Attached files

file filename
EX-12.1 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - Alpha Natural Resources, Inc.dex121.htm
EX-99.1 - MINE SAFETY AND HEALTH ADMINISTRATION DATA - Alpha Natural Resources, Inc.dex991.htm
EX-31.(B) - CERTIFICATION PURSUANT TO RULE 13A-14(A) - Alpha Natural Resources, Inc.dex31b.htm
EX-12.2 - COMPUTATION OF OTHER RATIOS - Alpha Natural Resources, Inc.dex122.htm
EX-32.(A) - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - Alpha Natural Resources, Inc.dex32a.htm
EX-31.(A) - CERTIFICATION PURSUANT TO RULE 13A-14(A) - Alpha Natural Resources, Inc.dex31a.htm
EX-10.13 - ALPHA SERVICE COMPANIES RABBI TRUST AGREEMENT - Alpha Natural Resources, Inc.dex1013.htm
EX-10.12 - ALPHA NATURAL RESOURCES, INC. DEFERRED COMPENSATION PLAN - Alpha Natural Resources, Inc.dex1012.htm
EX-32.(B) - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - Alpha Natural Resources, Inc.dex32b.htm
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

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. 001-32331

 

 

LOGO

ALPHA NATURAL RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   42-1638663

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

One Alpha Place, P.O. Box 2345, Abingdon, Virginia   24212
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code:

(276) 619-4410

 

 

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.    x  Yes    ¨  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 (Sec.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).    x  Yes    ¨  No

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,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x         Accelerated filer  ¨        Non-accelerated filer   ¨        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    x  No

Number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of July 31, 2011 – 226,427,986

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION   
Item 1.   

Financial Statements

  
  

Condensed Consolidated Statements of Operations (Unaudited)

     3   
  

Condensed Consolidated Balance Sheets (Unaudited)

     4   
  

Condensed Consolidated Statements of Cash Flows (Unaudited)

     5   
  

Notes to Condensed Consolidated Financial Statements (Unaudited)

     6   
Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     52   
Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     73   
Item 4.   

Controls and Procedures

     74   
PART II – OTHER INFORMATION   
Item 1.   

Legal Proceedings

     75   
Item 1A.   

Risk Factors

     75   
Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     80   
Item 6.   

Exhibits

     80   

 

2


Table of Contents

Item 1. Financial Statements

ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited) (Note 2)

(Amounts in thousands, except share and per share data)

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2011     2010     2011     2010  

Revenues:

        

Coal revenues

   $ 1,410,892      $ 894,104      $ 2,397,870      $ 1,725,370   

Freight and handling revenues

     150,871        90,268        266,926        155,056   

Other revenues

     31,675        16,033        59,380        41,983   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     1,593,438        1,000,405        2,724,176        1,922,409   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

        

Cost of coal sales (exclusive of items shown separately below)

     1,106,663        657,199        1,841,648        1,232,266   

Freight and handling costs

     150,871        90,268        266,926        155,056   

Other expenses

     45,371        8,443        63,950        24,127   

Depreciation, depletion and amortization

     143,769        91,098        232,111        186,225   

Amortization of acquired intangibles, net

     (9,606     55,633        16,673        121,590   

Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)

     189,671        44,231        256,955        92,020   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     1,626,739        946,872        2,678,263        1,811,284   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (33,301     53,533        45,913        111,125   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest expense

     (29,859     (18,504     (45,469     (40,624

Interest income

     1,012        848        2,057        1,528   

Loss on early extinguishment of debt

     (4,556     (1,349     (4,556     (1,349

Miscellaneous expense, net

     858        (274     24        (478
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (32,545     (19,279     (47,944     (40,923
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (65,846     34,254        (2,031     70,202   

Income tax benefit (expense)

     9,494        4,928        (4,473     (16,350
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (56,352     39,182        (6,504     53,852   
  

 

 

   

 

 

   

 

 

   

 

 

 

Discontinued operations:

        

Loss from discontinued operations before income taxes

     —          (616     —          (1,663

Income tax benefit

     —          231        —          649   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

     —          (385     —          (1,014
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (56,352   $ 38,797      $ (6,504   $ 52,838   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings (loss) per common share:

        

Income (loss) from continuing operations

   $ (0.36   $ 0.33      $ (0.05   $ 0.45   

Loss from discontinued operations

     —          —          —          (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (0.36   $ 0.33      $ (0.05   $ 0.44   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings (loss) per common share:

        

Income (loss) from continuing operations

   $ (0.36   $ 0.32      $ (0.05   $ 0.44   

Loss from discontinued operations

     —          —          —          (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (0.36   $ 0.32      $ (0.05   $ 0.43   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares - basic

     155,238,304        120,124,707        137,723,715        119,983,999   

Weighted average shares - diluted

     155,238,304        121,861,913        137,723,715        121,903,512   

See accompanying Notes to Condensed Consolidated Financial Statements.

 

3


Table of Contents

ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Note 2)

(Amounts in thousands, except share and per share data)

 

     June 30,
2011
    December 31,
2010
 
     (Unaudited)        
Assets     

Current assets:

    

Cash and cash equivalents

   $ 812,291      $ 554,772   

Trade accounts receivable, net

     660,098        281,138   

Inventories, net

     572,660        198,172   

Prepaid expenses and other current assets

     1,214,126        341,755   
  

 

 

   

 

 

 

Total current assets

     3,259,175        1,375,837   

Property, equipment and mine development costs (net of accumulated depreciation and amortization of $1,025,842 and $866,041, respectively)

     2,868,304        1,129,222   

Owned and leased mineral rights and land (net of accumulated depletion of $432,416 and $337,810, respectively)

     8,587,292        1,985,661   

Goodwill

     2,537,598        382,440   

Other non-current assets

     809,685        306,123   
  

 

 

   

 

 

 

Total assets

   $ 18,062,054      $ 5,179,283   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Current liabilities:

    

Current portion of long-term debt

   $ 916,094      $ 11,839   

Trade accounts payable

     522,870        121,553   

Accrued expenses and other current liabilities

     876,306        313,754   
  

 

 

   

 

 

 

Total current liabilities

     2,315,270        447,146   

Long-term debt

     2,614,549        742,312   

Pension and postretirement medical benefit obligations

     1,024,539        719,355   

Asset retirement obligations

     577,447        209,987   

Deferred income taxes

     1,950,567        249,408   

Other non-current liabilities

     1,134,193        155,039   
  

 

 

   

 

 

 

Total liabilities

     9,616,565        2,523,247   
  

 

 

   

 

 

 

Commitments and Contingencies (Note 19)

    

Redeemable convertible long-term debt

     38,011        —     
  

 

 

   

 

 

 
Stockholders’ Equity     

Preferred stock - par value $0.01, 10.0 million shares authorized, none issued

     —          —     

Common stock - par value $0.01, 400.0 million shares authorized, 230.9 million issued and 226.4 million outstanding at June 30, 2011 and 124.3 million issued and 120.5 million outstanding at December 31, 2010

     2,309        1,242   

Additional paid-in capital

     8,032,691        2,238,526   

Accumulated other comprehensive loss

     (32,558     (27,583

Treasury stock, at cost: 4.5 million and 3.8 million shares at June 30, 2011 and December 31, 2010, respectively

     (82,849     (50,538

Retained earnings

     487,885        494,389   
  

 

 

   

 

 

 

Total stockholders’ equity

     8,407,478        2,656,036   
  

 

 

   

 

 

 

Total liabilities, redeemable convertible long-term debt and stockholders’ equity

   $ 18,062,054      $ 5,179,283   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

4


Table of Contents

ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited) (Note 2)

(Amounts in thousands)

 

     Six Months Ended
June  30,
 
     2011     2010  

Operating activities:

    

Net income (loss)

   $ (6,504   $ 52,838   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation, depletion, accretion and amortization

     253,832        203,998   

Amortization of acquired intangibles, net

     16,673        121,590   

Mark-to-market adjustments for derivatives

     4,276        9,421   

Stock-based compensation

     47,009        17,007   

Employee benefit plans, net

     24,993        30,320   

Loss on early extinguishment of debt

     4,556        1,349   

Deferred income taxes

     2,893        (40,111

Other, net

     (13,174     66   

Changes in operating assets and liabilities:

    

Trade accounts receivable, net

     (194,931     (83,759

Inventories, net

     61,740        (24,177

Prepaid expenses and other current assets

     14,796        24,722   

Other non-current assets

     (15,230     395   

Trade accounts payable

     88,141        12,404   

Accrued expenses and other current liabilities

     (49,599     23,749   

Pension and postretirement medical benefit obligations

     (25,086     (9,751

Asset retirement obligations

     (4,833     (3,221

Other non-current liabilities

     74,586        1,091   
  

 

 

   

 

 

 

Net cash provided by operating activities

     284,138        337,931   
  

 

 

   

 

 

 

Investing activities:

    

Cash paid for acquisition, net of cash acquired

     (702,645     —     

Capital expenditures

     (172,668     (135,895

Acquisition of mineral rights under federal lease

     (36,108     (36,108

Purchases of marketable securities

     (298,015     (181,145

Sales of marketable securities

     200,173        57,680   

Purchase of equity-method investment

     (4,000     (3,000

Other, net

     (3,185     2,017   
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,016,448     (296,451
  

 

 

   

 

 

 

Financing activities:

    

Principal repayments of long-term debt

     (737,610     (50,934

Payment to redemption trust

     (264,017     —     

Proceeds from borrowings on long-term debt

     2,100,000        —     

Debt issuance costs

     (84,041     (8,690

Excess tax benefit from stock-based awards

     4,777        7,587   

Common stock repurchases

     (32,310     (40,672

Proceeds from exercise of stock options

     3,030        4,245   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     989,829        (88,464
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     257,519        (46,984

Cash and cash equivalents at beginning of period

     554,772        465,869   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 812,291      $ 418,885   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 23,817      $ 31,915   
  

 

 

   

 

 

 

Cash paid for income taxes

   $ 16,947      $ 27,518   
  

 

 

   

 

 

 

Non-cash investing and financing activities:

    

Issuance of equity in connection with Acquisition

   $ 5,673,092      $ —     
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

5


Table of Contents

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in thousands except share and per share data)

 

(1) Business and Basis of Presentation

Business

Alpha Natural Resources, Inc. and its consolidated subsidiaries (the “Company” and “Alpha”) are primarily engaged in the business of extracting, processing and marketing steam and metallurgical coal from surface and deep mines, and mainly sell to electric utilities, steel and coke producers, and industrial customers. The Company, through its subsidiaries, is also involved in marketing coal produced by others to supplement its own production and, through blending, provides its customers with coal qualities beyond those available from its own production.

On June 1, 2011, pursuant to the terms of the previously announced Agreement and Plan of Merger dated as of January 28, 2011 (the “Merger Agreement”), the Company completed its acquisition (the “Acquisition”) of Massey Energy Company, a Delaware corporation (“Massey”). Massey, together with its affiliates, was a major U.S. coal producer operating mines and associated processing and loading facilities in Central Appalachia.

Basis of Presentation

The accompanying interim condensed consolidated financial statements of the Company are unaudited and prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for Form 10-Q. Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) as long as the financial statements are not misleading. In the opinion of management, these interim condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair presentation of the results for the periods presented. Results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in its Annual Report on Form 10-K for the year ended December 31, 2010, filed February 25, 2011.

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include inventories; mineral reserves; allowance for non-recoupable advanced mining royalties; asset impairments; environmental and reclamation obligations; acquisition accounting; pensions, postemployment, postretirement medical and other employee benefit obligations; useful lives for depreciation, depletion, and amortization; reserves for workers’ compensation and black lung claims; current and deferred income taxes; reserves for contingencies and litigation; revenue recognized using the percentage of completion method; and fair value of financial instruments. Estimates are based on facts and circumstances believed to be reasonable at the time; however, actual results could differ from those estimates.

Reclassifications

Certain amounts in the Condensed Consolidated Balance Sheets as of December 31, 2010 have been reclassified to conform to the current year presentation.

 

(2) Acquisition

On June 1, 2011, the Company completed its acquisition of 100% of the outstanding common stock of Massey, a coal producer with operations located primarily in Virginia, West Virginia, and Kentucky. The Company issued 1.025 shares of Alpha common stock and $10.00 in cash for each share of Massey common stock. Upon closing of the Acquisition, Alpha shareholders owned 54% of the combined company and Massey shareholders owned 46% of the combined company.

 

6


Table of Contents

The condensed consolidated statements of operations include acquisition related expenses of $254,412 for the three months ended June 30, 2011, which includes $117,728 in cost of coal sales primarily related to the impact of acquisition accounting and related fair value adjustments to coal inventory, $11,822 in other expenses and $124,862 in selling, general and administrative expenses. For the six months ended June 30, 2011, the condensed consolidated statements of operations include acquisition related expenses of $276,681, which includes $117,728 in cost of coal sales, $11,822 in other expenses and $147,131 in selling, general and administrative expenses.

Total revenues reported in the condensed consolidated statements of income for the three and six months ended June 30, 2011 included revenues of $334,324 from the operations acquired from Massey. The amount of earnings from continuing operations from the operations acquired from Massey included in the consolidated results of operations for the three and six months ended June 30, 2011 is not readily determinable due to various intercompany transactions and allocations that have occurred in connection with the operations of the combined company.

The fair value of the total consideration transferred was $6,714,057. The acquisition date fair value of each class of consideration transferred was as follows:

 

Common shares

   $ 5,649,592   

Other equity awards

     23,500   

Cash

     1,040,965   
  

 

 

 

Total purchase price

   $ 6,714,057   
  

 

 

 

The Company issued 105,984,847 shares of common stock in the transaction. Fair value of common stock issued was determined by the closing price of Alpha’s common stock on the day of the Acquisition. The fair value of other equity awards was determined in accordance with the provisions of Accounting Standards Codification (“ASC”) 505. The total purchase price has been preliminarily allocated to the net tangible and intangible assets of Massey as follows:

 

Inventories

   $ 436,228   

Other current assets

     810,280   

Property, equipment and mine development costs

     1,721,950   

Owned and leased mineral rights and land

     6,636,296   

Goodwill

     2,155,158   

Other intangible assets

     368,928   

Other non-current assets

     91,754   
  

 

 

 

Total assets

     12,220,594   
  

 

 

 

Total current liabilities

     737,998   

Long-term debt, including current portion

     1,397,408   

Pension and post-retirement medical benefits, including current portion

     296,631   

Asset retirement obligations, including current portion

     414,925   

Deferred income taxes, including current portion

     1,491,869   

Below-market contract obligations

     724,775   

Other liabilities

     332,556   
  

 

 

 

Total liabilities

     5,396,162   
  

 

 

 

Equity component of convertible notes

     110,375   
  

 

 

 

Net tangible and intangible assets acquired

   $ 6,714,057   
  

 

 

 

The above purchase price allocation includes provisional amounts for certain assets and liabilities. The purchase price allocation will continue to be refined primarily in the areas of mineral reserves, asset retirement obligations, income taxes, below-market contract obligations (coal supply agreements assumed under which the Company is obligated to deliver coal at below market prices), other contingencies and goodwill. During the measurement period, the Company expects to receive additional detailed information to refine the provisional allocation presented above, including final third party valuation reports and pre-acquisition period tax returns. The Company’s provisional estimate of goodwill has been allocated to Eastern Coal Operations; however, the Company has not completed the allocation of goodwill to all of its reporting units. None of the goodwill will be deductible for income tax purposes.

The intangible assets related to coal supply agreements and transportation agreements will be amortized over the actual amount of tons shipped under each contract. The noncompete agreements and mine permits will be amortized over weighted average useful lives of approximately 17 months and 94 months, respectively.

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the Acquisition occurred on January 1, 2010. The unaudited pro forma results have been prepared based on estimates and assumptions, which the Company believes are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the Acquisition occurred on January 1, 2010, or of future results of operations.

 

7


Table of Contents

The unaudited pro forma results for the three and six months ended June 30, 2011 and 2010 are as follows:

 

     Three Months Ended
June 30, 2011
    Three Months Ended
June 30, 2010
 

Total revenues

    

As reported

   $ 1,593,438      $ 1,000,405   

Pro forma

   $ 2,196,457      $ 1,792,498   

Income (loss) from continuing operations

    

As reported

   $ (56,352   $ 39,182   

Pro forma

   $ (197,511   $ (74,260

Earnings (loss) per share from continuing operations-basic

    

As reported

   $ (0.36   $ 0.33   

Pro forma

   $ (0.87   $ (0.33

Earnings (loss) per share from continuing operations-diluted

    

As reported

   $ (0.36   $ 0.32   

Pro forma

   $ (0.87   $ (0.33
     Six Months Ended
June 30, 2011
    Six Months Ended
June 30, 2010
 

Total revenues

    

As reported

   $ 2,724,176      $ 1,922,409   

Pro forma

   $ 4,258,591      $ 3,433,987   

Income (loss) from continuing operations

    

As reported

   $ (6,504   $ 53,852   

Pro forma

   $ (243,335   $ (132,336

Earnings (loss) per share from continuing operations-basic

    

As reported

   $ (0.05   $ 0.45   

Pro forma

   $ (1.08   $ (0.59

Earnings (loss) per share from continuing operations-diluted

    

As reported

   $ (0.05   $ 0.44   

Pro forma

   $ (1.08   $ (0.59

 

(3) New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which amended accounting guidance related to fair value measurements and disclosures with the purpose of converging the fair value measurement and disclosure guidance issued by the FASB and the International Accounting Standards Board (“IASB”). The guidance is effective for reporting periods beginning after December 15, 2011. The guidance includes amendments that clarify the intent of the application of existing fair value measurement requirements along with amendments that change a particular principle or requirement for fair value measurements and disclosures. The Company has concluded that the new guidance will not have a material impact on its consolidated financial statements or related disclosures.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which amended accounting guidance related to presentation of comprehensive income. The standards update is intended to help financial statement users better understand the causes of an entity’s change in financial position and results of operation. It is effective for reporting periods beginning after December 15, 2011. The amendments eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance also requires that reclassification adjustments for items that are reclassified from other comprehensive income to net income be presented on the face of the financial statement where the components of net income and other comprehensive income are presented. The Company will adopt this guidance for reporting periods

 

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beginning after December 15, 2011 and is currently assessing the impact of adopting this guidance on the consolidated financial statements and related disclosures.

 

(4) Earnings Per Share

The number of shares used to calculate basic earnings per common share is based on the weighted average number of the Company’s outstanding common shares during the respective periods. The number of shares used to calculate diluted earnings per common 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 the Company’s employees and directors during each period, the Company’s outstanding 2.375% convertible senior notes due 2015 (the “2.375% Convertible Notes”), and for periods subsequent to the Acquisition, the outstanding 3.25% convertible senior notes due 2015 issued by Massey (the “3.25% Convertible Notes”). The 2.375% Convertible Notes and 3.25% Convertible Notes become dilutive for earnings per common share calculations in certain circumstances. The shares that would be issued to settle the conversion spread are included in the diluted earnings per common share calculation when the average closing share price of the Company’s common stock for the quarterly reporting period exceeds the conversion price of the 2.375% Convertible Notes or 3.25% Convertible Notes. There was no dilutive impact on earnings per share from the 2.375% Convertible Notes or 3.25% Convertible Notes for the three or six months ended June 30, 2011 as the Company incurred a net loss for both the three and six months ended June 30, 2011. Had the Company incurred net income for the three and six months ended June 30, 2011, 0 and 102,823 shares, respectively, would have been the dilutive impact of the 2.375% Convertible Notes included in the weighted average shares outstanding calculation. As of June 30, 2010, the conversion option for the 2.375% Convertible Notes was not in the money, and therefore, there was no dilutive earnings per common share impact for the three or six months ended June 30, 2010. As of June 30, 2011, the 2.375% Convertible Notes were not convertible. As of June 30, 2011, the 3.25% Convertible Notes were convertible.

The following table provides a reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share computations for the periods presented:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011      2010      2011      2010  

Weighted average shares - basic

     155,238,304         120,124,707         137,723,715         119,983,999   

Dilutive impact of stock options and restricted stock plans

     —           1,737,206         —           1,919,513   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares - diluted

     155,238,304         121,861,913         137,723,715         121,903,512   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(5) Inventories, net

Inventories, net consisted of the following:

 

     June 30,
2011
     December 31,
2010
 

Raw coal

   $ 27,355       $ 14,115   

Saleable coal

     427,982         130,364   

Materials, supplies and other, net

     117,323         53,693   
  

 

 

    

 

 

 

Total inventories, net

   $ 572,660       $ 198,172   
  

 

 

    

 

 

 

 

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(6) Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

 

     June 30,
2011
     December 31,
2010
 

Marketable securities - short term (1)

   $ 312,491       $ 217,191   

Prepaid insurance

     29,256         3,292   

Notes and other receivables

     113,372         17,951   

Deferred income taxes - current

     239,064         29,652   

Deferred longwall move expenses

     15,360         6,313   

Refundable income taxes

     25,880         9,918   

Derivative financial instruments

     37,426         13,558   

Prepaid freight

     58,563         23,330   

Deposits and redemption trust assets

     308,719         293   

Other prepaid expenses

     73,995         20,257   
  

 

 

    

 

 

 

Total prepaid expenses and other current assets

   $ 1,214,126       $ 341,755   
  

 

 

    

 

 

 

 

(1) 

Short-term marketable securities consisted of the following:

 

     June 30, 2011  
            Unrealized        
     Cost      Gain      Loss     Fair value  

Short-term marketable securities:

          

U.S. treasury and agency securities (a)

   $ 23,011       $ 51       $ —        $ 23,062   

Corporate debt securities (a)

     289,406         25         (2     289,429   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total short-term marketable securities

   $ 312,417       $ 76       $ (2   $ 312,491   
  

 

 

    

 

 

    

 

 

   

 

 

 
     December 31, 2010  
            Unrealized        
     Cost      Gain      Loss     Fair value  

Short-term marketable securities:

          

U.S. treasury and agency securities (a)

   $ 71,777       $ 158       $ —        $ 71,935   

Corporate debt securities (a)

     145,237         24         (5     145,256   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total short-term marketable securities

   $ 217,014       $ 182       $ (5   $ 217,191   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(a) 

Unrealized gains and losses are recorded as a component of stockholders’ equity.

 

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(7) Property, Equipment and Mine Development Costs

Property, equipment, and mine development costs consisted of the following:

 

     June 30,
2011
     December 31,
2010
 

Plant and mining equipment

   $ 3,423,171       $ 1,647,217   

Mine development

     237,507         209,898   

Coalbed methane equipment

     11,417         10,153   

Office equipment and software

     49,617         33,416   

Vehicles and other

     6,657         10,436   

Construction in progress

     165,777         84,143   
  

 

 

    

 

 

 

Total property, equipment and mine development costs

     3,894,146         1,995,263   

Less accumulated depreciation, depletion and amortization

     1,025,842         866,041   
  

 

 

    

 

 

 

Total property, equipment and mine development costs, net

   $ 2,868,304       $ 1,129,222   
  

 

 

    

 

 

 

 

(8) Goodwill

 

Balance at December 31, 2010

   $ 382,440   

Increase in goodwill due to Acquisition

     2,155,158   
  

 

 

 

Balance at June 30, 2011

   $ 2,537,598   
  

 

 

 

 

(9) Other Non-current Assets

Other non-current assets consisted of the following:

 

     June 30,
2011
     December 31,
2010
 

Marketable securities - long term (1)

   $ 64,043       $ 60,159   

Acquired intangible assets, net

     470,516         162,734   

Unamortized deferred financing costs

     95,404         17,041   

Advance mining royalties, net

     69,137         14,408   

Virginia tax credit, net

     13,330         16,317   

Equity-method investments

     37,304         15,130   

Derivative financial instruments

     4,035         3,045   

Other

     55,916         17,289   
  

 

 

    

 

 

 

Total other non-current assets

   $ 809,685       $ 306,123   
  

 

 

    

 

 

 

 

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(1) 

Long-term marketable securities, with maturity dates between one and three years, consisted of the following:

 

     June 30, 2011  
            Unrealized        
     Cost      Gain      Loss     Fair value  

Long-term marketable securities:

          

U.S. treasury and agency securities (a)

   $ 60,820       $ 138       $ —        $ 60,958   

Mutual funds held in rabbi trust (b)

     2,992         160         (67     3,085   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term marketable securities

   $ 63,812       $ 298       $ (67   $ 64,043   
  

 

 

    

 

 

    

 

 

   

 

 

 
     December 31, 2010  
            Unrealized        
     Cost      Gain      Loss     Fair value  

Long-term marketable securities:

          

U.S. treasury and agency securities (a)

   $ 60,326       $ 44       $ (211   $ 60,159   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(a) 

Unrealized gains and losses are recorded as a component of stockholders’ equity.

(b) 

Unrealized gains and losses are recorded in current period earnings.

 

(10) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

     June 30,
2011
     December 31,
2010
 

Wages and employee benefits

   $ 240,074       $ 111,631   

Current portion of asset retirement obligations

     67,376         13,006   

Taxes other than income taxes

     127,279         62,041   

Freight

     31,847         16,446   

Current portion of self insured workers’ compensation obligations

     19,114         7,935   

Interest payable

     30,172         10,590   

Derivative financial instruments

     112,844         19,929   

Current portion of pension and postretirement medical benefit obligations

     37,398         28,265   

Income taxes payable

     4,053         6,278   

Other

     206,149         37,633   
  

 

 

    

 

 

 

Total accrued expenses and other current liabilities

   $ 876,306       $ 313,754   
  

 

 

    

 

 

 

 

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(11) Long-Term Debt

Long-term debt consisted of the following:

 

     June 30,
2011
    December 31,
2010
 

6.00% senior notes due 2019

   $ 800,000      $ —     

6.25% senior notes due 2021

     700,000        —     

Term loan due 2016

     600,000        —     

Term loan due 2014

     —          227,896   

3.25% convertible senior notes due 2015

     659,063        —     

6.875% senior notes due 2013

     260,287        —     

7.25% senior notes due 2014

     298,285        298,285   

2.375% convertible senior notes due 2015

     287,500        287,500   

Other

     19,496        7,819   

Debt discount, net

     (93,988     (67,349
  

 

 

   

 

 

 

Total long-term debt

     3,530,643        754,151   

Less current portion

     916,094        11,839   
  

 

 

   

 

 

 

Long-term debt, net of current portion

   $ 2,614,549      $ 742,312   
  

 

 

   

 

 

 

New Notes Indenture and the New Senior Notes

On June 1, 2011, Alpha, certain of Alpha’s wholly owned domestic subsidiaries (collectively, the “Alpha Guarantors”) and Union Bank, N.A., as trustee, entered into an indenture (the “Base Indenture”) and a first supplemental indenture (the “First Supplemental Indenture” and, together with the Base Indenture, the “New Notes Indenture”) governing Alpha’s newly issued 6.00% Senior Notes due 2019 (the “2019 Notes”) and 6.25% Senior Notes due 2021 (the “2021 Notes” and, together with the 2019 Notes, the “New Senior Notes”).

On June 1, 2011, in connection with the Acquisition, Alpha, the Alpha Guarantors, Massey, and certain wholly owned subsidiaries of Massey (the “Massey Guarantors” and, together with the Alpha Guarantors, the “Guarantors”), and Union Bank, N.A., as trustee, entered into a supplemental indenture (the “Second Supplemental Indenture”) to the New Notes Indenture pursuant to which Massey and certain wholly owned subsidiaries of Massey agreed to become additional guarantors for the New Senior Notes.

The 2019 Notes bear interest at a rate of 6.00% per annum, payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2011, and will mature on June 1, 2019. The 2021 Notes bear interest at a rate of 6.25% per annum, payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2011, and will mature on June 1, 2021.

As of June 30, 2011, the carrying values of the 2019 Notes and 2021 Notes were $800,000 and $700,000, respectively.

Alpha may redeem the 2019 Notes, in whole or in part, at any time prior to June 1, 2014, at a price equal to 100.000% of the aggregate principal amount of the 2019 Notes plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. Alpha may redeem the 2019 Notes, in whole or in part, at any time during the twelve months commencing June 1, 2014, at 103.000% of the aggregate principal amount of the 2019 Notes, at any time during the twelve months commencing June 1, 2015, at 101.500% of the aggregate principal amount of the 2019 Notes, and at any time after June 1, 2016 at 100.000% of the aggregate principal amount of the 2019 Notes, in each case plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. In addition, Alpha may redeem up to 35% of the aggregate principal amount of the 2019 Notes with the net cash proceeds from certain equity offerings, at any time prior to June 1, 2014, at a redemption price equal to 106.000% of the aggregate principal amount of the 2019 Notes, plus accrued and unpaid interest, if any, to, but not including the applicable redemption date, provided that at least 65% of the aggregate principal amount of the 2019 notes originally issued under the New Notes Indenture remains outstanding after the redemption and the redemption occurs within 180 days of the closing of such equity offering.

Alpha may redeem the 2021 Notes, in whole or in part, at any time prior to June 1, 2016, at a price equal to 100.000% of the aggregate principal amount of the 2021 Notes plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. Alpha may redeem the 2021 Notes, in whole or in part, at any time during the twelve months commencing June 1, 2016, at 103.125% of the aggregate principal amount of the 2021 Notes, at any time during the twelve

 

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months commencing June 1, 2017, at 102.083% of the aggregate principal amount of the 2021 Notes, at any time during the twelve months commencing June 1, 2018 at 101.042% of the aggregate principal amount of the 2021 Notes, and at any time after June 1, 2019, at 100.000% of the aggregate principal amount of the 2021 Notes, in each case plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. In addition, Alpha may redeem up to 35% of the aggregate principal amount of the 2021 Notes with the net cash proceeds from certain equity offerings, at any time prior to June 1, 2016, at a redemption price equal to 106.250% of the aggregate principal amount of the 2021 Notes, plus accrued and unpaid interest, if any, to, but not including the applicable redemption date, provided that at least 65% of the aggregate principal amount of the 2021 notes originally issued under the New Notes Indenture remains outstanding after the redemption and the redemption occurs within 180 days of the date of the closing of such equity offering.

Upon the occurrence of a change in control repurchase event with respect to either series of the New Senior Notes, unless Alpha has exercised its right to redeem those New Senior Notes, Alpha will be required to offer to repurchase each holder’s New Senior Notes of such series at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

The New Notes Indenture contains covenants that limit, among other things, Alpha’s ability to:

 

   

incur, or permit its subsidiaries to incur, additional debt;

 

   

issue, or permit its subsidiaries to issue, certain types of stock;

 

   

pay dividends on Alpha’s or its subsidiaries’ capital stock or repurchase Alpha’s common stock;

 

   

make certain investments;

 

   

enter into certain types of transactions with affiliates;

 

   

incur liens on certain assets to secure debt;

 

   

limit dividends or other payments by its restricted subsidiaries to Alpha and its other restricted subsidiaries;

 

   

consolidate, merge or sell all or substantially all of its assets; and

 

   

make certain payments on Alpha’s or its subsidiaries’ subordinated debt.

These covenants are subject to a number of important qualifications and exceptions. These covenants may not apply at any time after the New Senior Notes are assigned a credit grade rating of at least BB+ (stable) from Standard & Poor’s Ratings Services and of at least Ba1 (stable) from Moody’s Investor Service, Inc.

Third Amended and Restated Credit Agreement

On May 19, 2011, in connection with the Acquisition, Alpha entered into a Third Amended and Restated Credit Agreement to amend and restate in its entirety the credit agreement dated as of July 30, 2004, as amended as of November 12, 2004 and as of October 18, 2005, as amended and restated as of July 7, 2006, as amended effective July 31, 2009 and as further amended and restated as of April 15, 2010 (as so amended and restated, the “Existing Credit Agreement”; the Existing Credit Agreement, as amended and restated by the Third Amended and Restated Credit Agreement, is referred to as the “New Credit Agreement”), with Citicorp North America, Inc., as administrative agent and as collateral agent, Bank of America, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association, The Royal Bank of Scotland plc and Union Bank, N.A. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as co-documentation agents, Morgan Stanley Senior Funding, Inc., as sole syndication agent, Citigroup Global Markets Inc. and Morgan Stanley Senior Funding, Inc., as joint lead arrangers and joint book managers, and various other financial institutions, as lenders. The terms of the New Credit Agreement superseded the Existing Credit Agreement in its entirety upon the satisfaction of certain conditions precedent, which included the consummation of the Acquisition on or prior to September 1, 2011 (the satisfaction of such conditions precedent is referred to as the “initial Credit Event”). The Existing Credit Agreement remained in full force and effect until the occurrence of the initial Credit Event.

Upon the occurrence of the initial Credit Event on June 1, 2011, the New Credit Agreement provided for a $600,000 senior secured term loan A facility (the “Term Loan Facility”) and a $1,000,000 senior secured revolving credit facility (the “Revolving Facility”). Pursuant to the New Credit Agreement, Alpha may request incremental term loans or increase the revolving commitments in an aggregate amount of up to $1,250,000 plus an additional $750,000 subject to compliance with a consolidated senior secured leverage ratio. The lenders under these facilities will not be under any obligation to provide any such incremental loans or commitments, and any such addition of or increase in such loans or commitments will be subject to certain customary conditions precedent.

As of June 30, 2011, the carrying value of the Term Loan Facility was $600,000 with $30,000 classified as current portion of long-term debt. There were no borrowings outstanding under the Revolving Facility as of June 30, 2011. Letters of credit outstanding at June 30, 2011 under the Revolving Facility were $1,300.

Interest Rate and Fees. Borrowings under the New Credit Agreement bear interest at a rate per annum equal to an applicable margin plus, at Alpha’s option, either (a) a base rate determined by reference to the highest of (i) the rate that Citibank, N.A. announces from time to

 

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time as its prime or base commercial lending rate, (ii) the federal funds effective rate plus 0.50% and (iii) a LIBO rate for a 30-day interest period as determined on such day, plus 1.00%, or (b) a LIBO rate for the interest period relevant to such borrowing adjusted for certain additional costs. The initial applicable margin for borrowings under the New Credit Agreement is 1.50% with respect to base rate borrowings and 2.50% with respect to LIBO rate borrowings. Commencing October 1, 2011, the applicable margin for borrowings under the New Credit Agreement will be subject to adjustment each fiscal quarter based on Alpha’s consolidated leverage ratio for the preceding fiscal quarter. Swingline loans will bear interest at a rate per annum equal to the base rate plus the applicable margin. The interest rate in effect at June 30, 2011 was 3.5625%. In addition to paying interest on outstanding principal under the New Credit Agreement, Alpha is required to pay a commitment fee to the lenders under the Revolving Facility in respect of the unutilized commitments thereunder. The initial commitment fee is 0.50% per annum. Commencing October 1, 2011, the commitment fee will be subject to adjustment each fiscal quarter based on Alpha’s consolidated leverage ratio for the preceding fiscal quarter. Alpha must also pay customary letter of credit fees and agency fees.

Mandatory Prepayments. The New Credit Agreement requires Alpha to prepay outstanding loans, subject to certain exceptions, with (i) 100% of the net cash proceeds (including the fair market value of noncash proceeds) from certain asset sales and condemnation events in excess of the greater of $1,500,000 and 15% of consolidated tangible assets as of the end of each fiscal year, (ii) 100% of the aggregate gross proceeds (including the fair market value of noncash proceeds) from certain Intracompany Disposals (as defined in the Credit Agreement) exceeding $500,000 during the term of the New Credit Agreement and (iii) 100% of the net cash proceeds from any incurrence or issuance of certain debt, other than debt permitted under the New Credit Agreement. Mandatory prepayments will be applied first to the Term Loan Facility and thereafter to reductions of the commitments under the Revolving Facility. If at any time the aggregate amount of outstanding revolving loans, swingline loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Revolving Facility exceeds the commitment amount, Alpha will be required to repay outstanding loans or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount.

Voluntary Prepayments; Reductions in Commitments. Alpha may prepay, in whole or in part, amounts outstanding under the New Credit Agreement, with prior notice but without premium or penalty (other than customary “breakage” costs with respect to LIBO rate loans) and in certain minimum amounts. Alpha may also repurchase loans outstanding under the Term Loan Facility pursuant to standard reverse Dutch auction and open market purchase provisions, subject to certain limitations and exceptions. Alpha may make voluntary reductions to the unutilized commitments of the Revolving Facility from time to time without premium or penalty.

Amortization and Final Maturity. Beginning on September 30, 2011, Alpha is required to make scheduled quarterly amortization payments with respect to loans under the Term Loan Facility. In the last two quarters of 2011 and the first two quarters of 2012, each quarterly amortization payment will be in an amount equal to 1.25% of the original principal amount of the term loans. In the last two quarters of 2012 and the first two quarters of 2013, each quarterly amortization payment will be in an amount equal to 2.5% of the original principal amount of the term loans. In the last two quarters of 2013 and the first two quarters of 2014, each quarterly amortization payment will be in an amount equal to 3.75% of the original principal amount of the term loans. In the last two quarters of 2014 and the first two quarters of 2015, each quarterly amortization payment will be in an amount equal to 5% of the original principal amount of the term loans. In the last two quarters of 2015 and the first two quarters of 2016, each quarterly amortization payment will be in an amount equal to 12.5% of the original principal amount of the term loans. There is no scheduled amortization under the Revolving Facility. The principal amount outstanding on the loans under the Revolving Facility will be due and payable on June 30, 2016. The Term Loan Facility and Revolving Facility will each mature on June 30, 2016.

Guarantees and Collateral. All obligations under the New Credit Agreement are unconditionally guaranteed by certain of Alpha’s existing wholly owned domestic subsidiaries, and are required to be guaranteed by certain of Alpha’s future wholly owned domestic subsidiaries. All obligations under the New Credit Agreement and certain hedging and cash management obligations with lenders and affiliates of lenders thereunder are secured, subject to certain exceptions, by substantially all of Alpha’s assets and the assets of Alpha’s subsidiary guarantors, in each case subject to exceptions, thresholds and limitations.

Certain Covenants and Events of Default. The New Credit Agreement contains a number of negative covenants that, among other things and subject to certain exceptions, restrict Alpha’s ability and the ability of Alpha’s subsidiaries to:

 

   

make investments, loans and acquisitions;

 

   

incur additional indebtedness;

 

   

incur liens;

 

   

consolidate or merge;

 

   

sell assets, including capital stock of its subsidiaries;

 

   

pay dividends on its capital stock or redeem, repurchase or retire its capital stock or its other Indebtedness;

 

   

engage in transactions with its affiliates;

 

   

materially alter the business it conducts; and

 

   

create restrictions on the payment of dividends or other amounts to Alpha from Alpha’s restricted subsidiaries.

 

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In addition, the New Credit Agreement requires Alpha to comply with certain financial ratio maintenance covenants.

The New Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $25,000.

Alpha Credit Facility

The Alpha Credit Facility (the “Facility”) consisted of term loans and revolving credit facility commitments due on July 31, 2014. During the six months ended June 30, 2011, borrowings under the Facility totaling $227,896 were repaid. The Facility was replaced with the New Credit Agreement as described above. As of December 31, 2010, the Company’s secured term loans had a carrying value of $226,705, net of debt discount of $1,191, with $11,839 classified as current portion of long-term debt.

3.25% Convertible Senior Notes due 2015

As a result of the Acquisition, the Company became a guarantor of Massey’s 3.25% Convertible Notes, with aggregate principal outstanding at June 1, 2011 of $659,063. The 3.25% Convertible 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. The 3.25% Convertible Notes will mature on August 1, 2015, unless earlier repurchased by the Company or converted. The 3.25% Convertible Notes had a fair value of $730,900 at the acquisition date. The Company accounts for the 3.25% Convertible Notes under ASC 470-20, which requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. At June 1, 2011, the debt and equity components were $620,525, net of debt discount of $38,538, and $110,375, respectively. The debt component was classified as current portion of long-term debt at June 30, 2011 because the Acquisition qualified as a Fundamental Change as defined in the indenture governing the 3.25% Convertible Notes (the “3.25% Convertible Notes Indenture”). As the 3.25% Convertible Notes were redeemable at the option of the holders at June 30, 2011 as a result of the Fundamental Change Repurchase Right (as defined in the 3.25% Convertible Notes Indenture), the Company also reclassified $38,011 to mezzanine equity from permanent equity. As of June 30, 2011, the carrying amount of the debt was $621,052, net of debt discount of $38,011. As of June 30, 2011, the carrying amount of the equity component totaled $110,375, with $38,011 in mezzanine equity and $72,364 in permanent equity. The sum of the debt component and the mezzanine equity component represent the aggregate principal redeemable at the option of the holders at June 30, 2011. The mezzanine equity component will be reclassified to permanent equity at the expiration of the fundamental change period on July 5, 2011. The debt discount is being accreted over the four-year term of the 3.25% Convertible Notes, and provides for an effective interest rate of 4.21%.

From and after the effective date of the Acquisition, the consideration deliverable upon conversion of the 3.25% Convertible Notes ceased to be based upon Massey common stock and instead became based upon Reference Property (as defined in the 3.25% Convertible Notes Indenture) consisting of 1.025 shares of Alpha common stock (subject to adjustment upon the occurrence of certain events set forth in the 3.25% Convertible Notes Indenture) plus $10.00 in cash per share of Massey common stock. Upon conversion of the 3.25% Convertible Notes, holders will receive cash up to the principal amount of the notes being converted, and any excess conversion value will be delivered in cash, Reference Property, or a combination thereof, at the Company’s election.

6.875% Senior Notes due 2013

The Company assumed Massey’s 6.875% Senior Notes due 2013 (the “2013 Notes”) with an aggregate principal amount outstanding of $760,000 as part of the Acquisition. On June 1, 2011, the Company paid $525,532, which included a premium payment and accrued but unpaid interest, pursuant to its cash tender offer for the 2013 Notes. In addition, on June 1, 2011, the Company paid $274,504 into a redemption settlement trust to redeem all the 2013 Notes that remained outstanding after the tender offer. The Company has recorded an asset of $265,557 in prepaid expenses and other current assets at June 30, 2011, which represents the balance in the redemption settlement trust. The Company recorded the redemption portion of the debt at its fair value on June 1, 2011 of $264,017. Upon redemption of the 2013 Notes on the redemption date of July 1, 2011, the related asset and liability will be removed from the consolidated balance sheets. As of June 30, 2011, the carrying value of the 2013 Notes was $260,287, net of a debt premium of $3,730.

7.25% Senior Notes due 2014

Foundation PA Coal Company, LLC (“Foundation PA”), one of the Company’s subsidiaries, has senior notes that mature on August 1, 2014 (the “2014 Notes”) in the aggregate principal amount of $298,285 at both June 30, 2011 and December 31, 2010. The 2014 Notes are guaranteed on

 

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a senior unsecured basis by Alpha Natural Resources, Inc. and all of its subsidiaries other than Foundation PA, ANR Receivables Funding LLC, Coalsolv, LLC, Gray Hawk Insurance Company and Rockridge Coal Company. In connection with the Acquisition, Massey and certain subsidiaries of Massey also became guarantors of the 2014 Notes. The 2014 Notes pay interest semi-annually and are redeemable at Foundation PA’s option, at a redemption price equal to 101.208% and 100% of the principal amount if redeemed during the twelve month periods beginning August 1, 2011 and 2012, respectively, plus accrued interest. As of June 30, 2011, the carrying value of the 2014 Notes was $297,414, net of debt discount of $871. As of December 31, 2010, the carrying value of the 2014 Notes was $297,272, net of debt discount of $1,013.

Subsequent to June 30, 2011, the Company gave notice that all of the Company’s outstanding 2014 Notes will be redeemed and become due and payable on August 18, 2011 (the “Redemption Date”) at a redemption price equal to 101.208% of the principal amount of the 2014 Notes, plus any and all accrued and unpaid interest up to but excluding the Redemption Date.

2.375% Convertible Senior Notes due 2015

As of June 30, 2011 and December 31, 2010, the Company had $287,500 aggregate principal amount of 2.375% Convertible Notes. The 2.375% Convertible Notes bear interest at a rate of 2.375% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, and will mature on April 15, 2015, unless earlier repurchased by the Company or converted. The Company accounts for the 2.375% Convertible Notes under ASC 470-20, which requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. The related deferred loan costs and discount are being amortized and accreted, respectively, over the seven-year term of the 2.375% Convertible Notes, and provide for an effective interest rate of 8.64%. As of June 30, 2011 and December 31, 2010, the carrying amounts of the debt component were $228,664 and $222,355, respectively. As of June 30, 2011 and December 31, 2010, the unamortized debt discount was $58,836 and $65,145, respectively. As of June 30, 2011 and December 31, 2010, the carrying amount of the equity component was $69,851.

The 2.375% Convertible Notes are the Company’s senior unsecured obligations and rank equally with all of the Company’s existing and future senior unsecured indebtedness. The 2.375% Convertible Notes are effectively subordinated to all of the Company’s existing and future secured indebtedness and all existing and future liabilities of the Company’s subsidiaries, including trade payables. The 2.375% Convertible Notes are convertible in certain circumstances and in specified periods at an initial conversion rate of 18.2962 shares of common stock per $1,000 principal amount of 2.375% Convertible Notes, subject to adjustment upon the occurrence of certain events set forth in the indenture governing the 2.375% Convertible Notes (the “2.375% Convertible Notes Indenture”). Upon conversion of the 2.375% Convertible Notes, holders will receive cash up to the principal amount of the notes to be converted, and any excess conversion value will be delivered in cash, shares of common stock, or a combination thereof, at the Company’s election.

Accounts Receivable Securitization

The Company and certain of its subsidiaries are party to an accounts receivable securitization facility with a third party financial institution (the “A/R Facility”). The capacity of the A/R Facility was increased from $150,000 to $190,000 in June 2011. As of June 30, 2011 and December 31, 2010, letters of credit in the amount of $163,600 and $63,805, respectively, were outstanding under the A/R Facility and no cash borrowing transactions had taken place.

 

(12) Asset Retirement Obligations

As of June 30, 2011 and December 31, 2010, the Company had recorded asset retirement obligation accruals for mine reclamation and closure costs totaling $644,823 and $222,993, respectively. Changes in the asset retirement obligations were as follows:

 

Total asset retirement obligations at December 31, 2010

   $     222,993   

Asset retirement obligations assumed in Acquisition

     414,925   

Accretion for the period

     11,152   

Revisions in estimated cash flows

     586   

Expenditures for the period

     (4,833
  

 

 

 

Total asset retirement obligations at June 30, 2011

   $ 644,823   

Less current portion

     67,376   
  

 

 

 

Long-term portion

   $ 577,447   
  

 

 

 

 

(13) Other Non-current Liabilities

Other non-current liabilities consisted of the following:

 

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     June 30,
2011
     December 31,
2010
 

Self insured workers’ compensation obligations

   $ 155,251       $ 43,767   

Black lung obligations

     133,130         45,021   

Below-market contract obligations

     704,824         13,031   

Derivative financial instruments

     40,787         9,050   

Income taxes

     13,960         13,960   

Deferred production taxes

     13,059         12,230   

Other

     73,182         17,980   
  

 

 

    

 

 

 

Total other non-current liabilities

   $ 1,134,193       $ 155,039   
  

 

 

    

 

 

 

 

(14) Fair Value of Financial Instruments and Fair Value Measurements

The estimated fair values of financial instruments are determined based on relevant market information. These estimates involve uncertainty and cannot be determined with precision. The following methods and assumptions are used to estimate the fair value of each class of financial instruments.

The carrying amounts for cash and cash equivalents, trade accounts receivable, net, prepaid expenses and other current assets, trade accounts payable, and accrued expenses and other current liabilities approximate fair value due to the short maturity of these instruments.

Long-term Debt: The fair values of the 2.375% Convertible Notes, 3.25% Convertible Notes and the New Senior Notes with the exception of the 2013 Notes, were estimated using observable market prices as these securities are traded. The fair values of the term loans were estimated based on market rates of interest offered to the Company for debt of similar maturities.

The estimated fair values of long-term debt were as follows:

 

     June 30, 2011      December 31, 2010  
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

6.00% senior notes due 2019

   $ 800,000       $ 812,920       $ —         $ —     

6.25% senior notes due 2021

     700,000         709,275         —           —     

Term loan due 2016

     600,000         603,727         —           —     

Term loan due 2014 (1)

     —           —           226,705         231,475   

3.25% convertible senior notes due 2015 (2)

     621,052         688,457         —           —     

6.875% senior notes due 2013 (3)

     264,017         264,017         —           —     

7.25% senior notes due 2014 (4)

     297,414         302,610         297,272         303,505   

2.375% convertible senior notes due 2015 (5)

     228,664         337,401         222,355         383,094   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

   $ 3,511,147       $ 3,718,407       $ 746,332       $ 918,074   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Net of debt discount of $1,191 as of December 31, 2010.

(2) 

Net of debt discount of $38,011 as of June 30, 2011.

(3) 

Net of debt premium of $3,730 as of June 30, 2011.

(4) 

Net of debt discount of $871 and $1,013 as of June 30, 2011 and December 31, 2010, respectively.

(5) 

Net of debt discount of $58,836 and $65,145 as of June 30, 2011 and December 31, 2010, respectively.

ASC 820 requires disclosures about how fair value is determined for assets and liabilities and a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and

Level 3 – Unobservable inputs in which there is little or no market data which require the reporting entity to develop its own assumptions.

 

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The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The following tables set forth by level, within the fair value hierarchy, the Company’s financial and non-financial assets and liabilities that were accounted for at fair value on a recurring and non-recurring basis as of June 30, 2011 and December 31, 2010, respectively. Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the determination of fair value for assets and liabilities and their placement within the fair value hierarchy levels.

 

     June 30, 2011  
     Total Fair
Value
    Quoted Prices
in Active
Markets
(Level 1)
     Significant Other
Observable
Inputs

(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 

Financial assets (liabilities):

         

U.S. treasury and agency securities

   $ 84,020      $ 84,020       $ —        $ —     

Mutual funds held in rabbi trust

   $ 3,085      $ 3,085       $ —        $ —     

Corporate debt securities

   $ 289,429      $ —         $ 289,429      $ —     

Forward coal sales

   $ (125,141   $ —         $ (125,141   $ —     

Forward coal purchases

   $ 7,374      $ —         $ 7,374      $ —     

Commodity swaps

   $ 22,218      $ —         $ 22,218      $ —     

Interest rate swaps

   $ (16,621   $ —         $ (16,621   $ —     
     December 31, 2010  
     Total Fair
Value
    Quoted Prices
in Active
Markets
(Level 1)
     Significant Other
Observable
Inputs

(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 

Financial assets (liabilities):

         

U.S. treasury and agency securities

   $ 132,094      $ 132,094       $ —        $ —     

Corporate debt securities

   $ 145,256      $ —         $ 145,256      $ —     

Forward coal sales

   $ (3,958   $ —         $ (3,958   $ —     

Forward coal purchases

   $ 2,674      $ —         $ 2,674      $ —     

Commodity swaps

   $ 10,523      $ —         $ 10,523      $ —     

Commodity options

   $ (264   $ —         $ (264   $ —     

Interest rate swaps

   $ (21,304   $ —         $ (21,304   $ —     

Freight swaps

   $ (47   $ —         $ (47   $ —     

The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the tables above.

Level 1 Fair Value Measurements

U.S. Treasury and Agency Securities and Mutual Funds Held in Rabbi Trust – The fair value of marketable securities is based on observable market data.

Level 2 Fair Value Measurements

Corporate Debt Securities – The fair values of the Company’s corporate debt securities are obtained from a third-party pricing service provider. The fair values provided by the pricing service provider are estimated using pricing models, where the inputs to those models are based on observable market inputs including credit spreads and broker-dealer quotes, among other inputs. The Company classifies the prices obtained from the pricing services within Level 2 of the fair value hierarchy because the underlying inputs are directly observable from active markets. However, the pricing models used do entail a certain amount of subjectivity and therefore differing judgments in how the underlying inputs are modeled could result in different estimates of fair value.

 

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Table of Contents

Forward Coal Purchases and Sales – The fair values of the forward coal purchase and sale contracts were estimated using discounted cash flow calculations based upon actual contract prices and forward commodity price curves. The curves were obtained from independent pricing services reflecting broker market quotes. The fair values are adjusted for counter-party risk, when applicable.

Commodity Swaps – The fair values of commodity swaps are estimated using valuation models which include assumptions about commodity prices based on those observed in the underlying markets. The fair values are adjusted for counter-party risk, when applicable.

Commodity Options – The fair values of the commodity options were estimated using an option pricing model that incorporates historical volatility of the underlying commodity, the strike price, notional amount, current market price and risk free interest rate. The fair values are adjusted for counter-party risk, when applicable.

Interest Rate Swaps – The fair values of the interest rate swaps were estimated using discounted cash flow calculations based upon forward interest-rate yield curves. The curves were obtained from independent pricing services reflecting broker market quotes. The fair values are adjusted for counter-party risk, when applicable.

Freight Swaps – The fair values of freight swaps are estimated using valuation models which include assumptions about freight prices based on those observed in the underlying markets. The fair values are adjusted for counter-party risk, when applicable.

 

(15) Derivative Financial Instruments

Forward Contracts

The Company manages price risk for coal sales and purchases through the use of coal supply agreements. The Company evaluates each of its coal sales and coal purchase forward contracts to determine whether they meet the definition of a derivative and if so, whether they qualify for the normal purchase normal sale (“NPNS”) exception. The majority of the Company’s forward contracts do not qualify as derivatives. For those contracts that do meet the definition of a derivative, certain contracts also qualify for the NPNS exception based on management’s intent and ability to physically deliver or take physical delivery of the coal. Contracts that meet the definition of a derivative and do not qualify for the NPNS exception are accounted for at fair value and, accordingly, the Company includes the unrealized gains and losses in current period earnings or losses.

Swap Agreements

Commodity Swaps

The Company uses diesel fuel and explosives in its production process and incurs significant expenses for the purchase of these commodities. Diesel fuel and explosives expenses represented approximately 7% of cost of coal sales for the six months ended June 30, 2011. The Company is subject to the risk of price volatility for these commodities and as a part of its risk management strategy, the Company enters into swap agreements with financial institutions to mitigate the risk of price volatility for both diesel fuel and explosives. The terms of the swap agreements allow the Company to pay a fixed price and receive a floating price, which provides a fixed price per unit for the volume of purchases being hedged. As of June 30, 2011, the Company had swap agreements outstanding to hedge the variable cash flows related to 37% and 36% of anticipated diesel fuel usage for the remaining six months of 2011 and calendar year 2012, respectively. The average fixed price per swap for diesel fuel hedges is $2.46 per gallon and $2.73 per gallon for the remaining six months of 2011 and calendar year 2012, respectively. As of June 30, 2011, the Company had swap agreements outstanding to hedge the variable cash flows related to approximately 26% and 32% of anticipated explosives usage in the Powder River Basin for the remaining six months of 2011 and calendar year 2012, respectively. All cash flows associated with derivative instruments are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010.

The Company sells coalbed methane through its Coal Gas Recovery business. The revenues derived from the sale of coalbed methane are subject to volatility based on the changes in natural gas prices. In order to reduce that risk, the Company enters into “pay variable, receive fixed” natural gas swaps for a portion of its anticipated gas production in order to fix the selling price for a portion of its production. The natural gas swaps have been designated as qualifying cash flow hedges. As of June 30, 2011, the Company had swap agreements outstanding to hedge the variable cash flows related to approximately 77% and 59% of anticipated natural gas production for the remaining six months of 2011 and for fiscal year 2012, respectively.

Interest Rate Swap

 

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The Company has variable rate debt outstanding and is subject to interest rate risk based on volatility in underlying interest rates. The interest rate swap is not designated as a qualifying cash flow hedge and, therefore, changes in fair value are recorded in current period earnings and losses.

The following tables present the fair values and location of the Company’s derivative instruments within the Condensed Consolidated Balance Sheets:

 

     Asset Derivatives  

Derivatives designated as

cash flow hedging instruments

   June 30,
2011
     December 31,
2010
 

Commodity swaps (1)

   $ 26,489       $ 13,910   

Derivatives not designated as

cash flow hedging instruments

   June 30,
2011
     December 31,
2010
 

Forward coal purchases (2)

   $ 7,419       $ 2,674   

Forward coal sales (3)

     7,498         —     

Commodity swaps (4)

     55         19   
  

 

 

    

 

 

 

Total

   $ 14,972       $ 2,693   
  

 

 

    

 

 

 

Total asset derivatives

   $ 41,461       $ 16,603   
  

 

 

    

 

 

 

 

(1) 

As of June 30, 2011, $22,762 is recorded in prepaid expenses and other current assets and $3,727 is recorded in other non-current assets in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $10,865 is recorded in prepaid expenses and other current assets and $3,045 is recorded in other non-current assets in the Condensed Consolidated Balance Sheets.

(2) 

As of June 30, 2011, $7,419 is recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $2,674 is recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

(3) 

As of June 30, 2011, $7,190 is recorded in prepaid expenses and other current assets and $308 is recorded in other non-current assets in the Condensed Consolidated Balance Sheets.

(4) 

As of June 30, 2011, $55 is recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $19 is recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

 

     Liability Derivatives  

Derivatives designated as

cash flow hedging instruments

   June 30,
2011
     December 31,
2010
 

Commodity swaps (1)

   $ 3,930       $ 3,370   

Derivatives not designated as

cash flow hedging instruments

   June 30,
2011
     December 31,
2010
 

Forward coal sales (2)

   $ 132,639       $ 3,958   

Forward coal purchases (3)

     45         —     

Commodity swaps (4)

     396         36   

Commodity options-coal (5)

     —           264   

Interest rate swap (6)

     16,621         21,304   

Freight swap (7)

     —           47   
  

 

 

    

 

 

 

Total

   $ 149,701       $ 25,609   
  

 

 

    

 

 

 

Total liability derivatives

   $ 153,631       $ 28,979   
  

 

 

    

 

 

 

 

(1) 

As of June 30, 2011, $963 is recorded in accrued expenses and other current liabilities and $2,967 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $3,256 is recorded in accrued expenses and other current liabilities and $114 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets.

 

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(2)

As of June 30, 2011, $98,763 is recorded in accrued expenses and other current liabilities and $33,876 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $3,958 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

(3) 

As of June 30, 2011, $45 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

(4) 

As of June 30, 2011, $200 is recorded in accrued expenses and other current liabilities and $196 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $36 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

(5) 

As of December 31, 2010, $40 is recorded in accrued expenses and other current liabilities and $224 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets.

(6) 

As of June 30, 2011, $12,873 is recorded in accrued expenses and other current liabilities and $3,748 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets. As of December 31, 2010, $12,592 is recorded in accrued expenses and other current liabilities and $8,712 is recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets.

(7) 

As of December 31, 2010, $47 is recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

The following tables present the gains and losses from derivative instruments for the six months ended June 30, 2011 and 2010 and their location within the Condensed Consolidated Financial Statements:

 

Derivatives designated as    Gain (loss) reclassified
from accumulated other
comprehensive income (loss) to earnings
    Gain (loss) recorded
in accumulated other
comprehensive income (loss)
 

cash flow hedging instruments

   2011      2010     2011      2010  

Commodity swaps (1) (2)

   $ 8,101       $ (226   $ 13,133       $ (2,594

 

(1) 

Amounts are recorded as a component of cost of coal sales in the Condensed Consolidated Statements of Operations.

(2) 

Net of tax.

 

     Gain (loss) recorded in earnings  
Derivatives not designated as    Three months ended
June 30,
    Six months ended
June 30,
 

cash flow hedging instruments

   2011     2010     2011     2010  

Forward coal sales (1)

   $ (5,169   $ (1,818   $ (2,806   $ (3,066

Forward coal purchases (1)

     2,305        (1,893     422        457   

Commodity swaps (2)

     (476     (262     (391     (611

Commodity options-diesel fuel (2)

     —          (91     —          (91

Commodity options-coal (1)

     —          533        (65     (158

Interest rate swap (3)

     (1,076     (5,005     (1,520     (5,952

Freight swap (2)

     —          —          84        —     
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (4,416   $ (8,536   $ (4,276   $ (9,421
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Amounts are recorded as a component of other revenues in the Condensed Consolidated Statements of Operations.

(2)

Amounts are recorded as a component of other expenses in the Condensed Consolidated Statements of Operations.

(3)

Amounts are recorded as a component of interest expense in the Condensed Consolidated Statements of Operations.

Unrealized losses recorded in accumulated other comprehensive income (loss) are reclassified to income or loss as the financial swaps settle and the Company purchases the underlying items that are being hedged. During the next twelve months, the Company expects to reclassify approximately ($12,000), net of tax, to earnings. The following table summarizes the changes to accumulated other comprehensive income (loss) related to hedging activities during the six months ended June 30, 2011 and 2010:

 

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Table of Contents

 

     Six Months Ended
June 30,
 
     2011     2010  

Balance at beginning of period

   $ 8,443      $ 899   

Net change associated with current year hedging transactions

     13,133        (2,594

Net amounts reclassified to earnings

     (8,101     226   
  

 

 

   

 

 

 

Balance at end of period

   $ 13,475      $ (1,469
  

 

 

   

 

 

 

 

(16) Income Taxes

The total income tax expense (benefit) provided on pretax income was allocated as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011      2010  

Continuing operations

   $ (9,494   $ (4,928   $ 4,473       $ 16,350   

Discontinued operations

     —          (231     —           (649
  

 

 

   

 

 

   

 

 

    

 

 

 

Total

   $ (9,494   $ (5,159   $ 4,473       $ 15,701   
  

 

 

   

 

 

   

 

 

    

 

 

 

A reconciliation of the statutory federal income tax expense at 35% to income from continuing operations before income taxes and the actual income tax expense from continuing operations is as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Federal statutory income tax (benefit) expense

   $ (23,046   $ 11,988      $ (711   $ 24,570   

Increases (reductions) in taxes due to:

        

Percentage depletion allowance

     9,574        (15,451     292        (30,920

State taxes, net of federal tax impact

     (1,152     (227     (62     (437

Deduction for domestic production activities

     610        (1,884     —          (3,771

Change in law - Medicare Part D Subsidy

     —          —          —          25,566   

State statutory tax rate change, net of federal tax impact

     (9,325     —          (9,325     —     

State apportionment change, net of federal tax impact

     8,343        —          8,343        —     

Non-deductible acquisition costs

     5,961        —          5,961        —     

Other, net

     (459     646        (25     1,342   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax (benefit) expense from continuing operations

   $ (9,494   $ (4,928   $ 4,473      $ 16,350   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Patient Protection and Affordable Care Act (the “PPACA”) and the Reconciliation Act were signed into law in March 2010. As a result of these two acts, tax benefits available to employers that receive the Medicare Part D subsidy will be eliminated beginning in years ending after December 31, 2012. During the six months ended June 30, 2010, the income tax effect related to the acts was a reduction of $25,566 to the deferred tax asset related to the postretirement prescription drug benefits.

Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes. The net deferred tax assets and liabilities included in the Condensed Consolidated Balance Sheets include the following amounts:

 

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     June 30,
2011
    December 31,
2010
 

Deferred tax assets

    

Asset retirement obligations

   $ 188,801      $ 87,904   

Other liabilities

     27,770        48,989   

Pension and postretirement medical obligations

     416,354        280,490   

Alternative minimum tax credit carryforwards

     235,409        120,431   

Goodwill

     10,284        10,848   

Workers’ compensation obligations

     118,214        38,928   

Acquired intangibles, net

     141,419        —     

Other assets

     —          13,012   

Net operating loss carryforwards

     275,864        18,251   
  

 

 

   

 

 

 

Gross deferred tax assets

     1,414,115        618,853   

Less valuation allowance

     (29,844     (10,975
  

 

 

   

 

 

 

Total net deferred tax assets

     1,384,271        607,878   
  

 

 

   

 

 

 

Deferred tax liabilities

    

Property, equipment and mineral rights

     (3,057,837     (707,616

Acquired coal supply agreements

     —          (55,408

Other assets

     —          (38,061

Debt discount

     (37,937     (26,549
  

 

 

   

 

 

 

Total deferred tax liabilities

     (3,095,774     (827,634
  

 

 

   

 

 

 

Net deferred tax liability

   $ (1,711,503   $ (219,756
  

 

 

   

 

 

 

The breakdown of the net deferred tax liability as recorded in the accompanying Condensed Consolidated Balance Sheets is as follows:

 

     June 30,
2011
    December 31,
2010
 

Current asset

   $ 239,064      $ 29,652   

Noncurrent liability

     (1,950,567     (249,408
  

 

 

   

 

 

 

Total net deferred tax liability

   $ (1,711,503   $ (219,756
  

 

 

   

 

 

 

 

(17) Employee Benefit Plans

The Company sponsors or participates in several benefit plans for its employees, including postemployment health care and life insurance, defined benefit and defined contribution pension plans, and provides workers’ compensation and black lung benefits.

In conjunction with the Acquisition, the Company assumed a qualified non-contributory defined benefit pension plan, which covers substantially all administrative and non-union employees of Massey. Based on a participant’s entrance date to the plan, the participant may accrue benefits based on one of four benefit formulas. An independent trustee holds the plan assets for the qualified defined benefit pension plan. The plan assets include cash and cash equivalents, corporate and government bonds, preferred and common stocks and an investment in a group annuity contract. The liability recognized at June 1, 2011 as a result of the Acquisition was $86,996.

 

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In addition to the qualified defined benefit pension plan noted above, the Company assumed 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 the 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. The liability recognized at June 1, 2011 as a result of the Acquisition was $20,634.

The Company also assumed defined benefit health care plans as a result of the Acquisition 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. These plans are unfunded. The liability recognized at June 1, 2011 as a result of the Acquisition was $185,131.

Also, as a result of the Acquisition, the Company assumed obligations related to providing black lung benefits to certain employees. The obligation for the self-insured black lung benefits is an estimate of the cost of such benefits as determined by an independent actuary at the present value of the actuarially computed liability. The liability recognized at June 1, 2011 as a result of the Acquisition was $93,875.

The components of net periodic cost, including the portion related to the obligations assumed in the Acquisition, are included in the tables below.

Components of Net Periodic Pension Costs

The components of net periodic benefit costs are as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Service cost

   $ 1,095      $ 1,733      $ 1,095      $ 3,807   

Interest cost

     4,932        3,583        8,083        7,239   

Expected return on plan assets

     (5,918     (3,217     (10,003     (6,456

Amortization of net actuarial gain (loss)

     126        58        (134     58   

Gain on settlement

     (2,182     —          (2,182     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ (1,947   $ 2,157      $ (3,141   $ 4,648   
  

 

 

   

 

 

   

 

 

   

 

 

 

Massey Defined Benefit Pension Plans

The weighted-average actuarial assumptions used in determining the benefit obligation as of June 1, 2011 and the net periodic benefit cost for the three and six months ended June 30, 2011 for the defined benefit pension plans assumed in the Acquisition were as follows:

 

     2011  

Discount rate

     5.39

Rate of increase in future compensation

     3.00

Expected long-term return on plan assets

     7.75

The discount rate assumption is determined from a published yield-curve table matched to the timing of the Company’s projected cash out flows.

Components of Net Periodic Costs of Other Postretirement Benefit Plans

The components of net periodic benefit costs are as follows:

 

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     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Service cost

   $ 920      $ 2,330      $ 5,208      $ 5,103   

Interest cost

     10,864        9,095        19,657        17,917   

Amortization of prior service cost (credit)

     (238     524        (476     1,074   

Amortization of net actuarial gain (loss)

     599        (251     599        (251
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 12,145      $ 11,698      $ 24,988      $ 23,843   
  

 

 

   

 

 

   

 

 

   

 

 

 

Massey Postretirement Benefit Plans

The weighted-average assumptions used in determining the postretirement plans’ benefit obligation as of June 1, 2011 and the net periodic postretirement medical benefit cost for the three and six months ended June 30, 2011 was as follows:

 

     2011  

Discount rate

     5.28

The discount rate assumption is determined from a published yield-curve table matched to the timing of the plan’s projected cash out flows.

The following presents information about the postretirement plans’ weighted-average annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate):

 

Health care cost trend rate assumed for the next year

     8.00

Rate to which the cost trend is assumed to decline (ultimate trend rate)

     5.00

Year that the rate reaches the ultimate trend rate

     2017   

Components of Net Periodic Costs of Black Lung

The components of net periodic benefit costs are as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Service cost

   $ 754      $ 360      $ 1,161      $ 674   

Interest cost

     989        577        1,580        1,057   

Expected return on plan assets

     (7     (16     (13     (36

Amortization of net actuarial loss

     209        105        418        134   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 1,945      $ 1,026      $ 3,146      $ 1,829   
  

 

 

   

 

 

   

 

 

   

 

 

 

Massey Workers’ Compensation and Pneumoconiosis (Black Lung)

The weighted-average assumptions related to black lung obligations used to determine the benefit obligation as of June 31, 2011 and the net periodic benefit cost for the three and six months ended June 30, 2011 were as follows:

 

     2011  

Discount rate

     5.22

Rate of increase in future compensation

     3.00

Health care cost trend rate

     3.00

 

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(18) Stock-Based Compensation Awards

On May 19, 2010, the Company’s stockholders approved the 2010 Long-Term Incentive Plan (the “2010 LTIP”). The principal purpose of the 2010 LTIP is to advance the interests of the Company and its stockholders by providing incentives to certain eligible persons who contribute significantly to the strategic and long-term performance objectives and growth of the Company. The 2010 LTIP provides for a variety of awards, including options, stock appreciation rights, restricted stock, restricted share units (both time-based and performance-based), and any other type of award deemed by the Compensation Committee in its discretion to be consistent with the purposes of the 2010 LTIP. The 2010 LTIP is currently authorized for the issuance of awards for up to 3,250,000 shares of common stock, and as of June 30, 2011, 2,480,967 shares of common stock were available for grant under the plan.

During the six months ended June 30, 2011, the Company awarded certain of its executives and key employees 304,097 time-based restricted share units and 227,199 performance-based restricted share units. The time-based share units vest, subject to continued employment, ratably over three-years or cliff vest after three years (with accelerated vesting upon a change of control and certain retirement scenarios). The performance-based share units cliff vest after three years, subject to continued employment and the satisfaction of the performance criteria (with accelerated vesting upon a change of control and certain retirement scenarios). The 227,199 performance-based restricted share units awarded during the six months ended June 30, 2011 have the potential to be distributed from 0% to 200% of the awarded amount, depending on the actual results versus the pre-established performance criteria over the three-year period. The Company issued 915,509 fully vested stock options to Massey employees to replace outstanding Massey options with an estimated fair market value of $29,217, of which $5,717 was expensed immediately and the remainder was treated as part of the purchase consideration for the Acquisition. The Company estimated the fair market value using a trinomial lattice model with assumptions for volatility, expected remaining life of options, expected dividend yield and a risk-free rate of interest.

At June 30, 2011, the Company had three types of stock-based awards outstanding: restricted stock, restricted share units (both time-based and performance-based), and stock options. Stock-based compensation expense totaled $36,061 and $8,301, for the three months ended June 30, 2011 and 2010, respectively. Stock-based compensation expense totaled $47,009 and $17,007, for the six months ended June 30, 2011 and 2010, respectively. For the three months ended June 30, 2011 and 2010, approximately 76% and 77%, respectively, of stock-based compensation expense is reported as selling, general and administrative expenses. For the six months ended June 30, 2011 and 2010, approximately 74% and 73%, respectively, of stock-based compensation expense is reported as selling, general and administrative expenses. Approximately 24% and 23%, of stock-based compensation expense was recorded as cost of coal sales for the three months ended June 30, 2011 and 2010, respectively. Approximately 26% and 27%, of stock-based compensation expense was recorded as cost of coal sales for the six months ended June 30, 2011 and 2010, respectively.

Stock-based compensation expense for the three and six months ended June 30, 2011 included $21,216, inclusive of the $5,717 discussed above, related to replacing or otherwise settling outstanding stock-based compensation awards for Massey employees in connection with the Acquisition.

In November 2008, the Board of Directors authorized the Company to repurchase common shares from employees (upon the election by the employee) to satisfy the employees’ minimum statutory tax withholdings upon the vesting of restricted stock and restricted share units (both time-based and performance-based). Shares that are repurchased to satisfy the employees’ minimum statutory tax withholdings are recorded in treasury stock at cost, and these shares are not added back into the pool of shares available for grant of the respective plans the shares were granted from. During the six months ended June 30, 2011 and 2010, the Company repurchased 193,948 and 347,716, respectively, of common shares from employees at an average price paid per share of $58.32 and $45.58, respectively.

 

(19) Commitments and Contingencies

(a) General

Estimated losses from loss contingencies are accrued by a charge to income when information available indicates that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the consolidated financial statements when it is at least reasonably possible that a loss may be incurred and that the loss could be material.

(b) Commitments and Contingencies

Commitments

In connection with the July 31, 2009 merger of Alpha Natural Resources, Inc. and Foundation Coal Holdings, Inc. (“Foundation”) (the “Foundation Merger”), the Company assumed the obligations for a federal coal lease, which contains an estimated 224.0 million tons of proven and probable coal reserves in the Powder River Basin. The lease bid was $180,540, payable in five equal annual installments of $36,108. The

 

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first two installments were paid in 2009 and 2008 by Foundation. The third and fourth installments have been paid by the Company. The remaining annual installment of $36,108 is due on May 1, 2012.

Also, see Note 11 regarding the Company’s other debt.

Contingencies

Extensive regulation of the impacts of mining on the environment and of maintaining workplace safety, and related litigation, has had or may have a significant effect on the Company’s costs of production and results of operations. Further regulations, legislation or litigation in these areas may also cause the Company’s sales or profitability to decline by increasing costs or by hindering the Company’s ability to continue mining at existing operations or to permit new operations.

(c) Guarantees and Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Company is a party to certain guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit, performance or surety bonds, and other guarantees and indemnities related to the obligations of affiliated entities which are not reflected in the Company’s Condensed Consolidated Balance Sheets. Management does not expect any material losses to result from these guarantees or other off-balance sheet financial instruments.

Letters of Credit

The amount of outstanding bank letters of credit issued under the A/R Facility as of June 30, 2011 was $163,600. As of June 30, 2011, the Company had $1,300 of additional letters of credit outstanding under the Revolving Facility.

(d) Legal Proceedings

The Company’s legal proceedings range from cases brought by a single plaintiff to class actions. These legal proceedings, as well as governmental examinations, involve various business units and a variety of claims including, but not limited to, contract disputes, personal injury claims, property damage claims (including those resulting from blasting, trucking and flooding), environmental and safety issues, and employment matters. While some matters pending against the Company or its subsidiaries specify the damages claimed by the plaintiffs, many seek an unquantified amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against the Company or its subsidiaries are stated, the claimed amount may be exaggerated or unsupported. As a result, some matters have not yet progressed sufficiently through discovery and development of important factual information and legal issues to enable the Company to estimate a range of possible loss.

The Company evaluates, on a quarterly basis, developments in legal proceedings and governmental examinations that could cause an increase or decrease in the amount of the reserves previously recorded. Excluding fees paid to external legal counsel, the Company recognized litigation expense, net of expected insurance recoveries, associated with litigation-related reserves of $800 and $500 during the three months ended June 30, 2011 and 2010, respectively.

Federal Class Action

On April 29, 2010 and May 28, 2010, two consolidated purported class actions that have been subsequently consolidated into one case were brought against Massey, now the Company’s subsidiary Alpha Appalachia Holdings, Inc., (“Alpha Appalachia” or “Massey”) in connection with alleged violations of the federal securities laws pending in the United States District Court for the Southern District of West Virginia. The lead plaintiffs allege, purportedly on behalf of a class of former Massey stockholders, that Massey and certain former Massey directors and officers violated Section 10(b) of the Securities and Exchange Act of 1934, as amended, (the “Exchange Act”) and Rule 10b-5 thereunder by intentionally misleading the market about the safety of Massey’s operations and that Massey’s former officers violated Section 20(a) of the Exchange Act by virtue of their control over persons alleged to have committed violations of Section 10(b) of the Exchange Act. The lead plaintiffs seek a determination that this action is a proper class action; certification as class representatives; an award of compensatory damages in an amount to be proven at trial, including interest thereon; and an award of reasonable costs and expenses, including counsel fees and expert fees.

 

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On February 16, 2011, the lead plaintiffs moved to partially lift the statutory discovery stay imposed by the Private Securities Litigation Reform Act of 1995 (“PSLRA”). On March 3, 2011, the United States moved to intervene and to stay discovery until the completion of criminal proceedings arising from the same facts that allegedly gave rise to the action. The United States subsequently informed the court that it and the lead plaintiffs had reached an agreement whereby, if the court decides to lift the PSLRA discovery stay, the United States and the lead plaintiffs request that the court limit discovery in certain respects. Briefing on the lead plaintiffs’ motion to partially lift the PSLRA discovery stay is now complete, and the motion is pending before the court.

On April 25, 2011, the defendants filed motions to dismiss the operative complaint.

Upper Big Branch (“UBB”) Mine

On April 5, 2010, an explosion occurred at the UBB mine, resulting in the deaths of 29 miners and serious physical injuries and/or alleged psychiatric injuries to two others. The Federal Mine Safety and Health Administration (“MSHA”), the Office of Miner’s Health, Safety, and Training of the State of West Virginia (“State”), and the Governor’s Independent Investigation Panel (“GIIP”) have undertaken investigations into the cause of the UBB explosion. Additionally, the U.S. Attorney for the Southern District of West Virginia has commenced a grand jury investigation. The Company’s own investigation is on-going. The GIIP published its final report on May 19, 2011. MSHA and the State have indicated that they will issue their respective reports later this year.

The Company cannot provide any assurance as to the outcome of these investigations, including whether or not it becomes subject to possible criminal and civil penalties or enforcement actions. In order to accommodate these investigations, the UBB mine has been idled since the explosion. The Company has recently sought permission to permanently close the UBB mine; regulatory authorities have not yet granted such permission. As of June 30, 2011, fourteen of the families of the deceased miners had filed wrongful death suits against the Company’s subsidiary Alpha Appalachia, while five of the families had signed court-approved agreements to settle their claims. In addition, as of June 30, 2011, four employees had filed lawsuits against the Company’s subsidiary Alpha Appalachia alleging emotional distress or personal injuries due to their proximity to the explosion.

Derivative Litigation and Related Class Action Litigation

A number of purported former Massey stockholders have brought lawsuits derivatively, purportedly on behalf of Massey, which is now the Company’s subsidiary, Alpha Appalachia, in West Virginia and Delaware state courts, in connection with the April 5, 2010 explosion at UBB and related claims. Certain of these former stockholders have also initiated contempt proceedings in West Virginia state court in connection with alleged violations of the settlement of a previous derivative lawsuit. In addition, these and other purported former Massey stockholders have asserted class action claims allegedly arising out of the acquisition of Massey by Alpha in Delaware and West Virginia state courts and Virginia federal court. These cases are summarized below.

Delaware Chancery Court

In a case filed on April 23, 2010 in Delaware Chancery Court, In re Massey Energy Company Derivative and Class Action Litigation (“In re Massey”), a number of purported former Massey stockholders (the “Delaware Plaintiffs”) allege, purportedly on behalf of Massey, that certain former Massey directors and officers breached their fiduciary duties by failing to monitor and oversee Massey’s employees, allegedly resulting in fines against Massey and the explosion at UBB, and by wasting corporate assets by paying allegedly excessive and inflated amounts to former Massey Chairman and Chief Executive Officer Don L. Blankenship as part of his retirement package. The Delaware Plaintiffs also allege, on behalf of a purported class of former Massey stockholders, that certain former Massey directors breached their fiduciary duties by agreeing to the acquisition of Massey by Alpha. The Delaware Plaintiffs allege that defendants breached their fiduciary duties by failing to secure the best price possible, by failing to secure any downside protection for the acquisition consideration, and by purportedly eliminating the possibility of a superior proposal by agreeing to a “no shop” provision and a termination fee. In addition, the Delaware Plaintiffs allege that defendants agreed to the acquisition to eliminate the liability that defendants faced on the Delaware Plaintiffs’ derivative claims. Finally, the Delaware Plaintiffs allege that defendants failed to fully disclose all material information necessary for Massey stockholders to cast an informed vote on the acquisition.

The Delaware Plaintiffs also name the Company as defendants along with Mountain Merger Sub, Inc. (“Merger Sub”), the Company’s wholly-owned subsidiary created for purposes of effecting the Acquisition, which, at the effective time of the Acquisition, was merged with and into Massey. The Delaware Plaintiffs allege that the Company and Merger Sub aided and abetted the former Massey directors’ alleged breaches of fiduciary duty and agreed to orchestrate the acquisition for the purpose of eliminating the former Massey directors’ potential liability on the derivative claims.

The Delaware Plaintiffs seek an award against each defendant for restitution and/or compensatory damages, plus pre-judgment interest; an order establishing a litigation trust to preserve the derivative claims asserted in the complaint; and an award of costs, disbursements

 

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and reasonable allowances for fees incurred in this action. The Delaware Plaintiffs also sought to enjoin consummation of the Acquisition. The court denied their motion for a preliminary injunction on May 31, 2011.

Two additional putative class actions were brought against Massey, certain former Massey directors and officers, the Company and Merger Sub in the Delaware Court of Chancery following the announcement of the Acquisition. Silverman v. Phillips, et al., filed on February 7, 2011 (“Silverman”), and Goe v. Massey Energy Company, et al., filed on February 14, 2011 (“Goe”), assert allegations that are nearly identical to those made by the Delaware Plaintiffs in In re Massey. Silverman and Goe were consolidated for all purposes with In re Massey on February 9, 2011 and February 24, 2011, respectively.

On June 10, 2011, Alpha Appalachia and the former Massey director and officer defendants moved to dismiss the Delaware Plaintiffs’ derivative claims on the ground that the Delaware Plaintiffs, as former Massey stockholders, lacked the legal right to pursue those claims, and the Company and Merger Sub moved to dismiss the purported class action claim against the Company for failure to state a claim upon which relief may be granted.

West Virginia State Court

In a case filed on April 15, 2010 in West Virginia state court, a number of purported former Massey stockholders (the “West Virginia Plaintiffs”) allege, purportedly on behalf of Massey, that certain former Massey directors and officers breached their fiduciary duties by failing to monitor and oversee Massey’s employees, allegedly resulting in fines against Massey and the explosion at UBB. The West Virginia Plaintiffs seek an award against each defendant and in favor of Massey for the amount of damages sustained by Massey as a result of defendants’ alleged breaches of fiduciary duty and an award to the West Virginia Plaintiffs of the costs and disbursements of the action, including reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses.

On May 2, 2011, the West Virginia Plaintiffs moved for leave to amend their complaint to add Alpha and Merger Sub as additional defendants and to add claims allegedly arising out of the then-proposed Acquisition. In their proposed amended complaint, the West Virginia Plaintiffs allege that certain former Massey directors breached their fiduciary duties by failing to obtain the highest price reasonably available for Massey and by failing to disclose material information to Massey’s then-stockholders in connection with the stockholder vote on the acquisition. The West Virginia Plaintiffs also allege that Massey, Merger Sub and the Company aided and abetted the former Massey directors’ breaches of fiduciary duty. The West Virginia Plaintiffs further allege that certain former Massey directors wasted corporate assets by failing to maintain sufficient internal controls over Massey’s safety and environmental reporting; failing to properly consider the interests of Massey and its stockholders, including the value of the derivative claims asserted by the West Virginia Plaintiffs in the acquisition; failing to conduct proper supervision; paying undeserved incentive compensation to certain Massey executive directors, particularly Defendant Blankenship during Massey’s alleged years of noncompliance with safety regulations and more recently as part of Blankenship’s retirement package; incurring millions of dollars in fines due to safety and environmental violations; and incurring potentially hundreds of millions of dollars of legal liability and/or legal costs to defend defendants’ allegedly unlawful actions. Finally, the West Virginia Plaintiffs’ proposed amended complaint alleges that certain former Massey directors were unjustly enriched by their compensation as directors. The court has not ruled on the motion to amend.

On May 25, 2011, the West Virginia Plaintiffs also filed a petition with the West Virginia Supreme Court for a preliminary injunction against the consummation of the Acquisition, which was denied on May 31, 2011.

On June 23, 2011, the defendants moved to dismiss the West Virginia Plaintiffs’ original complaint on the grounds that plaintiffs, as former Massey stockholders, lacked the legal right to pursue those claims.

U.S. District Court – Eastern District of Virginia

In the United States District Court for the Eastern District of Virginia, purported former Massey stockholder Benjamin Mostaed (“Mostaed”) alleges in a suit filed on February 2, 2011, and amended thereafter, purportedly on behalf of a class of former Massey stockholders, that Massey, Alpha and certain former Massey directors violated Sections 14(a) of the Exchange Act and Rule 14a-9 thereunder by filing a false and misleading preliminary proxy statement in connection with the then-proposed acquisition of Massey by Alpha; that Massey and certain former Massey directors violated Section 20(a) of the Exchange Act by virtue of their control over persons alleged to have committed violations of Section 14(a) of the Exchange Act; that certain former Massey directors violated their fiduciary duties by causing Massey to enter into the Merger Agreement with Alpha pursuant to an unfair process that resulted in an unfair offer with preclusive deal protection devices that allegedly inhibited superior proposals; and that Massey and Alpha aided and abetted the former Massey directors’ alleged breaches of fiduciary duty. Mostaed sought an injunction preventing the consummation of the acquisition of Massey by Alpha; rescission of the Merger Agreement; and an award of the costs and disbursements of the action, including reasonable attorneys’ and experts’ fees. On June 24, 2011, Mostaed informed the court that, aside from a motion for an award of attorneys’ fees, discussed below, he did not intend to prosecute the action further and would voluntarily dismiss his claims.

 

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On February 4, 2011, William D. Perkins (“Perkins”), another purported former Massey stockholder, filed a suit in the Eastern District of Virginia similar to Mostaed’s, which was consolidated with Mostaed’s on June 3, 2011. On July 13, 2011, Mostaed and Perkins moved for an award of attorneys’ fees, reimbursement of expenses and incentive awards, contending that voluntary remedial measures implemented by defendants and sought by Mostaed (i.e., additional disclosure) had mooted Mostaed’s claims. Mostaed and Perkins seek an award of $900 in attorneys’ fees and expenses and an incentive award to each of them in the amount of $2. Defendants have opposed that motion.

Contempt Proceedings

On April 16, 2010, Manville Personal Injury Settlement Trust (“Manville”), one of the West Virginia Plaintiffs, filed an application in the Circuit Court of Kanawha County, West Virginia requesting that the court initiate civil contempt proceedings against certain of the then-current members of Massey’s board of directors. In 2008, Manville and Massey had entered into a settlement agreement that provided, among other things, that the Massey Board of Directors would make a Corporate Social Responsibility report to its stockholders on an annual basis that would include, among other things, a report on the Company’s environmental and worker safety compliance. Manville now alleges that Massey’s 2009 Corporate Social Responsibility report did not contain a sufficient report on worker safety compliance, in alleged violation of the settlement order. On April 22, 2010, the court issued an order for a rule to show cause, initiating the contempt proceedings.

On May 31, 2011, Manville, now joined by the other two West Virginia Plaintiffs, filed a new application for civil contempt, requesting that the court initiate civil contempt proceedings against certain of the then-current members of Massey’s board of directors and certain then-current Massey officers in connection with certain additional alleged violations of the settlement order. On June 14, 2011, the court entered the rule to show cause and set a hearing date of October 24, 2011.

The individual defendants that have been served with the petition filed motions to dismiss, all of which are currently pending.

Well Water Suit

Since September 2004, approximately 738 plaintiffs have filed approximately 400 suits against the Company’s subsidiaries Alpha Appalachia and 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 during the period of 1978 through 1987 allegedly contaminating plaintiffs’ water wells. Plaintiffs seek injunctive relief and compensatory damages in excess of $170,000 and unquantified punitive damages, including medical monitoring for the next 30 years.

At a mandatory settlement conference held by the Mingo Court on April 30, 2009, 180 plaintiffs agreed to settle all of their remaining claims and be dismissed from the case. The West Virginia Supreme Court issued an administrative order transferring the cases to the Mass Litigation Panel. A mediation of all pending suits held on February 22-23, 2011 in Charleston, West Virginia resulted in the final settlement of all medical monitoring claims, which will be paid by insurance proceeds. A final mediation held on July 25-27, 2011 resulted in a tentative settlement. The Company believes that the terms of the settlement will not result in any material impact on its results of operations.

Mine Water Discharge Suits

The Sierra Club and others have filed two citizens’ suits against several of the Company’s subsidiaries in federal court in the Southern District of West Virginia (“Southern District Court”) alleging violations of the terms of its water discharge permits. The plaintiffs in both cases seek both a civil penalty and injunctive relief.

One of the cases is limited to allegations that two of the Company’s subsidiaries, Independence Coal Company and Jacks Branch Coal Company, are violating limits on the allowable concentrations of selenium in their discharges of storm water from several surface mines. The plaintiffs have filed reports of experts contending that the Company’s subsidiaries should have commenced construction of selenium treatment units in October 2008. They claim that the failure to do so has saved the Company’s subsidiaries over $100,000 and asked the Southern District Court to require the Company to install selenium treatment systems and to impose a penalty that recoups all of the savings realized by the alleged non-compliance.

The other action is limited to claims that several of the Company’s subsidiaries are violating discharge limits on substances other than selenium, such as aluminum. The Company has entered into a tentative settlement regarding this case, which is subject to court approval. The Company believes that the terms of the settlement will not result in any material impact on the results of operations.

The West Virginia Department of Environmental Protection has brought civil enforcement actions against three of the Company’s subsidiaries, Riverside Energy Company, LLC, Paynter Branch Mining, Inc. and Pioneer Fuel Corporation, in various West Virginia state

 

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courts seeking civil penalties based on alleged discharge of selenium, and in one case, other materials, in excess of permitted levels. The Company does not believe that the amounts of any civil penalties resulting from these cases will be material to the results of operations.

Nicewonder Litigation

In December 2004, prior to the Company’s acquisition of Nicewonder in October 2005, the Affiliated Construction Trades Foundation brought an action against the West Virginia Department of Transportation, Division of Highways (“WVDOH”) and Nicewonder Contracting, Inc. (“NCI”), which became the Company’s wholly-owned indirect subsidiary as a result of the Nicewonder acquisition, in the United States District Court in the Southern District of West Virginia. The plaintiff sought a declaration that the contract between NCI and the State of West Virginia related to NCI’s road construction project was illegal as a violation of applicable West Virginia and federal competitive bidding and prevailing wage laws and sought to enjoin performance of the contract, but did not seek monetary damages.

On September 30, 2009, the District Court issued an order that dismissed or denied for lack of standing all of the plaintiff’s claims under federal law and remanded the remaining state claims to the Circuit Court in Kanawha County, West Virginia for resolution. On May 7, 2010, the Circuit Court of Kanawha County entered summary judgment in favor of NCI. The plaintiffs have filed a petition for appeal with the West Virginia Supreme Court of Appeals and the Court of Appeals accepted the appeal by order dated November 17, 2010. On June 22, 2011, the West Virginia Supreme Court reversed the circuit court order granting summary judgment in favor of NCI, and remanded the case for further proceedings. We do not believe that the outcome of this litigation will have a material impact on our results of operations.

Customer Dispute

A subsidiary of Alpha Appalachia had a dispute with one customer regarding whether or not binding contracts for the sale of coal were reached. On February 12, 2010, an arbitration panel awarded the customer $10,500. The decision was challenged in federal court. On June 2, 2010, the federal court rejected the challenge, and on July 14, 2011, the United States Court of Appeals for the Fourth Circuit affirmed the district court’s decision. The Company’s subsidiary previously paid a portion of the award, and will now pay the remaining balance, along with accrued interest.

Other Legal Proceedings

Massey and certain of its subsidiaries were also made parties to numerous lawsuits and other legal proceedings related to certain non-coal businesses previously conducted by its predecessor, Fluor Corporation. These lawsuits include the Alexander-Pederson-Helig cases, which resulted in late July 2011 in an unexpected jury award in the City of St. Louis Circuit Court in favor of the plaintiffs for $38,500 in compensatory and economic damages and $320,000 in punitive damages. Under the terms of the Distribution Agreement entered into by Massey and Fluor Corporation as of November 30, 2000 in connection with the spin-off of Fluor Corporation by Massey, Fluor Corporation has agreed to indemnify Massey with respect to all such legal proceedings and has assumed its defense. In addition, the Company understands that Fluor was indemnified for all liabilities related to the relevant businesses by another party in connection with Fluor’s sale of those businesses.

In addition to the matters disclosed above, the Company and its subsidiaries are involved in a number of legal proceedings incident to its normal business activities. While the Company cannot predict the outcome of these proceedings, the Company does not believe that any liability arising from these matters individually or in the aggregate should have a material impact upon its consolidated cash flows, results of operations or financial condition.

 

(20) Comprehensive Income (Loss)

Total comprehensive income (loss) is as follows for the three months ended June 30, 2011 and 2010:

 

     Three Months Ended
June 30,
 
     2011     2010  

Net income (loss)

   $ (56,352   $ 38,797   

Adjustments to unrecognized gains and losses and amortization of employee benefit costs, net of income tax of $6,028 and $9,780 for the three months ended June 30, 2011 and 2010, respectively

     (9,961     (15,583

Change in fair value of cash flow hedges, net of income tax of $7,550 and $2,911 for the three months ended June 30, 2011 and 2010, respectively

     (11,256     (4,888

Change in fair value of available-for-sale marketable securities, net of income tax of ($124) and ($94) for the three months ended June 30, 2011 and 2010, respectively

     200        149   
  

 

 

   

 

 

 

Total comprehensive income (loss)

   $ (77,369   $ 18,475   
  

 

 

   

 

 

 

Total comprehensive income (loss) is as follows for the six months ended June 30, 2011 and 2010:

 

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Table of Contents
     Six Months Ended
June 30,
 
     2011     2010  

Net income (loss)

   $ (6,504   $ 52,838   

Adjustments to unrecognized gains and losses and amortization of employee benefit costs, net of income tax of $6,141 and $12,099 for the six months ended June 30, 2011 and 2010, respectively

     (10,136     (19,279

Change in fair value of cash flow hedges, net of income tax of ($3,049) and $1,347 for the six months ended June 30, 2011 and 2010, respectively

     5,032        (2,368

Change in fair value of available-for-sale marketable securities, net of income tax of ($77) and ($197) for the six months ended June 30, 2011 and 2010, respectively

     129        312   
  

 

 

   

 

 

 

Total comprehensive income (loss)

   $ (11,479   $ 31,503   
  

 

 

   

 

 

 

The following table summarizes the components of accumulated other comprehensive income (loss) as of June 30, 2011 and December 31, 2010:

 

     June 30,
2011
    December 31,
2010
 

Adjustments to unrecognized gains and losses and amortization of employee benefit costs, net of income tax of $25,873 and $19,732 as of June 30, 2011 and December 31, 2010, respectively

   $ (46,166   $ (36,030

Unrealized gains on cash flow hedges, net of income tax of ($8,084) and ($5,035) as of June 30, 2011 and December 31, 2010, respectively

     13,475        8,443   

Change in fair value of available-for-sale marketable securities, net of income tax of of ($79) and ($2) as of June 30, 2011 and December 31, 2010, respectively

     133        4   
  

 

 

   

 

 

 

Total accumulated other comprehensive income (loss)

   $ (32,558   $ (27,583
  

 

 

   

 

 

 

 

(21) Segment Information

The Company discloses information about operating segments based on the way that management organizes the enterprise for making operating decisions and assessing performance. The Company periodically evaluates its application of accounting guidance for reporting its segments.

The Company extracts, processes and markets steam and metallurgical coal from surface and deep mines for sale to electric utilities, steel and coke producers, and industrial customers. The Company operates only in the United States with mines in Northern and Central Appalachia and the Powder River Basin. The Company has two reportable segments: Western Coal Operations, which consists of two Powder River Basin surface mines as of June 30, 2011, and Eastern Coal Operations, which consists of 103 underground mines and 47 surface mines in Northern and Central Appalachia as of June 30, 2011, as well as road construction and coal brokerage activities.

In addition to the two reportable segments, the All Other category includes an idled underground mine in Illinois; expenses associated with certain closed mines; Dry Systems Technologies; revenues and royalties from the sale of coalbed methane at the Company’s Coal Gas Recovery business and natural gas extraction; equipment sales and repair operations; terminal services; the leasing of mineral rights; general corporate overhead and corporate assets and liabilities. The Company evaluates the performance of its segments based on EBITDA from continuing operations, which the Company defines as income (loss) from continuing operations plus interest expense, income tax expense, amortization of acquired intangibles, net, and depreciation, depletion and amortization, less interest income and income tax benefit.

Segment operating results and capital expenditures from continuing operations for the three months ended June 30, 2011 were as follows:

 

     Eastern
Coal
Operations
    Western
Coal
Operations
     All
Other
    Consolidated  

Total revenues

   $ 1,441,943      $ 132,695       $ 18,800      $ 1,593,438   

Depreciation, depletion, and amortization

   $ 124,289      $ 14,411       $ 5,069      $ 143,769   

Amortization of acquired intangibles, net

   $ (16,999   $ 6,863       $ 530      $ (9,606

EBITDA from continuing operations

   $ 245,427      $ 8,973       $ (157,236   $ 97,164   

Capital expenditures

   $ 98,787      $ 9,709       $ 7,071      $ 115,567   

Acquisition of mineral rights under federal lease

   $ —        $ 36,108       $ —        $ 36,108   

Segment operating results and capital expenditures from continuing operations for the three months ended June 30, 2010 were as follows:

 

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Table of Contents
     Eastern
Coal
Operations
     Western
Coal
Operations
     All
Other
    Consolidated  

Total revenues

   $ 866,734       $ 122,497       $ 11,174      $ 1,000,405   

Depreciation, depletion, and amortization

   $ 73,365       $ 14,138       $ 3,595      $ 91,098   

Amortization of acquired intangibles, net

   $ 33,714       $ 21,919       $ —        $ 55,633   

EBITDA from continuing operations

   $ 185,295       $ 17,583       $ (4,237   $ 198,641   

Capital expenditures

   $ 53,595       $ 9,562       $ 11,859      $ 75,016   

Acquisition of mineral rights under federal lease

   $ —         $ 36,108       $ —        $ 36,108   

Segment operating results and capital expenditures from continuing operations for the six months ended June 30, 2011 were as follows:

 

     Eastern
Coal
Operations
    Western
Coal
Operations
     All
Other
    Consolidated  

Total revenues

   $ 2,407,006      $ 283,230       $ 33,940      $ 2,724,176   

Depreciation, depletion, and amortization

   $ 193,651      $ 29,486       $ 8,974      $ 232,111   

Amortization of acquired intangibles, net

   $ (1,771   $ 17,914       $ 530      $ 16,673   

EBITDA from continuing operations

   $ 442,049      $ 31,676       $ (183,560   $ 290,165   

Capital expenditures

   $ 122,301      $ 19,432       $ 30,935      $ 172,668   

Acquisition of mineral rights under federal lease

   $ —        $ 36,108       $ —        $ 36,108   

Segment operating results and capital expenditures from continuing operations for the six months ended June 30, 2010 were as follows:

 

     Eastern
Coal
Operations
     Western
Coal
Operations
     All
Other
    Consolidated  

Total revenues

   $ 1,643,743       $ 256,588       $ 22,078      $ 1,922,409   

Depreciation, depletion, and amortization

   $ 150,236       $ 28,992       $ 6,997      $ 186,225   

Amortization of acquired intangibles, net

   $ 77,851       $ 43,739       $ —        $ 121,590   

EBITDA from continuing operations

   $ 394,764       $ 38,310       $ (15,961   $ 417,113   

Capital expenditures

   $ 103,396       $ 15,512       $ 16,987      $ 135,895   

Acquisition of mineral rights under federal lease

   $ —         $ 36,108       $ —        $ 36,108   

The following table presents a reconciliation of EBITDA from continuing operations to income from continuing operations:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

EBITDA from continuing operations

   $ 97,164      $ 198,641      $ 290,165      $ 417,113   

Interest expense

     (29,859     (18,504     (45,469     (40,624

Interest income

     1,012        848        2,057        1,528   

Income tax (expense) benefit

     9,494        4,928        (4,473     (16,350

Depreciation, depletion and amortization

     (143,769     (91,098     (232,111     (186,225

Amortization of acquired intangibles, net

     9,606        (55,633     (16,673     (121,590
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

   $ (56,352   $ 39,182      $ (6,504   $ 53,852   
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents total assets and goodwill as of June 30, 2011 and December 31, 2010:

 

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Table of Contents
     Total Assets      Goodwill  
     June 30,
2011
     December 31,
2010
     June 30,
2011
     December 31,
2010
 

Eastern Coal Operations

   $ 15,137,177       $ 3,382,335       $ 2,478,378       $ 323,220   

Western Coal Operations

     664,708         651,479         53,308         53,308   

All Other

     2,260,169         1,145,469         5,912         5,912   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,062,054       $ 5,179,283       $ 2,537,598       $ 382,440   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company markets produced, processed, and purchased coal to customers in the United States and in international markets. Export coal revenues totaled $648,636 and $1,036,989, or approximately 41% and 38%, respectively, of total revenues for the three and six months ended June 30, 2011, respectively. Export coal revenues totaled $290,588 and $484,990, or approximately 29% and 25%, respectively, of total revenues for the three and six months ended June 30, 2010, respectively.

 

(22) Supplemental Guarantor and Non-Guarantor Financial Information

On July 30, 2004, Foundation’s subsidiary, Foundation PA (the “2014 Notes Issuer”), issued the 2014 Notes. The 2014 Notes were guaranteed on a senior unsecured basis by Foundation Coal Corporation (“FCC”), an indirect parent of Foundation PA, and certain of its subsidiaries. As a result of the Foundation Merger, Foundation PA and FCC became subsidiaries of the Company.

On August 1, 2009, in connection with the Foundation Merger, Foundation PA, the Company and certain of its subsidiaries (the “New Subsidiaries”) executed a supplemental indenture (the “Third Supplemental Indenture”), which supplements the indenture dated as of July 30, 2004 as supplemented, governing the 2014 Notes, pursuant to which the Company assumed the obligations of FCC in respect of the 2014 Notes. On August 1, 2009, in connection with the Foundation Merger, FCC merged with and into the Company and, in accordance with the Third Supplemental Indenture, the Company and each of the direct and indirect wholly owned subsidiaries of the Company, other than the 2014 Notes Issuer and the Non-Guarantor Subsidiaries agreed to guarantee the 2014 Notes, jointly and severally, on a senior unsecured basis. In connection with the Acquisition, Massey and certain of its subsidiaries entered into a supplemental indenture dated June 13, 2011, pursuant to which Massey and certain direct and indirect wholly owned subsidiaries of Massey agreed to guarantee the 2014 Notes, jointly and severally, on a senior unsecured basis.

Presented below are condensed consolidating financial statements as of June 30, 2011 and December 31, 2010 and for the three and six months ended June 30, 2011 and 2010, based on the guarantor structure that was in place at June 30, 2011. “Parent” in the tables below refers to the Company as a guarantor of the 2014 Notes. “Non-Guarantor Subsidiaries” refers to ANR Receivables Funding LLC, Coalsolv, LLC, Gray Hawk Insurance Company and Rockridge Coal Company which are not guarantors of the 2014 Notes. Separate consolidated financial statements and other disclosures concerning the 2014 Notes Guarantor Subsidiaries are not presented because management believes that such information is not material to holders of the 2014 Notes or related guarantees.

 

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Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet

June 30, 2011

 

     Parent      2014 Notes
Issuer
     2014 Notes
Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Total
Consolidated
 
Assets                 

Current assets:

                

Cash and cash equivalents

   $ 948       $ —         $ 811,204       $ 139       $ —        $ 812,291   

Trade accounts receivable, net

     —           —           284,974         375,124         —          660,098   

Inventories, net

     —           —           572,660         —           —          572,660   

Prepaid expenses and other current assets

     —           —           1,211,370         2,756         —          1,214,126   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     948         —           2,880,208         378,019         —          3,259,175   

Property, equipment and mine development costs, net

     —           —           2,868,304         —           —          2,868,304   

Owned and leased mineral rights and land, net

     —           —           8,587,292         —           —          8,587,292   

Goodwill

     —           —           2,537,598         —           —          2,537,598   

Other non-current assets

     12,285,086         1,352,754         11,548,862         4,517         (24,381,534     809,685   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 12,286,034       $ 1,352,754       $ 28,422,264       $ 382,536       $ (24,381,534   $ 18,062,054   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
Liabilities and Stockholders’ Equity                 

Current liabilities:

                

Current portion of long-term debt

   $ 30,000       $ —         $ 886,094       $ —         $ —        $ 916,094   

Trade accounts payable

     4,773         —           518,073         24         —          522,870   

Accrued expenses and other current liabilities

     9,068         11,585         855,618         35         —          876,306   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     43,841         11,585         2,259,785         59         —          2,315,270   

Long-term debt

     2,298,664         297,414         18,471         —           —          2,614,549   

Pension and postretirement medical benefit obligations

     —           —           1,024,539         —           —          1,024,539   

Asset retirement obligations

     —           —           577,447         —           —          577,447   

Deferred income taxes

     —           —           1,950,567         —           —          1,950,567   

Other non-current liabilities

     1,536,051         707,651         1,590,489         372,104         (3,072,102     1,134,193   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     3,878,556         1,016,650         7,421,298         372,163         (3,072,102     9,616,565   

Redeemable convertible long-term debt

     —           —           38,011         —           —          38,011   
Stockholders’ Equity                 

Total stockholders’ equity

     8,407,478         336,104         20,962,955         10,373         (21,309,432     8,407,478   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities, redeemable convertible long-term debt and stockholders’ equity

   $ 12,286,034       $ 1,352,754       $ 28,422,264       $ 382,536       $ (24,381,534   $ 18,062,054   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

36


Table of Contents

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet

December 31, 2010

 

     Parent      2014 Notes
Issuer
     2014 Notes
Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Total
Consolidated
 
Assets                 

Current assets:

                

Cash and cash equivalents

   $ 20,331       $ —         $ 534,441       $ —         $ —        $ 554,772   

Trade accounts receivable, net

     —           —           18,432         262,706         —          281,138   

Inventories, net

     —           —           198,172         —           —          198,172   

Prepaid expenses and other current assets

     —           —           341,755         —           —          341,755   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     20,331         —           1,092,800         262,706         —          1,375,837   

Property, equipment and mine development costs, net

     —           —           1,129,222         —           —          1,129,222   

Owned and leased mineral rights and land, net

     —           —           1,985,661         —           —          1,985,661   

Goodwill

     —           —           382,440         —           —          382,440   

Other non-current assets

     5,167,187         1,578,118         3,882,223         4,705         (10,326,110     306,123   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 5,187,518       $ 1,578,118       $ 8,472,346       $ 267,411       $ (10,326,110   $ 5,179,283   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
Liabilities and Stockholders’ Equity                 

Current liabilities:

                

Current portion of long-term debt

   $ —         $ 11,839       $ —         $ —         $ —        $ 11,839   

Trade accounts payable

     2,091         —           119,462         —           —          121,553   

Accrued expenses and other current liabilities

     1,423         10,195         302,110         26         —          313,754   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     3,514         22,034         421,572         26         —          447,146   

Long-term debt

     222,355         512,138         7,819         —           —          742,312   

Pension and postretirement medical benefit obligations

     —           —           719,355         —           —          719,355   

Asset retirement obligations

     —           —           209,987         —           —          209,987   

Deferred income taxes

     —           —           249,408         —           —          249,408   

Other non-current liabilities

     2,305,613         671,273         1,528,008         261,372         (4,611,227     155,039   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     2,531,482         1,205,445         3,136,149         261,398         (4,611,227     2,523,247   
Stockholders’ Equity                 

Total stockholders’ equity

     2,656,036         372,673         5,336,197         6,013         (5,714,883     2,656,036   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 5,187,518       $ 1,578,118       $ 8,472,346       $ 267,411       $ (10,326,110   $ 5,179,283   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

37


Table of Contents

Alpha Natural Resources, Inc. and Subsidiaries

Supplemental Consolidating Statement of Operations

For the Three Months Ended June 30, 2011

 

     Parent     2014 Notes
Issuer
    2014 Notes
Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Total
Consolidated
 

Revenues:

             

Coal revenues

   $ —        $ —        $ 1,410,892      $ —        $ —         $ 1,410,892   

Freight and handling revenues

     —          —          150,871        —          —           150,871   

Other revenues

     —          —          28,941        2,734        —           31,675   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total revenues

     —          —          1,590,704        2,734        —           1,593,438   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Costs and expenses:

             

Cost of coal sales (exclusive of items shown separately below)

     —          —          1,106,663        —          —           1,106,663   

Freight and handling costs

     —          —          150,871        —          —           150,871   

Other expenses

     —          —          45,371        —          —           45,371   

Depreciation, depletion and amortization

     —          —          143,769        —          —           143,769   

Amortization of acquired intangibles, net

     —          —          (9,606     —          —           (9,606

Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)

     —          —          188,755        916        —           189,671   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total costs and expenses

     —          —          1,625,823        916        —           1,626,739   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) from operations

     —          —          (35,119     1,818        —           (33,301
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Other income (expense):

             

Interest expense

     (21,434     (13,627     5,659        (457     —           (29,859

Interest income

     —          —          1,012        —          —           1,012   

Loss on early extinguishment of debt

     (4,751     —          195        —          —           (4,556

Miscellaneous expense, net

     —          —          858        —          —           858   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total other expense, net

     (26,185     (13,627     7,724        (457     —           (32,545
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) from continuing operations before income taxes and equity in earnings of investments in Issuer and Guarantor Subsidiaries

     (26,185     (13,627     (27,395     1,361        —           (65,846

Income tax benefit (expense)

     10,212        5,315        (5,502     (531     —           9,494   

Equity in earnings of investments in Issuer and Guarantor Subsidiaries

     (40,379     742        —          —          39,637         —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

   $ (56,352   $ (7,570   $ (32,897   $ 830      $ 39,637       $ (56,352
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

38