Attached files

file filename
EX-4.1 - INDENTURE, DATED MARCH 23, 2015 - Alpha Natural Resources, Inc.anr-201533110qexhibit41.htm
EX-12.1 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - Alpha Natural Resources, Inc.anr-201533110qexhibit121.htm
EX-95 - MINE SAFETY DISCLOSURE EXHIBIT - Alpha Natural Resources, Inc.anr-2015331x10qexhibit95.htm
EX-10.1 - OTHER SECOND-LIEN OBLIGATIONS JOINDER AGREEMENT DATED AS OF MARCH 23, 2015 - Alpha Natural Resources, Inc.anr-201533110qexhibit101.htm
EX-32.(A) - CERTIFICATION PURSUANT TO 18 USC 1350 - Alpha Natural Resources, Inc.anr-2015331x10qexhibit32a.htm
EX-31.(B) - CERTIFICATION PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT - Alpha Natural Resources, Inc.anr-2015331x10qexhibit31b.htm
EX-12.2 - COMPUTATION OF OTHER RATIOS - Alpha Natural Resources, Inc.anr-2015331x10qexhibit122.htm
EX-32.(B) - CERTIFICATION PURSUANT TO 18 USC 1350 - Alpha Natural Resources, Inc.anr-2015331x10qexhibit32b.htm
EX-31.(A) - CERTIFICATION PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT - Alpha Natural Resources, Inc.anr-2015331x10qexhibit31a.htm
EXCEL - IDEA: XBRL DOCUMENT - Alpha Natural Resources, Inc.Financial_Report.xls
EX-10.4 - CASH-SETTLED RESTRICTED UNIT AWARD FOR EMPLOYEES UNDER THE 2012 LTIP - Alpha Natural Resources, Inc.anr-201533110qexhibit104.htm

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 March 31, 2015

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

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 16429, Bristol, Virginia
 
24209
(Address of principal executive offices)
 
(Zip Code)
Registrants 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.
 
o Large accelerated filer
x Accelerated filer
o Non-accelerated filer
o 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 April 30, 2015 - 222,278,382



TABLE OF CONTENTS
 







Item 1.
Financial Statements

ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Amounts in thousands, except share and per share data)
 
Three Months Ended
March 31,
 
2015
 
2014
Revenues:
 
 
 
Coal revenues
$
726,067

 
$
952,820

Freight and handling revenues
100,159

 
134,202

Other revenues
15,763

 
24,751

Total revenues
841,989

 
1,111,773

Costs and expenses:
 
 
 
Cost of coal sales (exclusive of items shown separately below)
751,324

 
896,584

Freight and handling costs
100,159

 
134,202

Other expenses
4,985

 
15,194

Depreciation, depletion and amortization
158,431

 
200,295

Amortization of acquired intangibles, net
12,445

 
9,279

Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)
24,962

 
41,197

Asset impairment and restructuring
4,120

 
9,499

Total costs and expenses
1,056,426

 
1,306,250

Loss from operations
(214,437
)
 
(194,477
)
Other income (expense):
 
 
 
Interest expense
(76,706
)
 
(64,962
)
Interest income
660

 
616

Gain (loss) on early extinguishment of debt
364,153

 
(1,804
)
Gain on sale of equity method investment

 
250,331

Miscellaneous (expense) income, net
(470
)
 
1,156

Total other income, net
287,637

 
185,337

Income (loss) before income taxes
73,200

 
(9,140
)
Income tax expense
(4,989
)
 
(46,558
)
Net income (loss)
$
68,211

 
$
(55,698
)
Basic income (loss) per common share
$
0.31

 
$
(0.25
)
Diluted income (loss) per common share
$
0.30

 
$
(0.25
)
Weighted average shares - basic
221,784,821

 
221,154,062

Weighted average shares - diluted
223,855,324

 
221,154,062

    

See accompanying Notes to Condensed Consolidated Financial Statements.


1


ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Amounts in thousands)

 
Three Months Ended
March 31,
 
2015
 
2014
Net income (loss)
$
68,211

 
$
(55,698
)
Other comprehensive income (loss), net of tax:
 
 
 
Amortization of employee benefit costs, net of income tax of ($561) and $344 for the three months ended March 31, 2015 and 2014, respectively
919

 
(554
)
Settlement of cash flow hedges, net of income tax of ($66) and $600 for the three months ended March 31, 2015 and 2014, respectively
106

 
(910
)
Change in fair value of marketable securities, net of income tax of ($1,869) and ($20,354) for the three months ended March 31, 2015 and 2014, respectively
2,979

 
30,915

Total other comprehensive income, net of tax
4,004

 
29,451

Total comprehensive income (loss)
$
72,215

 
$
(26,247
)

See accompanying Notes to Condensed Consolidated Financial Statements.

2


ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
 
March 31,
2015
 
December 31,
2014
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
476,295

 
$
741,186

Trade accounts receivable, net
249,266

 
314,015

Inventories, net
244,563

 
237,945

Short-term investments
421,128

 
405,169

Prepaid expenses and other current assets
169,299

 
177,999

Total current assets
1,560,551

 
1,876,314

Property, equipment and mine development costs, net
1,343,649

 
1,425,667

Owned and leased mineral rights and land (net of accumulated depletion of $1,294,084 and $1,265,901, respectively)
6,861,668

 
6,916,307

Other acquired intangibles (net of accumulated amortization of $393,318 and $378,413, respectively)
82,264

 
97,169

Other non-current assets
321,315

 
324,009

Total assets
$
10,169,447

 
$
10,639,466

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
176,795

 
$
178,251

Trade accounts payable
203,276

 
216,098

Accrued expenses and other current liabilities
563,842

 
615,200

Total current liabilities
943,913

 
1,009,549

Long-term debt
3,142,018

 
3,622,837

Pension and postretirement medical benefit obligations
1,240,164

 
1,236,986

Asset retirement obligations
551,828

 
538,008

Deferred income taxes
772,410

 
773,466

Other non-current liabilities
460,728

 
471,820

Total liabilities
7,111,061

 
7,652,666

 
 
 
 
Commitments and Contingencies (Note 17)
 
 
 
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, 234.8 million issued and 222.3 million outstanding at March 31, 2015 and 233.7 million issued and 221.6 million outstanding at December 31, 2014
2,348

 
2,337

Additional paid-in capital
8,210,879

 
8,211,122

Accumulated other comprehensive income (loss)
(287,697
)
 
(291,701
)
Treasury stock, at cost: 12.5 million and 12.1 million shares at March 31, 2015 and December 31, 2014, respectively
(273,595
)
 
(273,198
)
Accumulated deficit
(4,593,549
)
 
(4,661,760
)
Total stockholders’ equity
3,058,386

 
2,986,800

Total liabilities and stockholders’ equity
$
10,169,447

 
$
10,639,466


See accompanying Notes to Condensed Consolidated Financial Statements.

3


ALPHA NATURAL RESOURCES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
 
Three Months Ended
March 31,
 
2015
 
2014
Operating activities:
 
 
 
Net income (loss)
$
68,211

 
$
(55,698
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Depreciation, depletion, accretion and amortization
192,918

 
228,630

Amortization of acquired intangibles, net
12,445

 
9,279

Mark-to-market adjustments for derivatives
1,847

 
(760
)
Stock-based compensation
(409
)
 
5,371

Asset impairment and restructuring
4,120

 
9,499

Employee benefit plans, net
15,559

 
14,353

(Gain) loss on early extinguishment of debt
(364,153
)
 
1,804

Gain on sale of equity method investment

 
(250,331
)
Deferred income taxes
4,386

 
45,738

Other, net
568

 
9,865

Changes in operating assets and liabilities:
 
 
 
Trade accounts receivable, net
64,749

 
(81,243
)
Inventories, net
(6,653
)
 
943

Prepaid expenses and other current assets
(11,140
)
 
(30,138
)
Other non-current assets
6,885

 
8,614

Trade accounts payable
(6,739
)
 
32,044

Accrued expenses and other current liabilities
(15,816
)
 
23,077

Pension and postretirement medical benefit obligations
(9,409
)
 
(8,714
)
Asset retirement obligations
(9,279
)
 
(11,506
)
Other non-current liabilities
(7,874
)
 
(4,788
)
Net cash used in operating activities
(59,784
)
 
(53,961
)
Investing activities:
 
 
 
Capital expenditures
(29,619
)
 
(39,718
)
Purchases of investments
(210,281
)
 
(153,648
)
Sales of investments
193,717

 
95,164

Proceeds from exchange of equity method investment, net

 
96,732

Other, net
326

 
1,511

Net cash (used in) provided by investing activities
(45,857
)
 
41

Financing activities:
 
 
 
Proceeds from borrowings on long-term debt
186,983

 

Principal repayments of long-term debt
(333,489
)
 
(27,145
)
Principal repayments of capital lease obligations
(5,373
)
 
(4,264
)
Debt issuance and modification costs
(6,815
)
 

Common stock repurchases
(397
)
 
(1,043
)
Other
(159
)
 
(159
)
Net cash used in financing activities
(159,250
)
 
(32,611
)
Net decrease in cash and cash equivalents
(264,891
)
 
(86,531
)
Cash and cash equivalents at beginning of period
741,186

 
619,644

Cash and cash equivalents at end of period
$
476,295

 
$
533,113

Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expenditures
$
19,502

 
$
9,659


See accompanying Notes to Condensed Consolidated Financial Statements.

4


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” or “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.

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 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 months ended March 31, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015 or any other period. 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, 2014.

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; reclamation obligations; pensions, postemployment, postretirement medical and other employee benefit obligations; useful lives for depreciation, reserves for workers’ compensation and black lung claims; current and deferred income taxes; reserves for contingencies and litigation 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.

New Accounting Pronouncements

On April 7, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest - Imputation of Interest (“ASU 2015-03”). The standard requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. ASU 2015-03 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted and the Company adopted ASU 2015-03 during the three months ended March 31, 2015. Amounts reported as of December 31, 2014 have been reclassed to conform to the current year presentation. See Note 10.

(2) Asset Impairment and Restructuring

During the three months ended March 31, 2015, the Company recorded severance expenses of $4,120. For the three months ended March 31, 2014, the Company recorded severance expenses of $734, other expenses of ($32), and recorded impairment expenses of $8,797 related to certain other non-current assets within the Company’s All Other category.

(3) Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes to accumulated other comprehensive income (loss) during the three months ended March 31, 2015 and 2014:

5

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)


Balance December 31, 2014
 
Other comprehensive
income (loss) before reclassifications
 
Amounts reclassified
from accumulated other comprehensive income (loss)
 
Balance
March 31, 2015
Employee benefit costs
$
(291,118
)
 
$

 
$
919

 
$
(290,199
)
Cash flow hedges
(400
)
 

 
106

 
(294
)
Available-for-sale marketable securities
(183
)
 
2,979

 

 
2,796


$
(291,701
)
 
$
2,979

 
$
1,025

 
$
(287,697
)

 
Balance December 31, 2013
 
Other comprehensive
income (loss) before reclassifications
 
Amounts reclassified
from accumulated other comprehensive income (loss)
 
Balance
March 31, 2014
Employee benefit costs
$
(59,102
)
 
$

 
$
(554
)
 
$
(59,656
)
Cash flow hedges
1,941

 

 
(910
)
 
1,031

Available-for-sale marketable securities
13

 
30,916

 
(1
)
 
30,928

 
$
(57,148
)
 
$
30,916

 
$
(1,465
)
 
$
(27,697
)

The following tables summarize the amounts reclassified from accumulated other comprehensive income (loss) and the statement of operations line items affected by the reclassifications during the three months ended March 31, 2015 and 2014:

Details about accumulated other comprehensive income (loss) components
Amounts reclassified from accumulated other comprehensive income (loss)
 
Affected line item in the Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
 
 
 
Employee benefit costs:
 
 
 
 
 
     Amortization of actuarial loss
$
2,861

 
$
57

 
(1) 
     Amortization of prior service credit
(1,381
)
 
(955
)
 
(1) 
Total before income tax
1,480

 
(898
)
 
 
Tax (expense) benefit
(561
)
 
344

 
Income tax expense
Total, net of tax
$
919

 
$
(554
)
 
 
 
 
 
 
 
 
Cash flow hedges:


 
 
 

     Commodity swaps-coal
$

 
$
(1,153
)
 
Coal revenues
     Commodity swaps-diesel fuel
172

 
(357
)
 
Cost of coal sales
Total before income tax
172

 
(1,510
)
 

Tax (expense) benefit
(66
)
 
600

 
Income tax expense
Total, net of tax
$
106

 
$
(910
)
 



 
 
 

Available-for-sale marketable securities:


 
 
 

     Unrealized gains and losses
$

 
$
(1
)
 
Interest income
Tax (expense) benefit

 

 
Income tax expense
Total, net of tax
$

 
$
(1
)
 

(1) These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit costs for pension, other postretirement benefit plans and black lung. See Note 15.


6

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

(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 4.875% convertible senior notes due 2020 (the “4.875% Convertible Notes”), 3.75% convertible senior notes due 2017 (the “3.75% Convertible Notes”), 2.375% convertible senior notes due 2015 (the “2.375% Convertible Notes”), and 3.25% convertible senior notes due 2015 issued by Alpha Appalachia Holdings, Inc. (the “3.25% Convertible Notes”). The 4.875% Convertible Notes, 3.75% Convertible Notes, 2.375% Convertible Notes and 3.25% Convertible Notes become dilutive for earnings per common share calculations in certain circumstances and in specified periods. The shares that would be issued to settle the conversion or conversion spread are included in the diluted earnings per common share calculation when the conversion option is in the money or the notes are otherwise convertible, and the effect is dilutive.

 
Three Months Ended
March 31,
 
2015
 
2014
Weighted average shares - basic
221,784,821

 
221,154,062

Dilutive impact of restricted stock plans
2,070,503

 

Weighted average shares - diluted
223,855,324

 
221,154,062


(5) Inventories, net

Inventories, net consisted of the following:
 
March 31,
2015
 
December 31,
2014
Raw coal
$
36,192

 
$
38,301

Saleable coal
130,927

 
121,590

Materials, supplies and other, net
77,444

 
78,054

Total inventories, net
$
244,563

 
$
237,945


(6) Investments

Short-term investments consist of certificates of deposit of $48,686 and $25,451 as of March 31, 2015 and December 31, 2014, respectively, and short-term marketable securities. During the three months ended March 31, 2014, the Company agreed to transfer its 50% interest in Alpha Shale JV to Rice Energy Inc. (“Rice Energy”) in exchange for 9,523,810 shares of Rice Energy common stock and $100,000 of cash. The exchange resulted in a gain of $250,331 in the first quarter of 2014.

Short-term marketable securities consisted of the following:

7

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

 
March 31, 2015
 
 
 
Unrealized
 
 
 
Cost
 
Gain
 
Loss
 
Fair value
Short-term marketable securities:
 
 
 
 
 
 
 
U.S. treasury and agency securities (a)
$
73,566

 
$
10

 
$
(3
)
 
$
73,573

Corporate debt securities (a)
298,926

 
21

 
(78
)
 
298,869

Total short-term marketable securities
$
372,492

 
$
31

 
$
(81
)
 
$
372,442

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
Unrealized
 
 
 
Cost
 
Gain
 
Loss
 
Fair value
Short-term marketable securities:
 
 
 
 
 
 
 
U.S. treasury and agency securities (a)
$
80,087

 
$
13

 
$
(7
)
 
$
80,093

Corporate debt securities (a)
299,751

 
5

 
(131
)
 
299,625

Total short-term marketable securities
$
379,838

 
$
18

 
$
(138
)
 
$
379,718

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

Long-term marketable securities included in other non-current assets, consisted of the following:
 
March 31, 2015
 
 
 
Unrealized
 
 
 
Cost
 
Gain
 
Loss
 
Fair value
Long-term marketable securities:
 
 
 
 
 
 
 
Corporate equity securities (a)
$
127,001

 
$
4,596

 
$

 
$
131,597

Mutual funds held in Rabbi Trust (b)
7,501

 
4,925

 
(2,001
)
 
10,425

Total long-term marketable securities
$
134,502

 
$
9,521

 
$
(2,001
)
 
$
142,022

 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
Unrealized
 
 
 
Cost
 
Gain
 
Loss
 
Fair value
Long-term marketable securities:
 
 
 
 
 
 
 
Corporate equity securities (a)
$
127,001

 
$

 
$
(181
)
 
$
126,820

Mutual funds held in rabbi trust (b)
7,433

 
4,661

 
(1,987
)
 
10,107

Total long-term marketable securities
$
134,434

 
$
4,661

 
$
(2,168
)
 
$
136,927

(a) 
Unrealized gains and losses are recorded as a component of stockholders’ equity.
(b) 
Unrealized gains and losses are recorded in current period earnings.

(7) Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

8

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

 
March 31, 2015
 
December 31, 2014
Prepaid insurance
$
18,904

 
$
11,445

Insurance and indemnification receivables (1)
3,809

 
41,283

Notes and other receivables
41,787

 
6,771

Deferred income taxes - current
46,515

 
54,451

Deferred long wall move expenses
13,892

 
9,309

Refundable income taxes
9,330

 
13,532

Prepaid freight
16,878

 
20,417

Deposits
9,043

 
8,834

Other prepaid expenses
9,141

 
11,957

Total prepaid expenses and other current assets
$
169,299

 
$
177,999

(1) See Note 9.

(8) Property, Equipment and Mine Development Costs

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

 
March 31, 2015
 
December 31, 2014
Plant and mining equipment
$
3,327,869

 
$
3,351,521

Mine development
267,932

 
281,594

Office equipment, software and other
49,784

 
49,784

Construction in progress
32,927

 
64,212

Total property, equipment and mine development costs
3,678,512

 
3,747,111

Less accumulated depreciation and amortization
2,334,863

 
2,321,444

Total property, equipment and mine development costs, net
$
1,343,649

 
$
1,425,667


(9) Accrued Expenses and Other Current Liabilities
 
Accrued expenses and other current liabilities consisted of the following:
 
March 31, 2015
 
December 31, 2014
Wages and employee benefits
$
94,179

 
$
111,627

Current portion of asset retirement obligations
99,182

 
102,493

Taxes other than income taxes
101,996

 
108,504

Interest payable
57,672

 
45,612

Current portion of postretirement medical benefit obligations
46,076

 
46,678

Deferred revenue
38,602

 
27,488

Litigation (1)
17,931

 
51,280

Other
108,204

 
121,518

Total accrued expenses and other current liabilities
$
563,842

 
$
615,200

(1) The Company has recorded related receivables of $3,809 and $41,283 from insurance coverage and indemnifications in prepaid expenses and other current assets as of March 31, 2015 and December 31, 2014, respectively.
 
(10) Long-Term Debt

Long-term debt consisted of the following:

9

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

 
March 31, 2015
 
December 31, 2014
2.375% convertible senior notes due 2015
$
44,458

 
$
44,458

3.25% convertible senior notes due 2015
109,201

 
109,201

3.75% convertible senior notes due 2017
262,683

 
345,000

9.75% senior notes due 2018
392,584

 
500,000

6.00% senior notes due 2019
576,874

 
800,000

4.875% convertible senior notes due 2020
276,740

 
345,000

7.50% senior secured second lien notes due 2020
713,647

 
500,000

Term loan due 2020
612,500

 
614,062

6.25% senior notes due 2021
584,929

 
700,000

Other
55,960

 
61,344

Debt discount
(222,500
)
 
(121,295
)
Debt issuance costs
(88,263
)
 
(96,682
)
Total long-term debt
3,318,813

 
3,801,088

Less current portion
(176,795
)
 
(178,251
)
Long-term debt, net of current portion
$
3,142,018

 
$
3,622,837


Repurchase of senior notes and issuance of 7.50% senior secured second lien notes due 2020

During the three months ended March 31, 2015, the Company entered into a series of privately negotiated transactions in which it repurchased $223,126 principal amount of its 6.00% senior notes due 2019, $115,071 principal amount of its 6.25% senior notes due 2021, $107,416 principal amount of its 9.75% senior notes due 2018, $82,317 principal amount of its 3.75% Convertible Notes, and $68,260 principal amount of its 4.875% Convertible Notes and issued $213,647 principal amount of its 7.50% senior secured second lien notes due 2020. The transactions resulted in net cash paid of $144,942 during the three months ended March 31, 2015 and the Company recognized a gain on early extinguishment of debt of $364,153. The Company received $26,663 on April 1, 2015 that was an outstanding receivable as of March 31, 2015 related to the issuance of the 7.50% senior secured second lien notes due 2020, resulting in net cash paid of $118,279 for the transactions. The 7.50% senior secured second lien notes have identical terms to the 7.50% senior secured second lien notes that were issued in May 2014.

Repurchases of 2.375% and 3.25% Convertible Senior Notes due 2015

During the three months ended March 31, 2014, the Company completed the repurchase of approximately $18,599 of its outstanding 2.375% Convertible Notes and approximately $16,051 of its outstanding 3.25% Convertible Notes and recorded a loss on early extinguishment of debt of $1,804.

In April 2015, the 2.375% Convertible Notes matured and the Company paid $44,458.

(11) Asset Retirement Obligations

The following table summarizes the changes in asset retirement obligations for the three months ended March 31, 2015:
Total asset retirement obligations at December 31, 2014
$
640,501

Accretion for the period
19,815

Revisions in estimated cash flows
(27
)
Expenditures for the period
(9,279
)
Total asset retirement obligations at March 31, 2015
$
651,010

Less current portion
(99,182
)
Long-term portion
$
551,828


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


10

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

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 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.

The following tables set forth by level, within the fair value hierarchy, the Company’s long-term debt at fair value as of March 31, 2015 and December 31, 2014, respectively.


March 31, 2015

Carrying
Amount
(1)
 
Total Fair
Value
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
2.375% convertible senior notes due 2015
$
44,173

 
$
43,847

 
$
43,847

 
$

 
$

3.25% convertible senior notes due 2015
108,640

 
104,833

 
104,833

 

 

3.75% convertible senior notes due 2017
227,952

 
91,939

 
91,939

 

 

9.75% senior notes due 2018
386,964

 
150,780

 
150,780

 

 

6.00% senior notes due 2019
569,853

 
161,525

 
161,525

 

 

4.875% convertible senior notes due 2020
215,403

 
69,185

 
69,185

 

 

7.50% senior secured second lien notes due 2020
564,478

 
307,964

 
307,964

 

 

Term loan due 2020
572,620

 
438,030

 

 
438,030

 

6.25% senior notes due 2021
576,500

 
149,157

 
149,157

 

 

Total long-term debt
$
3,266,583

 
$
1,517,260

 
$
1,079,230

 
$
438,030

 
$



December 31, 2014

Carrying
Amount
(1)
 
Total Fair
Value
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
2.375% convertible senior notes due 2015
$
43,462

 
$
43,368

 
$
43,368

 
$

 
$

3.25% convertible senior notes due 2015
108,225

 
104,014

 
104,014

 

 

3.75% convertible senior notes due 2017
295,544

 
172,500

 
172,500

 

 

9.75% senior notes due 2018
492,129

 
233,430

 
233,430

 

 

6.00% senior notes due 2019
789,679

 
240,000

 
240,000

 

 

4.875% convertible senior notes due 2020
265,874

 
125,494

 
125,494

 

 

7.50% senior secured second lien notes due 2020
488,974

 
320,000

 
320,000

 

 

Term loan due 2020
570,361

 
499,424

 

 
499,424

 

6.25% senior notes due 2021
689,504

 
208,950

 
208,950

 

 

Total long-term debt
$
3,743,752

 
$
1,947,180

 
$
1,447,756

 
$
499,424

 
$

(1) 
Net of debt discounts and debt issuance costs.

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 basis as of March 31, 2015 and December 31, 2014, 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

11

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

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.
 
March 31, 2015
 
Total Fair
Value
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Financial assets (liabilities):
 
 
 
 
 
 
 
Certificates of deposit
$
48,686

 
$
48,686

 
$

 
$

U.S. treasury and agency securities
$
73,573

 
$
73,573

 
$

 
$

Mutual funds held in Rabbi Trust
$
10,425

 
$
10,425

 
$

 
$

Corporate equity securities
$
131,597

 
$
131,597

 
$

 
$

Corporate debt securities
$
298,869

 
$

 
$
298,869

 
$

Forward coal sales
$
1,121

 
$

 
$
1,121

 
$

Commodity swaps
$
(20,626
)
 
$

 
$
(20,626
)
 
$


 
December 31, 2014
 
Total Fair
Value
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Financial assets (liabilities):
 
 
 
 
 
 
 
Certificates of deposit
$
25,451

 
$
25,451

 
$

 
$

U.S. treasury and agency securities
$
80,093

 
$
80,093

 
$

 
$

Mutual funds held in Rabbi Trust
$
10,107

 
$
10,107

 
$

 
$

Corporate equity securities
$
126,820

 
$
126,820

 
$

 
$

Corporate debt securities
$
299,625

 
$

 
$
299,625

 
$

Forward coal sales
$
760

 
$

 
$
760

 
$

Commodity swaps
$
(23,614
)
 
$

 
$
(23,614
)
 
$


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, Certificates of Deposit, Corporate Equity Securities and Mutual Funds Held in Rabbi Trust - The fair value is based on observable market data.

6.25% senior notes due 2021, 7.50% senior secured second lien notes due 2020, 6.00% senior notes due 2019, 9.75% senior notes due 2018 (collectively, the Senior Notes), 4.875% Convertible Notes, 3.75% Convertible Notes, 2.375% Convertible Notes, and 3.25% Convertible Notes (collectively, the Convertible Notes) - The fair value 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 entail a certain amount of

12

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

subjectivity and therefore differing judgments in how the underlying inputs are modeled which could result in different estimates of fair value.
 
Forward Coal Sales - The fair values of the forward coal 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 credit 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 credit risk.

Term Loan due 2020 - The fair value of the term loan due 2020 is estimated based on market rates of interest offered for debt of similar terms, maturities and risk.

(13) 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. 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 in its production process and incurs significant expenses for its purchase. Diesel fuel expenses represented approximately 4% of cost of coal sales for the three months ended March 31, 2015. The Company is subject to the risk of price volatility for this commodity and as a part of its risk management strategy, the Company has entered into swap agreements with financial institutions to mitigate the risk of price volatility for diesel fuel. 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 March 31, 2015, the Company had swap agreements outstanding to hedge the variable cash flows related to 44% and 6% of anticipated diesel fuel usage for the remaining nine months of 2015 and calendar year 2016, respectively. The average fixed price for these diesel fuel swaps is $2.75 per gallon and $2.74 per gallon for the remaining nine months of 2015 and calendar year 2016, respectively. All cash flows associated with derivative instruments are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014.

The following tables present the fair values and location of the Company’s derivative instruments within the Condensed Consolidated Balance Sheets:
 
 
 
Asset Derivatives
Derivatives not designated as
cash flow hedging instruments
Statement of Financial Position Location
 
March 31,
2015
 
December 31,
2014
Commodity swaps
Prepaid expenses and other current assets
 
$
1

 
$
429

Forward coal sales
Prepaid expenses and other current assets
 
1,121

 
760

Total asset derivatives
 
 
$
1,122

 
$
1,189



13

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

 
 
 
Liability Derivatives
Derivatives not designated as
cash flow hedging instruments
Statement of Financial Position Location
 
March 31,
2015
 
December 31,
2014
Commodity swaps
Other non-current liabilities
 
$
1,732

 
$
3,022

Commodity swaps
Accrued expenses and other current liabilities
 
18,895

 
21,021

Total liability derivatives
 
 
$
20,627

 
$
24,043


The following tables present the gains and losses from derivative instruments for the three months ended March 31, 2015 and 2014 and their location within the Condensed Consolidated Financial Statements:

Derivatives designated as
cash flow hedging instruments
 
Gain (loss) reclassified
from accumulated other
comprehensive income (loss) to earnings
 
2015
 
2014
Commodity swaps (1) (2)
 
$
(106
)
 
$
910

(1) 
Amounts included in cost of coal sales and coal revenues in the Condensed Consolidated Statements of Operations.
(2) 
Net of tax.

Derivatives not designated as
cash flow hedging instruments
 
Gain (loss) recorded in earnings
 
Three Months Ended March 31,
 
2015
 
2014
Forward coal sales (1)
 
$
361

 
$
2,376

Forward coal purchases (1)
 

 
(16
)
Commodity swaps (2)
 
(2,208
)
 
(1,600
)
 
 
$
(1,847
)
 
$
760

(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 coal revenues, cost of coal sales and other expenses in the Condensed Consolidated Statements of Operations.

Unrealized gains and 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 $294, net of tax, to earnings.

(14) Income Taxes

For the three months ended March 31, 2015, the Company recorded income tax expense of $4,989 on income before income taxes of $73,200. The income tax expense differs from the expected statutory amount primarily due to a reduction in the valuation allowance. For the three months ended March 31, 2014, the Company recorded income tax expense of $46,558 on a loss before income taxes of $9,140. The income tax expense differs from the expected statutory amount primarily due to an increase in the valuation allowance.

As a result of generating income before income taxes during the three months ended March 31, 2015, the Company recorded a decrease of $29,060 to its deferred tax asset valuation allowance recorded as of March 31, 2015. The decrease in valuation allowance results from a decrease in net operating losses and other deferred tax assets since the prior reporting date of December 31, 2014. The valuation allowance associated with those deferred tax assets was released during the three months ended March 31, 2015. The Company currently is relying primarily on the reversal of taxable temporary differences, along with consideration of taxable income via carryback to prior years, and tax planning strategies to support the realization of deferred tax assets. The Company updates its assessment regarding the realizability of its deferred tax assets including scheduling the reversal of its deferred tax liabilities to determine the amount of valuation allowance needed. Scheduling the reversal of deferred tax asset and liability balances requires judgment and estimation. The Company believes the deferred tax liabilities

14

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

relied upon as future taxable income in its assessment will reverse in the same period and jurisdiction and are of the same character as the temporary differences giving rise to the deferred tax assets that will be realized. The valuation allowance recorded represents the portion of deferred tax assets for which the Company is unable to support realization through the methods described above. The Company has concluded that it is more likely than not that the remaining deferred tax assets, net of valuation allowances, are realizable.

(15) Employee Benefit Plans

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

Components of Net Periodic Pension Costs

The components of net periodic benefit credit are as follows:
 
Three Months Ended
March 31,
 
2015
 
2014
Interest cost
$
7,548

 
$
6,028

Expected return on plan assets
(8,718
)
 
(7,339
)
Amortization of net actuarial loss
539

 

Net periodic benefit credit
$
(631
)
 
$
(1,311
)

Components of Net Periodic Costs of Other Postretirement Benefit Plans

The components of net periodic benefit cost are as follows:
 
Three Months Ended
March 31,
 
2015
 
2014
Service cost
$
2,816

 
$
3,684

Interest cost
10,340

 
10,484

Amortization of prior service credit
(1,636
)
 
(955
)
Amortization of net actuarial loss
1,981

 

Net periodic benefit cost
$
13,501

 
$
13,213


Components of Net Periodic Costs of Black Lung

The components of net periodic benefit cost are as follows:
 
Three Months Ended
March 31,
 
2015
 
2014
Service cost
$
554

 
$
694

Interest cost
1,615

 
1,724

Expected return on plan assets
(76
)
 
(24
)
Amortization of prior service cost
255

 

Amortization of net actuarial loss
341

 
57

Net periodic benefit cost
$
2,689

 
$
2,451


(16) Stock-Based Compensation Awards


15

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

The Amended and Restated 2012 Long-Term Incentive Plan is currently authorized for the issuance of awards of up to 13,100,000 shares of common stock, and as of March 31, 2015, 4,434,344 shares of common stock were available for grant under the plan.

During the three months ended March 31, 2015, the Company awarded certain of its executives 3,450,612 time-based restricted share units under its existing stock plans. Additionally, during the three months ended March 31, 2015, the Company awarded certain of its executives 3,400,612 time-based restricted cash units which are accounted for as liability awards and subject to variable accounting. The Company's liability for all outstanding liability awards totaled $1,017 as of March 31, 2015.

The time-based units granted during the three months ended March 31, 2015, subject to continued employment, cliff vest after two or three years from grant (with accelerated vesting upon a change of control and certain retirement scenarios).

At March 31, 2015, the Company had three types of stock-based awards outstanding: restricted share units (both time-based and performance-based), restricted cash units (both time-based and performance based), and stock options. Stock-based compensation (benefit) expense totaled ($409) and $6,110 for the three months ended March 31, 2015 and 2014, respectively. For the three months ended March 31, 2015 and 2014, ($1,667) and $4,330, respectively, of stock-based compensation (benefit) expense was reported as selling, general and administrative expenses, and $1,258 and $1,780, respectively, of stock-based compensation expense was recorded as cost of coal sales. The decrease in stock compensation expense for the three months ended March 31, 2015 was related to the forfeiture of awards for an executive who left the company in January 2015.

The Company is authorized 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. During the three months ended March 31, 2015 and 2014, the Company repurchased 381,225 and 188,229, respectively, of common shares from employees at an average price paid per share of $1.04 and $5.54, respectively.

(17) 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

The Company leases coal mining and other equipment under long-term capital and operating leases with varying terms. In addition, the Company leases mineral interests and surface rights from land owners under various terms and royalty rates.

 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.

During the normal course of business, contract-related matters arise between the Company and its customers. When a loss related to such matters is considered probable and can reasonably be estimated, the Company records a liability.
 
(c) Guarantees and Financial Instruments with Off-Balance Sheet Risk
 

16

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

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. As of March 31, 2015, we had outstanding surety bonds with a total face amount of $390,100 to secure various obligations and commitments and we had self bonding guarantees in the amount of $675,000. In addition, as collateral for various obligations and commitments, we had $133,713 of letters of credit in place under our Fifth Amended and Restated Credit Agreement and $99,129 of letters of credit in place under our accounts receivable securitization facility. Management does not expect any material losses to result from these guarantees or other off-balance sheet financial instruments.
 
(d) Legal Proceedings
The Company’s legal proceedings range from cases brought by a single plaintiff to purported 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 is stated, (i) the claimed amount may be exaggerated or unsupported; (ii) the claim may be based on a novel legal theory or involve a large number of parties; (iii) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (iv) there may be uncertainty as to the outcome of pending appeals or motions; and/or (v) there may be significant factual issues to be resolved. As a result, the Company may be unable to estimate a range of possible loss for matters that have not yet progressed sufficiently through discovery and development of important factual information and legal issues. Other matters have progressed sufficiently that the Company is able to estimate a range of possible loss. Accordingly, for those legal proceedings and governmental examinations disclosed below as to which a loss is reasonably possible in future periods and for which the Company is able to estimate a range of possible loss, the current estimated range is up to $100,000 in excess of the accrued liability (if any) related to those matters. This aggregate range represents the Company’s estimate of additional possible loss in excess of the accrued liability (if any) with respect to these matters and net of third party indemnification arrangements (if any, other than insurance) as described below related to those matters, based on currently available information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherent uncertainties. For example, at the time of making an estimate, the Company may have only preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co-defendants, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that the Company had not accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which the Company is not able to estimate a range of possible loss. Accordingly, the estimated aggregate range of possible loss does not represent the Company’s maximum loss exposure. The legal proceedings and governmental examinations underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. The Company intends to defend these legal proceedings vigorously, litigating or settling cases where in the Company’s judgment it would be in the best interest of shareholders to do so.

For purposes of FASB ASC Topic 450 (“ASC 450”), an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” ASC 450 requires accrual for a liability when it is (a) “probable that one or more future events will occur confirming the fact of loss” and (b) “the amount of loss can be reasonably estimated.” If a range of loss is estimated, the best estimate within the range is required to be accrued. If no amount within the range is a better estimate, the minimum amount of the range is required to be accrued.
 
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 expense, net of expected insurance recoveries, associated with litigation-related reserves of $8,991 and $1,254 during the three months ended March 31, 2015 and 2014, respectively.
 
UBB Explosion and Related Investigations and Litigation
 

17

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

On April 5, 2010, prior to the acquisition of Massey Energy Company by the Company (the “Massey Acquisition”), an explosion occurred at Massey’s Upper Big Branch (“UBB”) mine, resulting in the deaths of twenty-nine miners. 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”) initiated investigations into the cause of the UBB explosion and related issues. Additionally, the United States Attorney for the Southern District of West Virginia (the “Office”) commenced a grand jury investigation. The GIIP published its final report on May 19, 2011; MSHA released its final report on December 6, 2011; and the State released its final report on February 23, 2012. The Company cannot predict whether or not any individual will become subject to possible criminal and civil penalties or enforcement actions as a result of these investigations. 

The UBB mine was idled in order to accommodate these investigations. On April 20, 2012, the Company was authorized by regulatory authorities to close the UBB mine permanently, and on June 19, 2012, the sealing of the mine was completed.

Non-Prosecution Agreement

On December 6, 2011, the Company, the Office and the United States Department of Justice entered into a Non-Prosecution Agreement (the “Agreement”) resolving the criminal investigation against Massey and its affiliates relating to the UBB explosion and other health and safety related issues at Massey, and the Company also reached a comprehensive settlement with MSHA resolving outstanding civil citations, violations, and orders related to MSHA’s investigation arising from the UBB explosion and other non-UBB related matters involving legacy Massey entities prior to the Massey Acquisition. The Agreement did not resolve individual responsibilities related to the UBB explosion.

Under the terms of the Agreement and MSHA settlement, the Company agreed to pay outstanding MSHA fines, and agreed to invest in additional measures designed to improve miner health and safety, provide restitution to the families of the fallen miners and two individuals injured in the UBB explosion, and create a charitable organization to research mine safety. The Company further agreed to cooperate fully with all governmental agencies in all continuing investigations and prosecutions against any individuals that arise out of the UBB explosion and related conduct described in the Agreement until such investigations and prosecutions are concluded.

On February 10, 2014, the Company announced that it had fully complied with the terms of the Agreement and that the Office and the United States Department of Justice had closed the Agreement.
Wrongful Death and Personal Injury Suits
Twenty of the twenty-nine families of the deceased miners filed wrongful death suits against Massey and certain of its subsidiaries in West Virginia, in Boone County Circuit Court and Wyoming County Circuit Court. In addition, two seriously injured employees filed personal injury claims against Massey and certain of its subsidiaries in Boone County Circuit Court seeking damages for physical injuries and/or alleged psychiatric injuries, and thirty-nine employees filed lawsuits against Massey and certain of its subsidiaries in Boone County Circuit Court and Wyoming County Circuit Court alleging emotional distress or personal injuries due to their proximity to the explosion. 
 
Through mediation ordered by the Boone County Circuit Court, the Company reached agreements to settle with all twenty-nine families of the deceased miners, the two employees who were seriously injured and thirty-nine employees who filed lawsuits for emotional distress or personal injuries. The settlements reached with the families of the deceased miners were approved by the court, and the other settlements did not require court approval.

On April 5, 2012, the family of one of the deceased miners filed a class action suit in Boone County Circuit Court, purportedly on behalf of the families that settled their claims prior to the mediation, alleging fraudulent inducement into a contract, naming as defendants Massey, the Company and certain of its subsidiaries, the Company’s CEO and the Company’s Board of Directors.
On June 17, 2013 and August 29, 2013, two complaints were filed in Boone County Circuit Court alleging personal injury claims relating to the UBB explosion. In July 2014, the Circuit Court granted the Company's motion to dismiss in one of the two cases. The second motion was denied in October 2014.


18

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

On July 17, 2013, the administrators for the estates of three miners who died in the UBB explosion filed an action against Alpha and Alpha Appalachia in the United States District Court for the Southern District of West Virginia claiming they are entitled to “criminal restitution” under the Agreement, which defendants moved to dismiss. In October 2013, the court granted defendants’ motion to dismiss the complaint with prejudice. The plaintiffs appealed this dismissal order. In September 2014, the Court of Appeals determined that the plaintiffs had failed to establish that the District Court had jurisdiction over the case. Accordingly, the Court of Appeals vacated the District Court’s dismissal of the case and remanded the case with instructions to dismiss the case without prejudice for lack of jurisdiction. On October 22, 2014, the District Court entered an order dismissing the plaintiffs’ complaint without prejudice and terminating all pending motions as moot.

Plaintiffs filed a new complaint on November 7, 2014. Defendants subsequently filed a motion to dismiss and plaintiffs filed a motion for leave to file a surreply memorandum. On April 6, 2015, the District Court granted the defendants’ motion to dismiss, and the plaintiffs filed a notice of appeal with the Court of Appeals for the Fourth Circuit.

Delaware Chancery Court Derivative Suit
 
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 Massey Acquisition. 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 Massey 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 Massey Acquisition.

The Delaware Plaintiffs also name the Company and Mountain Merger Sub, Inc. (“Merger Sub”), the Company’s wholly-owned subsidiary created for purposes of effecting the Massey Acquisition, which, at the effective time of the Massey Acquisition, was merged with and into Massey, as defendants. 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 Massey Acquisition for the purpose of eliminating the former Massey directors’ potential liability on the derivative claims. 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 Massey Acquisition, which were consolidated for all purposes with In re Massey in February 2011.

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 and reasonable allowances for fees incurred in this action. The Delaware Plaintiffs also sought to enjoin consummation of the Massey Acquisition. The court denied their motion for a preliminary injunction in May 2011.
 
In June 2011, Massey 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 Alpha Appalachia Merger Sub moved to dismiss the purported class action claim against them for failure to state a claim upon which relief may be granted. In June 2011, certain former Massey director and officer defendants moved to dismiss the derivative claims and filed answers to the remaining direct claims.
 
In September 2011, the parties submitted a Stipulation Staying Proceedings, which stayed the matter until March 2012, without prejudice to the parties’ right to seek an extension or a termination of the stay by application to the court. The court approved the stipulation and entered the stay that same day. The court extended the stay several times and the most recent stay expired on October 31, 2014.


19

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

On October 17, 2014, the Delaware Plaintiffs filed an amended complaint which maintains claims against Massey and certain former Massey directors and officers but no longer asserts claims against the Company or Mountain Merger Sub, Inc. Defendants moved to dismiss on December 5, 2014, and the motion remains pending.

West Virginia State Court Derivative Suit
In a case filed on April 15, 2010 in West Virginia state court, three 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.

In May 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 Massey 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 Massey 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 Massey Acquisition; failing to conduct proper supervision; paying undeserved incentive compensation to certain Massey executive directors, particularly former Massey Chairman and CEO Don L. 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.

In June 2011, the defendants moved to dismiss the West Virginia Plaintiffs’ original complaint, or, alternatively, to stay the case in favor of In re Massey, described above. Defendants also filed an opposition to the West Virginia Plaintiffs’ motion to amend. In November 2013, the court denied the West Virginia Plaintiffs’ motion to amend and granted defendants’ motion to dismiss. The West Virginia Plaintiffs appealed the denial of motion to amend and dismissal to the Supreme Court of Appeals of West Virginia, which remanded the action to the Circuit Court. On November 20, 2014, the Circuit Court entered an order dismissing the suit with prejudice as to the individual defendants and nominal defendant Massey Energy Company (n/k/a Alpha Appalachia Holdings, Inc.). On December 22, 2014, plaintiffs appealed the order to the West Virginia Supreme Court of Appeals, and the appeal remains pending.

Advancement Action

On February 5, 2015, Donald Blankenship, former Massey Chief Executive Officer and Chairman of the Massey Board of Directors, filed an action in Delaware Chancery Court against Alpha and its affiliate Alpha Appalachia Holdings, Inc. (“Alpha Appalachia”) to contest the decision to terminate further advancement of legal fees for Mr. Blankenship in connection with his pending criminal trial in the Southern District of West Virginia. The action is a summary proceeding and a hearing was held on April 8, 2015. Further oral argument has been scheduled for May 12, 2015.

Mine Water Discharge Suits

Selenium Suits

Various affiliates of the Company were previously parties to suits alleging violations of the affiliates’ water discharge permits with regard to selenium. Each of these matters has been settled. These settlements involved immaterial payments by the Company affiliates and undertakings regarding compliance over time with applicable discharge limits.

Other Matters

20

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)


On December 31, 2012 and January 2, 2013, two separate environmental groups filed citizen’s suits in federal court in the Western District of Pennsylvania against Emerald Coal Resources, L.P., and other of the Company’s subsidiaries, alleging violations of the terms of the subsidiaries’ water discharge permits. The first of these cases was voluntarily dismissed by the plaintiffs in January 2013 and the second case was closed by the Court in June 2014.

On March 27, 2013, the Company’s subsidiary Alex Energy, Inc. (“Alex Energy”) was served with a complaint from the Sierra Club and others alleging improper discharges by Alex Energy into Spruce Run and Road Fork of Robinson Creek in Nicholas County, West Virginia. This case was voluntarily dismissed in July 2015.

Nicewonder Litigation

Affiliated Construction Trades Foundation Litigation

In December 2004, prior to the Company’s acquisition of Nicewonder in October 2005, the Affiliated Construction Trades Foundation (“ACTF”), a division of the West Virginia State Building and Construction Trades Council, 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 Circuit Court of Kanawha County, West Virginia, which was removed to the United States District Court for the Southern District of West Virginia (the “ACTF Litigation”). The plaintiff sought a declaration that the contract between NCI and the State of West Virginia related to NCI’s road construction project for the Red Jacket section of the King Coal Highway (the “Red Jacket Contract”) was illegal as a violation of applicable West Virginia and federal competitive bidding and prevailing wage laws.
 
On September 30, 2009, the District Court issued an order that dismissed for lack of standing all of ACTF’s claims under federal law and remanded the remaining state claims to the Circuit Court of Kanawha County, West Virginia for resolution. On May 7, 2010, the Circuit Court of Kanawha County entered summary judgment in favor of NCI. On June 22, 2011, the West Virginia Supreme Court of Appeals reversed the Circuit Court order granting summary judgment in favor of NCI, and remanded the case back to the Circuit Court for further proceedings. Following remand, ACTF filed a motion for summary judgment, which the Circuit Court denied on November 9, 2011. ACTF challenged the order denying its summary judgment motion to the West Virginia Supreme Court of Appeals.

On June 21, 2012, the West Virginia Supreme Court of Appeals issued an opinion finding that ACTF had standing to pursue its claims and remanded the case back to the Circuit Court of Kanawha County, West Virginia for further proceedings.

A settlement between NCI and ACTF was agreed upon in early January 2013, prior to the January 14, 2013 trial date, and the Circuit Court subsequently dismissed the case as to NCI, with prejudice. The Company did not incur any out-of-pocket expenditures in connection with that settlement.

A bench trial proceeded among the remaining parties to the ACTF Litigation and, on February 26, 2013, the Circuit Court of Kanawha County entered an order that ruled against WVDOH in finding that the Red Jacket Contract, as well as the awarding and implementation of that contract, were in violation of West Virginia law because the Red Jacket Contract did not contain a provision whereby WVDOH required payment by NCI of statutory prevailing wages to employees; and WVDOH did not conduct a public bidding process before awarding the Red Jacket Contract to NCI. The time to appeal the order has passed without an appeal having been filed, and the order has become final.

NCI Employee Litigation

On February 7, 2013, the Company received notice of a putative class action lawsuit against NCI filed in the Circuit Court of Mingo County, West Virginia by a former NCI employee (the “NCI Employee Litigation”). The plaintiff in the NCI Employee Litigation is represented by the same attorney who represented the plaintiff in the ACTF Litigation, and the complaint’s allegations raise issues similar to those in the ACTF Litigation and arise from the same Red Jacket Contract that was at issue in the ACTF Litigation. The Company believes that NCI has meritorious defenses to the claims asserted in the NCI Employee Litigation.


21

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

NCI filed its answer to the complaint in the NCI Employee Litigation on March 4, 2013. On April 23, 2013, the Circuit Court of Kanawha County, West Virginia, granted NCI’s motion to transfer and entered an agreed order transferring the NCI Employee Litigation from the Circuit Court of Mingo County to the Circuit Court of Kanawha County.

On November 14, 2013, the Circuit Court of Kanawha County granted NCI’s Motion to Certify Questions of Law to the Supreme Court of Appeals of West Virginia, but on June 17, 2014, the Supreme Court declined to review the submitted questions in the absence of a more developed factual record in the lower court. Proceedings in the Circuit Court of Kanawha County, West Virginia therefore resumed. The Circuit Court has scheduled the trial for April 25-29 and May 2-6, 2016.

On October 14, 2014, NCI filed and served a third party complaint against WVDOH seeking a declaration of rights and obligations of the parties. Specifically, the complaint seeks a determination as to whether NCI is entitled to indemnification for any liability it may incur in the NCI Employee Litigation. The complaint also seeks a declaration that the Red Jacket Contract obligates WVDOH to enter into a supplemental agreement with NCI to reimburse NCI for any additional costs incurred, or to be incurred, as a result of the changes to the Red Jacket Contract arising from the February 26, 2013 order entered against WVDOH in the ACTF Litigation, including without limitation any costs and expenses incurred, or to be incurred, by NCI related to the wage and benefit rates for work on the project, including to the extent any such additional costs, damages, statutory penalties, and/or attorney fees are awarded against NCI in the NCI Employee Litigation. WVDOH moved to dismiss the third party complaint on grounds of sovereign immunity and exclusive jurisdiction of the West Virginia Court of Claims.

On February 20, 2015, the Circuit Court of Kanawha County held a hearing on pending matters, including the WVDOH motion to dismiss the third party complaint filed against it by NCI and ruled from the bench that it would grant WVDOH’s motion to dismiss NCI’s third party complaint and thereby dismiss WVDOH from this action. A formal written dismissal order was entered on March 31, 2015. The Company is reviewing this development and evaluating its options.

Fluor Litigation

Alpha Appalachia and certain of its subsidiaries were parties to a number of lawsuits and other legal proceedings related to certain non-coal businesses (the “Prior Business”) previously conducted by its former affiliate Fluor Corporation. Under the terms of the Distribution Agreement entered into by Alpha Appalachia and Fluor as of November 30, 2000 in connection with the spin-off of Fluor by Massey, Fluor agreed to indemnify Massey with respect to all such legal proceedings and assumed defense of the proceedings.

In January 2015, Fluor entered into a settlement agreement with plaintiffs of these proceedings, settling the pending cases on behalf of itself, Alpha Appalachia and its Alpha Appalachia’s subsidiaries. This settlement was funded by Fluor. The Company expects that Fluor will continue to indemnify the Alpha entities with respect to any similar cases not covered by the settlement or that may be asserted in the future.

Harman Litigation

In December 1997, Wellmore Coal Corporation (“Wellmore”), then a subsidiary of A. T. Massey Coal Company (“A. T. Massey”), which is now a subsidiary of the Company, declared force majeure under its coal supply agreement with Harman Mining Corporation (“Harman”) and reduced the amount of coal to be purchased from Harman. In October 1998, Harman and several entities affiliated with it, as well as their ultimate sole shareholder (together “Harman plaintiffs”), sued A.T. Massey and five of its subsidiaries (the “Massey Defendants”) in the Circuit Court of Boone County, West Virginia, alleging that the Massey Defendants tortiously interfered with Wellmore’s agreement with Harman, causing Harman to go out of business. In August 2002, the jury awarded the plaintiffs $50,000 in compensatory and punitive damages.

In October 2006, the Massey Defendants appealed the case to the Supreme Court of Appeals of West Virginia (“WV Supreme Court”). In November 2007, the WV Supreme Court issued a 3-2 majority opinion reversing the judgment against the Massey Defendants and remanding the case to the Circuit Court of Boone County with directions to enter an order dismissing the case, with prejudice, in its entirety. On motion by the Harman plaintiffs, the WV Supreme Court agreed to rehear the case but, in April 2008, it again reversed the judgment against the Massey Defendants and remanded the case with direction to enter an order dismissing the case, with prejudice, in its entirety.

In July 2008, the Harman plaintiffs petitioned the United States Supreme Court (the “U.S. Supreme Court”) to review the WV Supreme Court’s dismissal of their claims. In December 2008, the U.S. Supreme Court agreed to review the case based on

22

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

the question of whether a justice of the WV Supreme Court should have recused himself from the appeal. The U.S. Supreme Court found that the justice should have recused himself and ruled in June 2009 that the matter should be reheard by the WV Supreme Court.

The WV Supreme Court heard oral arguments on the matter in September 2009, and in November 2009 reversed the lower court’s decision, ruling that all claims brought in connection with the parties dealings must be brought in Virginia. The Harman plaintiffs subsequently requested that the WV Supreme Court reconsider its decision; the WV Supreme Court denied that request.

In November 2010, Harman plaintiffs re-filed their claims in the Circuit Court of Buchanan County, Virginia, this time solely against A.T. Massey, seeking compensatory damages of approximately $44,000, plus pre- and post-judgment interest and punitive damages. A. T. Massey filed a plea of res judicata, and in December 2011 the Buchanan County Circuit Court granted the plea and dismissed the Harman plaintiffs’ claims. The Harman plaintiffs appealed that decision to the Virginia Supreme Court, and on April 18, 2013, the Virginia Supreme Court reversed the decision of the Buchanan County Circuit Court, finding that res judicata did not bar the Harman plaintiffs’ claims. The matter was remanded to the Buchanan County Circuit Court for further proceedings.

On May 23, 2014, a jury in Buchanan County Circuit Court found for the Harman plaintiffs and awarded them $5,000 in damages, plus prejudgment interest of approximately $1,120. On June 13, 2014, the Harman plaintiffs filed motions seeking a new trial on damages and attorneys’ fees, and A.T. Massey filed a motion to set aside the damages verdict. The Circuit Court has not yet ruled on these motions. On January 7, 2015, the Circuit Court granted the Harman plaintiffs a new trial regarding damages.

Emerald Purported Securities Class Action

On July 13, 2012, a purported class action brought on behalf of a putative class of former Massey stockholders was filed in Boone County, West Virginia Circuit Court. The complaint asserts claims under the Securities Act of 1933, as amended, against the Company and certain of its officers and current and former directors, and generally asserts that the defendants made false statements about the Company’s Emerald mine in its public filings associated with the Massey Acquisition. The plaintiff seeks, among other relief, an award of compensatory damages in an amount to be proven at trial. The plaintiff filed an amended complaint in the Boone County Circuit Court on February 6, 2013. The defendants filed motions to dismiss the amended complaint on March 22, 2013 and March 29, 2013. On January 8, 2015, the Boone County Circuit Court dismissed all claims in the plaintiff’s amended complaint. The plaintiffs did not appeal the dismissal.

On April 25, 2014, the named plaintiff in the West Virginia Circuit Court action described above filed a second complaint in Greene County, Pennsylvania, Court of Common Pleas, again asserting claims under the Securities Act of 1933, as amended, against the Company and certain of its officers and current and former directors, and generally asserts that the defendants made false statements about the Company’s Emerald mine in its public filings associated with the Massey Acquisition. The plaintiff seeks, among other relief, an award of compensatory damages in an amount to be proven at trial. By agreement of the parties, the defendants’ time to answer, move or otherwise respond to the Pennsylvania complaint was extended until May 7, 2015.

On April 24, 2015, the parties reached agreement on definitive terms for settlement of the Greene County, Pennsylvania litigation, which is subject, among other things, to the development of definitive documentation and court approval. The Company expects that proceeds from its insurance policies will fund the settlement.

Other Legal Proceedings 

In addition to the matters disclosed above, the Company and its subsidiaries are involved in a number of legal proceedings and governmental examinations 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. 

(18) Segment Information

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

23

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

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 March 31, 2015, and Eastern Coal Operations, which consists of 45 underground mines and 11 surface mines in Northern and Central Appalachia as of March 31, 2015, as well as 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 natural gas; 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, which the Company defines as net income (loss) 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 for the three months ended March 31, 2015 were as follows:
 
Eastern
Coal
Operations
 
Western
Coal
Operations
 
All
Other
 
Consolidated
Total revenues
$
718,245

 
$
117,815

 
$
5,929

 
$
841,989

Depreciation, depletion, and amortization
$
137,786

 
$
17,089

 
$
3,556

 
$
158,431

Amortization of acquired intangibles, net
$
12,445

 
$

 
$

 
$
12,445

EBITDA
$
(48,879
)
 
$
7,645

 
$
361,356

 
$
320,122

Capital expenditures
$
26,010

 
$
2,923

 
$
686

 
$
29,619


Segment operating results and capital expenditures for the three months ended March 31, 2014 were as follows:
 
Eastern
Coal
Operations
 
Western
Coal
Operations
 
All
Other
 
Consolidated
Total revenues
$
980,690

 
$
117,585

 
$
13,498

 
$
1,111,773

Depreciation, depletion, and amortization
$
180,713

 
$
13,472

 
$
6,110

 
$
200,295

Amortization of acquired intangibles, net
$
10,221

 
$
(986
)
 
$
44

 
$
9,279

EBITDA
$
276,503

 
$
16,390

 
$
(28,113
)
 
$
264,780

Capital expenditures
$
37,772

 
$
682

 
$
1,264

 
$
39,718


The following table presents a reconciliation of EBITDA to net income (loss):
 
Three Months Ended
March 31,
 
2015
 
2014
EBITDA
$
320,122

 
$
264,780

Interest expense
(76,706
)
 
(64,962
)
Interest income
660

 
616

Income tax expense
(4,989
)
 
(46,558
)
Depreciation, depletion and amortization
(158,431
)
 
(200,295
)
Amortization of acquired intangibles, net
(12,445
)
 
(9,279
)
Net income (loss)
$
68,211

 
$
(55,698
)

The following table presents total assets as of March 31, 2015 and December 31, 2014:

24

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

 
Total Assets
 
March 31,
2015
 
December 31,
2014
Eastern Coal Operations
$
8,445,659

 
$
8,648,678

Western Coal Operations
642,694

 
657,971

All Other
1,081,094

 
1,332,817

Total
$
10,169,447

 
$
10,639,466


The Company markets produced, processed, and purchased coal to customers in the United States and in international markets. Export revenues totaled $328,445 and $463,960, or approximately 39% and 42%, respectively, of total revenues for the three months ended March 31, 2015 and 2014, respectively.

(19) Guarantor and Non-Guarantor Information

The Company has issued senior notes and convertible senior notes and may issue new registered debt securities (the “New Notes”) in the future that are and will be, respectively, fully and unconditionally guaranteed, jointly and severally, on a senior or subordinated, secured or unsecured basis by certain of the Company’s 100% owned subsidiaries (the “New Notes Guarantor Subsidiaries”).

Presented below are Condensed Consolidating Financial Statements as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014, respectively, based on the guarantor structure that was put in place in connection with the issuance of its Senior Notes and Convertible Notes, and would be put in place in the event the Company issues New Notes in the future. The tables below refer to the Company as issuer of the Senior notes and of any New Notes that may be issued in the future. “Non-Guarantor Subsidiaries” refers, for the tables below, to ANR Receivables Funding, LLC, Gray Hawk Insurance Company, Shannon-Pocahontas Mining Company, Alpha Coal Sales International Limited, Alpha Natural Resources Singapore Private Limited, ANR Second Receivables Funding, LLC, and Alpha Coal India Private Limited, which were not guarantors of the Senior notes or the Convertible notes and would not be guarantors of the New Notes. Separate consolidated financial statements and other disclosures concerning the New Notes Guarantor Subsidiaries are not presented because management believes that such information would not be material to holders of any New Notes or related guarantees that may be issued by the Company.


25

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Balance Sheet
March 31, 2015
 
Parent
(Issuer)
 

Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,178

 
$
473,534

 
$
1,583

 
$

 
$
476,295

Trade accounts receivable, net

 
19,313

 
229,953

 

 
249,266

Inventories, net

 
244,563

 

 

 
244,563

Short-term investments

 
421,128

 

 

 
421,128

Prepaid expenses and other current assets

 
166,580

 
2,719

 

 
169,299

Total current assets
1,178

 
1,325,118

 
234,255

 

 
1,560,551

Property, equipment and mine development costs, net

 
1,343,649

 

 

 
1,343,649

Owned and leased mineral rights and land, net

 
6,861,668

 

 

 
6,861,668

Other acquired intangibles, net

 
82,264

 

 

 
82,264

Other non-current assets
7,648,095

 
7,959,087

 
10,323

 
(15,296,190
)
 
321,315

Total assets
$
7,649,273

 
$
17,571,786

 
$
244,578

 
$
(15,296,190
)
 
$
10,169,447

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
50,434

 
$
126,361

 
$

 
$

 
$
176,795

Trade accounts payable

 
203,263

 
13

 

 
203,276

Accrued expenses and other current liabilities
55,393

 
508,240

 
209

 

 
563,842

Total current liabilities
105,827

 
837,864

 
222

 

 
943,913

Long-term debt
3,107,510

 
38,239

 
(3,731
)
 

 
3,142,018

Pension and postretirement medical benefit obligations

 
1,240,164

 

 

 
1,240,164

Asset retirement obligations

 
551,828

 

 

 
551,828

Deferred income taxes

 
772,410

 

 

 
772,410

Other non-current liabilities
1,377,550

 
1,612,690

 
225,586

 
(2,755,098
)
 
460,728

Total liabilities
4,590,887

 
5,053,195

 
222,077

 
(2,755,098
)
 
7,111,061

 Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Total stockholders’ equity
3,058,386

 
12,518,591

 
22,501

 
(12,541,092
)
 
3,058,386

Total liabilities and stockholders’ equity
$
7,649,273

 
$
17,571,786

 
$
244,578

 
$
(15,296,190
)
 
$
10,169,447



26

ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, amounts in thousands except share and per share data)

Alpha Natural Resources, Inc. and Subsidiaries
Supplemental Condensed Consolidating Balance Sheet
December 31, 2014
 
Parent
(Issuer)
 

Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiary
 
Eliminations
 
Total
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
830

 
$
738,700

 
$
1,656

 
$

 
$
741,186

Trade accounts receivable, net

 
43,784

 
270,231

 

 
314,015

Inventories, net

 
237,945

 

 

 
237,945

Short-term investments

 
405,169

 

 

 
405,169

Prepaid expenses and other current assets

 
175,221

 
2,778

 

 
177,999

Total current assets
830

 
1,600,819

 
274,665

 

 
1,876,314

Property, equipment and mine development costs, net

 
1,425,667

 

 

 
1,425,667

Owned and leased mineral rights and land, net

 
6,916,307

 

 

 
6,916,307

Other acquired intangibles, net

 
97,169

 

 

 
97,169

Other non-current assets
8,050,042

 
8,363,729

 
10,321

 
(16,100,083
)
 
324,009

Total assets
$
8,050,872

 
$
18,403,691

 
$
284,986

 
$
(16,100,083