Ownership Reporting
Compliance.
|
|
•
|
Information
regarding our Code of Ethics required by this item is found under the
heading Code of
Ethics.
|
Because
Common Stock is listed on the NYSE, our chief executive officer
is required to make, and he has made, an annual certification to the NYSE
stating that he was not aware of any violation by us of the corporate governance
listing standards of the NYSE. Our chief executive officer
made his annual certification to that effect to the NYSE as of May 21, 2009. In
addition, we have filed, as exhibits to this annual report on Form 10-K, the
certifications of our principal executive officer and principal financial
officer required under Section 302 of the Sarbanes Oxley Act of 2002 to be filed
with the SEC regarding the quality of
our public disclosure.
Item
11. Executive Compensation
Information
required by this item is included in the Compensation Discussion and
Analysis, Compensation of Named Executive Officers, Compensation Committee
Interlocks and Insider Participation, and Compensation Committee Report on
Executive Compensation sections of the definitive proxy statement
pursuant to Regulation 14A, involving the election of directors, which is
incorporated herein by reference and will be filed not later than 120 days after
the close of our fiscal year ended December 31, 2009.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information
required by this item is included in the Stock Ownership of Directors and
Executive Officers and Stock Ownership of Certain
Beneficial Owners sections of the definitive proxy statement pursuant to
Regulation 14A, involving the election of directors, which is incorporated
herein by reference and will be filed not later than 120 days after the close of
our fiscal year ended December 31, 2009.
The
following table sets forth as of December 31, 2009, the number of shares of
Common Stock authorized for issuance under our equity compensation
plan.
Plan
Category
|
|
(a)
Number of securities to be issued upon exercise of outstanding options,
warrants and rights (1),
(2)
|
|
|
(b)
Weighted-average per share exercise price of outstanding options, warrants
and rights (2)
|
|
|
(c)
Number of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
Equity
compensation plans approved by
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
|
2,053,082 |
|
|
$ |
27.05 |
|
|
|
2,704,145 |
|
Equity
compensation plans not approved by
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders
(3)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
2,053,082 |
|
|
$ |
27.05 |
|
|
|
2,704,145 |
|
__________________________
(1)
|
There
are no outstanding warrants or
rights.
|
(2)
|
These
amounts do not include shares to be issued upon vesting of restricted
stock because they have no exercise
price.
|
(3)
|
We
do not have any equity compensation plans that have not been approved by
our shareholders.
|
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Information
required by this item is included in the Certain Relationships and Related
Transactions and Director Independence
sections of the definitive proxy statement pursuant to Regulation 14A,
involving the election of directors, which is incorporated herein by reference
and will be filed not later than 120 days after the close of our fiscal year
ended December 31, 2009.
Item
14. Principal Accountant Fees and Services
Information
concerning principal accountant fees and services contained under the heading
The Audit Committee
Report in the definitive proxy statement pursuant to Regulation 14A,
which is incorporated by reference and will be filed not later than 120 days
after the close of our fiscal year ended December 31, 2009.
Part
IV
Item
15. Exhibits and Financial Statement Schedules
(a)
|
Documents
filed as part of this report:
|
|
|
|
1. Financial
Reports:
|
|
|
|
|
|
Consolidated
Statements of Income for the Fiscal Years Ended December 31, 2009, 2008
and 2007
|
|
|
|
|
|
Consolidated
Balance Sheets at December 31, 2009 and 2008
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Fiscal Years Ended December 31, 2009,
2008, and 2007
|
|
|
|
|
|
Consolidated
Statements of Shareholders’ Equity for the Fiscal Years Ended December 31,
2009, 2008, and 2007
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
|
|
|
2. Financial
Statement Schedules: Except as set forth below, all schedules have been
omitted since the required information is not present or not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the Consolidated Financial Statements
and Notes thereto.
|
|
|
|
|
|
Schedule
II—Valuation and Qualifying Accounts
|
|
|
|
|
|
3. Exhibits:
|
|
Exhibit
No.
|
|
Description
|
3.1
|
|
Certificate
of Ownership and Merger merging Massey Energy Company with and into Fluor
Corporation accompanied by Restated Certificate of Incorporation of Massey
Energy Company, as amended [filed as Exhibit 3.1 to Massey’s annual report
on Form 10-K for the fiscal year ended October 31, 2000 and incorporated
by reference]
|
3.2
|
|
Restated
Bylaws (as amended as of July 1, 2009) of Massey Energy Company [filed as
Exhibit 3.1 to Massey’s current report on Form 8-K filed July 2, 2009 and
incorporated by reference]
|
4.1
|
|
Senior
Indenture, dated May 29, 2003, by and among Massey Energy Company,
subsidiaries of Massey Energy Company, as Guarantors and Wilmington Trust
Company, as Trustee, [filed as Exhibit 4.1 to Massey’s current report on
Form 8-K filed May 30, 2003 and incorporated by
reference]
|
4.2
|
|
Second
Supplemental Indenture, dated April 7, 2004, by and among Massey Energy
Company, subsidiaries of Massey Energy Company, as Guarantors, and
Wilmington Trust Company, as Trustee, supplementing that certain Senior
Indenture dated May 29, 2003, in connection with the Company’s 2.25%
Convertible Senior Notes [filed as Exhibit 4.1 to Massey’s current report
on Form 8-K filed April 4, 2004 and incorporated by
reference]
|
4.3
|
|
Third
Supplemental Indenture, dated July 20, 2009, by and among Massey Energy
Company, subsidiaries of Massey Energy Company, as Guarantors, and
Wilmington Trust Company, as Trustee, in connection with the Company’s
2.25% Senior Notes [filed as Exhibit 4.1 to Massey’s quarterly report on
Form 10-Q filed August 10, 2009 and incorporated by
reference].
|
4.4
|
|
Fourth
Supplemental Indenture, dated August 28, 2009, by and among Massey Energy
Company, subsidiaries of Massey Energy Company as Guarantors, and
Wilmington Trust Company, as Trustee, in connection with the Company’s
2.25% Senior Notes [filed as Exhibit 4.1 to Massey’s quarterly report on
Form 10-Q filed October 28, 2009 and incorporated by
reference].
|
4.5
|
|
Indenture,
dated as of December 21, 2005, by and among Massey Energy
Company, subsidiaries of Massey Energy Company, as Guarantors, and
Wilmington Trust Company, as Trustee, in connection with the Company’s
6.875% Senior Notes [filed as Exhibit 4.1 to Massey’s current report on
Form 8-K filed December 21, 2005, and incorporated by
reference]
|
4.6
|
|
First
Supplemental Indenture, dated July 20, 2009, by and among Massey Energy
Company, subsidiaries of Massey Energy Company as Guarantors, and
Wilmington Trust Company, as Trustee, in connection with the Company’s
6.875% Senior Notes [filed as Exhibit 4.3 to Massey’s quarterly report on
Form 10-Q filed August 10, 2009 and incorporated by
reference].
|
|
|
|
4.7
|
|
Second
Supplemental Indenture, dated August 28, 2009, by and among Massey Energy
Company, subsidiaries of Massey Energy Company as Guarantors, and
Wilmington Trust Company, as Trustee, in connection with the Company’s
6.875% Senior Notes [filed as Exhibit 4.3 to Massey’s quarterly report on
Form 10-Q filed October 28, 2009 and incorporated by
reference].
|
4.8
|
|
Senior
Indenture, dated as of August 12, 2008, by and among Massey Energy
Company, subsidiaries of Massey Energy Company, as Guarantors, and
Wilmington Trust Company, as Trustee, in connection with the Company’s
3.25% Senior Notes [filed as Exhibit 4.1 to Massey’s current report on
Form 8-K filed August 12, 2008, and incorporated by
reference]
|
4.9
|
|
First
Supplemental Indenture, dated as of August 12, 2008, by and
among Massey Energy Company, subsidiaries of Massey Energy Company, as
Guarantors, and Wilmington Trust Company, as Trustee, in connection with
the Company’s 3.25% Senior Notes [filed as Exhibit 4.2 to Massey’s current
report on Form 8–K filed August 12, 2008, and incorporated by
reference]
|
4.10
|
|
Second
Supplemental Indenture, dated as of July 20, 2009, by and among
Massey Energy Company, subsidiaries of Massey Energy Company, as
Guarantors, and Wilmington Trust Company, as Trustee, in connection with
the Company’s 3.25% Senior Notes [filed as Exhibit 4.4 to Massey’s
quarterly report on Form 10-Q filed August 10, 2009, and incorporated by
reference]
|
4.11
|
|
Third
Supplemental Indenture, dated as of August 28, 2009, by and
among Massey Energy Company, subsidiaries of Massey Energy Company, as
Guarantors, and Wilmington Trust Company, as Trustee, in connection with
the Company’s 3.25% Senior Notes [filed as Exhibit 4.4 to Massey’s
quarterly report on Form 10-Q filed October 28, 2009, and incorporated by
reference]
|
10.1
|
|
Amended
and Restated Credit Agreement dated as of August 15, 2006, among A. T.
Massey Coal Company, Inc. and certain of its subsidiaries, as Borrowers,
Massey Energy Company and certain of its subsidiaries, as Guarantors, Bank
of America, N. A., as Syndication Agent, General Electric Capital
Corporation, as Documentation Agent, The CIT Group/Business Credit, Inc.,
as Collateral Agent, UBS Securities LLC, as Arranger, UBS AG, Stamford
Branch, as Administrative Agent, and UBS Loan Finance LLC, as Swingline
Lender, and the lenders party thereto [filed as Exhibit 10.6 to Massey’s
current report on Form 8-K filed August 18, 2006 and incorporated by
reference]
|
10.2
|
|
First
Amendment to Amended and Restated Credit Agreement dated March 12, 2007
[filed as Exhibit 10.1 to Massey’s quarterly report on Form 10-Q filed May
10, 2007 and incorporated by reference]
|
10.3
|
|
Limited
Consent and Second Amendment to Amended and Restated Credit Agreement
dated July 19, 2007 [filed as Exhibit 10.1 to Massey’s quarterly report on
Form 10-Q filed August 9, 2007 and incorporated by
reference]
|
10.4
|
|
Third
Amendment to Amended and Restated Credit Agreement dated March 10, 2008
[filed as Exhibit 10.1 to Massey’s current report on Form 8-K filed March
14, 2008 and incorporated by reference]
|
10.5
|
|
Fourth
Amendment to Amended and Restated Credit Agreement dated October 10, 2008
[filed as Exhibit 10.1 to Massey’s current report on Form 8-K filed
October 16, 2008 and incorporated by reference]
|
10.6
|
|
Equity
Distribution Agreement dated February 3, 2009 between Massey Energy
Company and UBS Securities LLC [filed as Exhibit 1.1 to Massey’s current
report on Form 8-K filed February 4, 2009 and incorporated by
reference]
|
10.7
|
|
Massey
Energy Company 1982 Shadow Stock Plan (as amended and restated effective
November 30, 2000) [filed as Exhibit 10.8 to Massey’s annual report on
Form 10-K for the fiscal year ended October 31, 2000 and incorporated by
reference]
|
10.8
|
|
Massey
Energy Company 1988 Executive Stock Plan (as amended and restated
effective November 30, 2000) [filed as Exhibit 10.6 to Massey’s annual
report on Form 10-K for the fiscal year ended October 31, 2000 and
incorporated by reference]
|
10.9
|
|
Massey
Energy Company 1996 Executive Stock Plan (as amended and restated,
effective January 1, 2009) [filed as Exhibit 10.14 to Massey’s current
report on Form 8-K filed December 24, 2008 and incorporated by
reference]
|
10.10
|
|
Massey
Energy Company 1997 Stock Appreciation Rights Plan (as amended and
restated, effective November 30, 2000) [filed as Exhibit 10.9 to Massey’s
annual report on Form 10-K for the fiscal year ended October 31, 2000 and
incorporated by reference]
|
10.11
|
|
Massey
Energy Company 1999 Executive Performance Incentive Plan (as amended and
restated, effective January 1, 2009) [filed as Exhibit 10.15 to Massey’s
current report on Form 8-K filed December 24, 2008 and
incorporated by reference]
|
10.12
|
|
Massey
Energy Company 2006 Stock and Incentive Compensation Plan (as amended and
restated, effective August 18, 2009) [filed as Exhibit 10.1 to Massey’s
current report on Form 8-K filed August 21, 2009 and incorporated by
reference]
|
10.13
|
|
Form
of Non-Employee Director Initial
Restricted Stock Award Agreement under the Massey Energy Company 2006
Stock and Incentive Compensation Plan [filed as Exhibit 10.2 to Massey’s
current report on Form 8-K filed December 31, 2008 and incorporated by
reference]
|
10.14
|
|
Form
of Non-Employee Director Initial
Restricted Unit Award Agreement under the Massey Energy Company 2006 Stock
and Incentive Compensation Plan [filed as Exhibit 10.3 to Massey’s current
report on Form 8-K filed December 31, 2008 and incorporated by
reference]
|
10.15
|
|
Form
of Non-Employee Director Annual Restricted Stock Award Agreement under the
Massey Energy Company 2006 Stock and Incentive Compensation Plan [filed as
Exhibit 10.1 to Massey’s current report on Form 8-K filed February 22.
2010 and incorporated by reference]
|
10.16
|
|
Form
of Non-Employee Director Annual Stock Option Award Agreement under the
Massey Energy Company 2006 Stock and Incentive Compensation Plan [filed as
Exhibit 10.2 to Massey’s current report on Form 8-K filed February 22,
2010 and incorporated by reference]
|
10.17
|
|
Form
of stock option agreement under the Massey Energy Company 2006 Stock and
Incentive Compensation Plan [filed as Exhibit 10.2 to Massey’s current
report on Form 8-K filed November 16, 2009 and incorporated by
reference]
|
10.18
|
|
Form
of restricted stock agreement under the Massey Energy Company 2006 Stock
and Incentive Compensation Plan [filed as Exhibit 10.3 to Massey’s current
report on Form 8-K filed November 16, 2009 and incorporated by
reference]
|
10.19
|
|
Form
of restricted unit agreement under the Massey Energy Company 2006 Stock
and Incentive Compensation Plan [filed as Exhibit 10.4 to Massey’s current
report on Form 8-K filed November 16, 2009 and incorporated by
reference]
|
10.20
|
|
Form
of cash incentive award agreement based on earnings before taxes under the
Massey Energy Company 2006 Stock and Incentive Compensation Plan [filed as
Exhibit 10.6 to Massey’s current report on Form 8-K filed November 14,
2008 and incorporated by reference]
|
10.21
|
|
Form
of amended cash incentive award agreement based on earnings before taxes
under the Massey Energy Company 2006 Stock and Incentive
Compensation Plan [filed as Exhibit 10.2 to Massey’s current report in
Form 8-K filed January 6, 2010 and incorporated by
reference.
|
10.22 |
|
Form
of cash incentive award agreement based on earnings before interest and
taxes under the Massey Energy Company 2006 Stock and Incentive
Compensation Plan [filed as Exhibit 10.6 to Massey’s current report on
Form 8-K filed November 14, 2008 and incorporated by
reference]
|
10.23
|
|
Form
of cash incentive award agreement based on earnings before interest,
taxes, deprecation and amortization under the Massey Energy Company 2006
Stock and Incentive Compensation Plan [filed as Exhibit 10.7 to Massey’s
current report on Form 8-K filed November 14, 2008 and incorporated by
reference]
|
10.24
|
|
A.T.
Massey Coal Company, Inc. Supplemental Benefit Plan (as amended and
restated as of January 1, 2009) [filed as Exhibit 10.20 to Massey’s
current report on Form 8-K filed December 24, 2008 and incorporated by
reference]
|
10.25 |
|
A.T.
Massey Coal Company, Inc. Executive Deferred Compensation Plan (as amended
and restated as of January 1, 2009) [filed as Exhibit 10.19 to Massey’s
current report on Form 8-K filed December 24, 2008 and incorporated by
reference] |
10.26
|
|
Massey
Executive Deferred Compensation Program (as amended and restated as of
January 1, 2009) [filed as Exhibit 10.17 to Massey’s current report on
Form 8-K filed December 24, 2008 and incorporated by
reference]
|
10.27
|
|
Massey
Energy Company Executive Physical Program [filed as Exhibit 10.3 to
Massey’s annual report on Form 10-K for the fiscal year ended October 31,
2000 and incorporated by reference]
|
10.28
|
|
Massey
Executives’ Supplemental Benefit Plan (as amended and restated effective
January 1, 2009) [filed as Exhibit 10.13 to Massey’s current report on
Form 8-K filed December 24, 2008 and incorporated by
reference]
|
10.29
|
|
Massey
Executives’ Supplemental Benefit Plan Agreement (effective as of January
1, 2005) between Massey and Don L. Blankenship [filed as Exhibit 10.2 to
Massey’s current report on Form 8-K filed January 5, 2006 and incorporated
by reference]
|
10.30
|
|
Letter
Agreement dated December 30, 2009, between Massey Energy Company and Don
L. Blankenship [filed as Exhibit 10.1 to Massey’s current report on Form
8-K filed January 6, 2010 and incorporated by
reference]
|
10.31
|
|
Retention
and Employment Agreement as amended and restated, effective January 1,
2009, between Massey Energy Company and John Christopher Adkins [filed as
Exhibit 10.10 to Massey’s current report on Form 8-K filed December 24,
2008 and incorporated by reference]
|
10.32
|
|
Amendment
to Retention and Employment Agreement between Massey Energy Company and
John C. Adkins effective January 1, 2010 [filed as Exhibit 10.4 to
Massey’s current report of Form 8-K filed January 6, 2010 and incorporated
by reference]
|
10.33
|
|
Employment
Agreement dated May 28, 2009 between Massey Energy Company and Michael K.
Snelling [filed as Exhibit 10.1 to Massey’s quarterly report on Form 10-Q
filed August 10, 2009 and incorporated by reference]
|
10.34
|
|
Special
Successor and Development Retention Program between Fluor Corporation and
Don L. Blankenship dated as of September 1998 [filed as Exhibit 10.21 to
Fluor’s annual report on Form 10-K for the fiscal year ended October 31,
1998 and incorporated by reference]
|
10.35
|
|
Amendment
to Special Successor and Development Retention Program between Massey
(formerly Fluor Corporation) and Don L. Blankenship, effective January 1,
2009 [filed as Exhibit 10.23 to Massey’s current report on Form 8-K filed
December 24, 2008]
|
10.36
|
|
Employment
and Change in Control Agreement dated November 10, 2008 between Massey
Energy Company and Baxter F. Phillips, Jr. [filed as Exhibit 10.2 to
Massey’s current report on Form 8-K filed November 14, 2008 and
incorporated by reference]
|
10.37
|
|
Amendment
to Employment and Change in Control Agreement between Massey Energy
Company and Baxter F. Phillips, Jr. effective January 1, 2010 [filed as
Exhibit 10.3 to Massey’s current report on Form 8-K filed January 6, 2010
and incorporated by reference]
|
10.38
|
|
Form
of Change in Control Severance Agreement for Tier 1 Participants [filed as
Exhibit 10.36 to Massey’s annual report on Form 10-K filed March 2, 2009
and incorporated by reference]
|
10.39
|
|
Form
of Change in Control Severance Agreement for Tier 2 Participants [filed
Exhibit 10.37 to Massey’s annual report on Form 10-K filed March 2, 2009
and incorporated by reference]
|
10.40
|
|
Form
of Change in Control Severance Agreement for Tier 3 Participants [filed
Exhibit 10.38 to Massey’s annual report on Form 10-K filed March 2, 2009
and incorporated by reference]
|
10.41
|
|
Change
in Control Severance Agreement (as amended and restated) dated as of
December 23, 2008 between Massey Energy Company and Don L. Blankenship
[filed as Exhibit 10.24 to Massey’s current report on Form 8-K filed
December 24, 2008 and incorporated by reference]
|
10.42
|
|
Change
in Control Severance Agreement (as amended and restated) dated as of
December 23, 2008 between Massey Energy Company and J. Christopher Adkins
[filed as Exhibit 10.25 to Massey’s current report on Form 8-K filed
December 24, 2008 and incorporated by reference]
|
10.43
|
|
Change
in Control Severance Agreement (as amended and restated) dated as of
December 23, 2008 between Massey Energy Company and Eric B. Tolbert [filed
as Exhibit 10.26 to Massey’s current report on Form 8-K filed December 24,
2008 and incorporated by reference]
|
10.44
|
|
Change
in Control Severance Agreement (as amended and restated) dated as of
December 23, 2008 between Massey Energy Company and Michael K. Snelling
[filed as Exhibit 10.27 to Massey’s current report on Form 8-K filed
December 24, 2008 and incorporated by reference]
|
10.45
|
|
Massey
Energy Company 2010 - 2012 Long Term Incentive Award Program as reported
on Massey’s current report on Form 8-K [filed November 16, 2009 and
incorporated by reference]
|
10.46
|
|
Massey
Energy Company 2010 Bonus Program as reported on Massey’s current report
on Form 8-K [filed November 16, 2009 and incorporated by
reference]
|
10.47
|
|
Base
salary amounts set for Massey’s named executive officers as reported on
Massey’s current reports on Form 8-K [filed November 16, 2009 and January
6, 2010 and incorporated by reference]
|
10.48
|
|
Massey
Energy Company Non-Employee Directors Compensation Summary (as amended and
restated effective November 9, 2009) [filed as Exhibit 10.1 to Massey’s
current report on Form 8-K filed November 16, 2009 and incorporated by
reference]
|
10.49
|
|
Massey
Energy Company Stock Plan for Non-Employee Directors (as amended and
restated, effective January 1, 2009) [filed as Exhibit 10.21 to Massey’s
current report on Form 8-K filed December 24, 2008 and incorporated by
reference]
|
10.50
|
|
Massey
Energy Company 1997 Restricted Stock Plan for Non-Employee Directors (as
amended and restated, effective January 1, 2009) [filed as Exhibit 10.22
to Massey’s current report on Form 8-K filed December 24, 2008 and
incorporated by reference]
|
10.51
|
|
Massey
Energy Company Deferred Directors’ Fees Program (amended and restated,
effective January 1, 2009) [filed as Exhibit 10.18 to Massey’s current
report on Form 8-K filed December 24, 2008 and incorporated by
reference]
|
10.52
|
|
Distribution
Agreement between Fluor Corporation and Massey Energy Company dated as of
November 30, 2000 [filed as Exhibit 10.1 to Massey’s current report on
Form 8-K filed December 15, 2000 and incorporated by this
reference]
|
10.53
|
|
Tax
Sharing Agreement between Fluor Corporation, Massey Energy Company and
A.T. Massey Coal Company, Inc. dated as of November 30, 2000 [filed as
Exhibit 10.2 to Massey’s current report on Form 8-K filed December 15,
2000 and incorporated by this reference]
|
21
|
|
Massey
Energy Company Subsidiaries [filed herewith]
|
23.1
|
|
Consent
of Independent Registered Public Accounting Firm [filed
herewith]
|
24
|
|
Manually
signed Powers of Attorney executed by Massey directors [filed
herewith]
|
31.1
|
|
Certification
of Chief Executive Officer, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 [filed herewith]
|
31.2
|
|
Certification
of Chief Financial Officer, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 [filed herewith]
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 [furnished
herewith]
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 [furnished
herewith]
|
101 |
|
Interactive
Data File (Annual Report on Form 10-K, for the fiscal year ended December
31, 2009, furnished in XBRL (eXtensible Business Reporting
Language)). |
|
|
Attached
as Exhibit 101 to this report are the following documents formatted in
XBRL: (i) the Consolidated Statements of Income for each of the years
ended December 31, 2009, 2008 and 2007, (ii) the Consolidated Balance
Sheets at December 31, 2009 and 2008, (iii) the Consolidated Statement of
Cash Flows for each of the years ended December 31, 2009, 2008 and 2007,
(iv) the Consolidated Statement of Shareholders' Equity for each of the
years ended December 31, 2009, 2008 and 2007, (v) the Notes to the
Consolidated Financial Statements, tagged as blocks of text and (vi)
Schedule II - Valuation of Qualifying Accounts, tagged as blocks of text.
Users of this data are advised pursuant to Rule 406T of Regulation S-T
that this interactive data file is deemed not filed or part of a
registration statement or prospectus for purposes of sections 11 or 12 of
the Securities Act of 1933, is deemed not filed for purposed of section 18
of the Securities and Exchange Act of 1934, and otherwise is not subject
to liability under these sections. |
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
MASSEY
ENERGY COMPANY
|
March
1, 2010
|
|
|
|
|
By:
|
/s/ ERIC B. TOLBERT
|
|
|
|
|
Eric
B. Tolbert,
|
|
|
|
|
Vice
President and Chief Financial
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
|
|
Signature
|
Title
|
Date
|
Principal
Executive Officer and Director:
|
|
|
/s/ DON L. BLANKENSHIP
Don
L. Blankenship
|
Chairman
and Chief Executive Officer
|
March
1, 2010
|
|
|
|
Principal
Financial Officer:
|
|
|
/s/ ERIC B. TOLBERT
Eric
B. Tolbert
|
Vice
President and Chief Financial Officer
|
March
1, 2010
|
|
|
|
Principal
Accounting Officer:
|
|
|
/s/ DAVID W. OWINGS
David
W. Owings
|
Controller
|
March
1, 2010
|
|
|
|
Other
Directors:
|
|
|
__________*__________
James
B. Crawford
|
Director
|
March
1, 2010
|
|
|
|
__________*__________
Robert
H. Foglesong
|
Director
|
March
1, 2010
|
|
|
|
__________*__________
Richard
M. Gabrys
|
Director
|
March
1, 2010
|
|
|
|
__________*__________
Bobby
R. Inman
|
Director
|
March
1, 2010
|
|
|
|
__________*__________
Lady
Judge
|
|
March
1, 2010
|
|
|
|
_________*__________
Dan
R. Moore
|
Director
|
March
1, 2010
|
|
|
|
_________*_________
Baxter
F. Phillips, Jr.
|
Director
and President
|
March
1, 2010
|
|
_________*________
Stanley
C. Subuleski
|
|
March
1, 2010
|
By: /s/ Richard R.
Grinnan
March 1, 2010
Richard R. Grinnan
Attorney-in-fact
*
|
Manually
signed Powers of Attorney authorizing Eric B. Tolbert, Richard R. Grinnan,
M. Shane Harvey, and Jeffrey M. Jarosinski, and each of them, to sign the
annual report on Form 10-K for the fiscal year ended December 31, 2009 and
any amendments thereto as attorneys-in-fact for certain directors and
officers of the registrant are included herein as Exhibits
24.
|
MASSEY
ENERGY COMPANY
SCHEDULE
II—VALUATION AND QUALIFYING ACCOUNTS
(In
Thousands)
Description
|
|
Balance
at Beginning of Period
|
|
|
Amounts
Charged to Costs and Expenses
|
|
|
Deductions
(1)
|
|
|
Other
|
|
|
Balance
at End of Period
|
|
YEAR
ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for accounts and notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable
|
|
$ |
873 |
|
|
$ |
6,430 |
(2) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR
ENDED DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for accounts and notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable
|
|
$ |
444 |
|
|
$ |
429 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR
ENDED DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for accounts and notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable
|
|
$ |
576 |
|
|
$ |
(132 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
444 |
|
(1) Reserves
utilized, unless otherwise indicated.
(2)
|
Allowance
for accounts and notes receivable for the year ended December 31, 2009
includes a $6 million reserve for bad debt related to a note receivable
from a supplier, which was recorded in Other noncurrent assets at December
31, 2009.
|