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Massey Energy Reports First Quarter 2009 Operating Results
First Quarter Highlights
- Produced coal revenue increased 25 percent to
- Total coal tons produced increased by 14 percent
- Produced coal tons sold increased by 12 percent
- Revenue per produced coal ton sold increased by 12 percent
- EBITDA increased 13 percent to
- Net income totaled
(Logo: http://www.newscom.com/cgi-bin/prnh/20071031/MASSEYENERGYLOGO )
Commenting on the Company's first quarter results, Massey's Chairman and Chief Executive Officer
"Market demand and pricing remained weak, however," Blankenship continued. "Continuing weakness in the global economy has reduced demand for electric power and steel, thereby reducing demand for coal. Our metallurgical coal shipments were lower than we had anticipated in terms of both volume and price and this was the major reason for our cash margins being lower than planned."
Massey's first quarter operating cash margin per ton was
The reported net income for the first quarter included the recognition of
1st Quarter Comparative Statistics
1st Qtr. 4th Qtr. 1st Qtr.
2009 2008 2008
Produced tons (millions) 11.4 10.3 10.0
Produced tons sold (millions) 10.8 10.2 9.6
Produced coal revenue (millions) $681.0 $640.0 $543.2
Produced coal revenue per ton $63.03 $62.69 $56.36
Average cash cost per ton $52.55 $49.66 $45.62
EBITDA (millions) $145.4 $144.4 $129.2
Expansion Update
The construction of Massey's new processing plant at the
Coal Market Overview
The continuing global economic crisis has caused a significant deterioration of world coal markets. Coal contracting and shipment activities remained slow as end market coal consumers further reduced production and power generation targets.
- Eastern U.S. steam coal prices declined during the first quarter of 2009.
- Energy Ventures Analysis estimates that coal burn at utilities in the
Southeastern United States was down 18 percent in the first quarter of 2009 due in part to lower overall electric power demand and some switching to natural gas. Receipts of coal at Southeastern utilities were down 4 percent in the same period. Coal stockpiles in terms of tons increased by about 15 percent in the region during the first three months of 2009. - The Energy Information Administration (EIA) projects that coal-fired generation in the domestic electric power sector will decline by approximately 3 percent in 2009 due to lower overall electric power demand and an increase of about 2 percent in generation fueled by natural gas.
- Steam coal export volumes by U.S. producers increased 29 percent in the first two months of 2009. Metallurgical coal exports declined 7 percent in the same period. The EIA forecasts, however, that total coal exports will decline by about 11 percent for the full year as the weak global economy and a relatively strong U.S. Dollar are combining to reduce the demand for U.S. steam coal and metallurgical coal in international markets.
- According to the World Steel Association, global steel output declined 23 percent in the first two months of 2009 as compared to the same period in 2008.
- The EIA expects the coal industry to respond to the weak market conditions by reducing production by about 5 percent in 2009. According to EIA estimates, total U.S. coal production was down about 2 percent in the first two months of the year. Production in
Central Appalachia was down about 5 percent in the same period.
In spite of the current weak market conditions, Massey continues to believe the following factors will contribute to a supply/demand balance that is favorable to Central Appalachian coal producers in the longer term:
- Total Central Appalachian coal production is constrained by increasing environmental and safety regulatory requirements and enforcement activity as well as depleting reserves.
- The quality of
Central Appalachia coal allows it to enjoy significant market diversity and its proximity to sea ports makes it a viable source of coal to fill the growing demand for energy throughout most of the world. - Economic expansion continues in the world's largest developing countries. In the longer term, this economic development will drive higher demand for steel and sustain the global demand for metallurgical coal produced in
Central Appalachia .
Cost Cutting Measures
In response to the current market conditions, Massey has taken meaningful action to reduce overall costs and expects to see measurable cost improvement going forward. These actions include the idling of several higher cost mines, limitation of overtime, selective general and administrative cost reductions, renegotiation of supply contracts, and the implementation of significant wage and benefit reductions beginning on
In addition, meaningful productivity increases are expected as Massey's new mines and work forces mature.
Shipment Deferrals
Increasing coal stockpiles and weak demand for electric power generation and steel production in both domestic and international markets have created challenges among Massey's customer base to accept shipments of coal according to contracted schedules. Massey is working with its customers to modify shipment schedules and amend contract terms where necessary.
Shipment deferrals will allow Massey to selectively reduce production at higher cost mining operations in 2009.
Liquidity and Capital Resources
Massey ended the first quarter of 2009 with
Total debt at
Capital expenditures for the first quarter 2009 totaled
Depreciation, depletion and amortization (DD&A) was
Outlook, Guidance and Commitments
The ongoing economic turmoil, the global financial crisis and the uncertain regulatory environment make it more difficult than usual to forecast coal prices and coal demand with a high degree of accuracy. Coal markets and the financial condition of both coal producers and coal consumers could change rapidly in this environment. In consideration of this fact and current expectations for shipment deferrals on existing contracts, the Company projects produced coal shipments for the full year 2009 will be between 38 and 41 million tons, with average produced coal realization between
For 2010, Massey presently has approximately 20 million tons of coal sold and priced, 2 million tons sold with pricing collars and 8 million tons sold but currently unpriced. Based on management's current market views, Massey's produced coal shipments for 2010 are currently expected to be in the range of 35 to 40 million tons, with average sales prices in the range of
"As in past periods of market decline or uncertainty, we are well positioned in terms of our balance sheet, our market position, our far superior reserve holdings, and our operating performance to increase our competitive advantages in Central Appalachia," Blankenship stated. "In this market we anticipate opportunities to possibly to expand our exposure in other regions or in non-core businesses to further increase sustainable shareholder value," he concluded.
Conference Call, Webcast and Replay
Members of the Company's senior management will hold a conference call to discuss the first quarter results and operations on
Company Description
Massey Energy Company, headquartered in
FORWARD-LOOKING STATEMENTS: Certain statements in this press release constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to come within the safe harbor protection provided by those sections. Any forward-looking statements are also subject to a number of assumptions regarding, among other things, future economic, competitive and market conditions. These assumptions are based on facts and conditions as they exist at the time such statements are made as well as predictions as to future facts and conditions, the accurate prediction of which may be difficult and involve the assessment of circumstances or events beyond the Company's control. The Company disclaims any intent or obligation to update these forward-looking statements unless required by securities law, and the Company cautions the reader to not rely on them unduly. Caution must be exercised in relying on forward-looking statements including disclosures that use words such as "believe," "anticipate," "expect," "estimate," "intend," "may," "plan," "project," "will," and similar words or statements that are subject to risks, trends and uncertainties that could cause the Company's actual results to differ materially from the expectations expressed or implied in such forward-looking statements. Factors potentially contributing to such differences include, among others: the Company's cash flows, results of operation or financial condition; worldwide market demand for coal, electricity and steel; the successful completion of acquisition, disposition or financing transactions; future economic or capital market conditions; foreign currency fluctuations; governmental policies, laws, regulatory actions and court decisions affecting the coal industry or our customers' coal usage; competition among coal producers in
Additional information concerning these and other factors can be found in press releases and Massey's public filings with the Securities and Exchange Commission, including Massey's Annual Report on Form 10-K for the year ended
MASSEY ENERGY COMPANY
CONSOLIDATED FINANCIAL RESULTS - UNAUDITED
(in Millions, except # of employees, per share & per ton information)
For the three months ended
March 31, March 31
2009 2008
Revenues
Produced coal revenue $681.0 $543.2
Freight and handling revenue 57.8 65.0
Purchased coal revenue 10.0 10.7
Other revenue 19.3 25.7
---- ----
Total revenues 768.1 644.6
Costs and expenses
Cost of produced coal revenue 545.9 418.2
Freight and handling costs 57.8 65.0
Cost of purchased coal revenue 5.2 9.9
Depreciation, depletion and
amortization applicable to:
Cost of produced coal revenue 71.6 59.3
Selling, general and administrative 1.0 0.9
Selling, general and administrative 21.9 21.5
Other expense 0.8 0.8
Gain on derivative instruments (8.9) -
---- -
Total costs and expenses 695.3 575.6
---- ----
Income before interest and taxes 72.8 69.0
Interest income 8.9 5.2
Interest expense(1) (25.3) (21.0)
---- ----
Income before taxes 56.4 53.2
Income tax expense (13.0) (11.3)
----- -----
Net income $43.4 $41.9
===== =====
Net income per share
Basic $0.51 $0.53
===== =====
Diluted $0.51 $0.52
===== =====
Shares used to calculate Net income per share:
Basic 84.9 79.8
==== ====
Diluted 85.2 80.6
==== ====
EBIT $72.8 $69.0
EBITDA $145.4 $129.2
(1) Interest expense for the three months ended March 31, 2009 includes
non-cash interest expense in accordance with accounting guidance
related to the Company's 3.25% convertible senior notes due 2015
("3.25% Notes"), effective January 1, 2009. See Note 5 below.
For the three months
March 31, March 31,
2009 2008
---- ----
Produced tons sold:
-------------------
Utility 8.3 6.3
Metallurgical 1.8 2.3
Industrial 0.7 1.0
--- ---
Total produced tons sold 10.8 9.6
==== ===
Total tons produced 11.4 10.0
Produced coal revenue per ton sold:
-----------------------------------
Utility $54.14 $47.89
Metallurgical $102.99 $80.63
Industrial $65.34 $55.21
Produced coal revenue per ton sold $63.03 $56.36
Average cash cost per ton $52.55 $45.62
Capital expenditures $103.7 $123.5
Number of employees 6,614 5,728
RESTATED
March 31, December 31,
2009 2008
---- ----
ASSETS
Cash and cash equivalents $566.7 $607.0
Short-term investment 24.9 39.4
Trade and other accounts receivable 295.2 233.2
Inventories 256.1 233.2
Other current assets 104.9 122.7
Net property, plant and equipment 2,326.7 2,297.7
Other noncurrent assets(2) 127.9 139.2
----- -----
Total assets $3,702.4 $3,672.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $2.1 $2.0
Other current liabilities 468.4 502.2
Long-term debt(2) 1,314.3 1,310.2
Other noncurrent liabilities(2) 746.4 731.4
----- -----
Total liabilities 2,531.2 2,545.8
Total shareholders' equity(2) 1,171.2 1,126.6
------- -------
Total liabilities and shareholders'
equity $3,702.4 $3,672.4
======== ========
(2) Amounts at December 31, 2008 have been restated in accordance with
accounting guidance related to the 3.25% Notes, effective January 1,
2009. See Note 5 below.
Note 1: The number of shares used to calculate basic net income per share
is based on the weighted average outstanding shares of Massey Energy
during the respective periods. The number of shares used to calculate
diluted net income per share is based on the number of shares used to
calculate basic net income per share plus the dilutive effect of stock
options and other stock-based instruments held by Massey Energy employees
and directors each period and debt securities convertible into common
stock. In accordance with accounting principles generally accepted in
the United States, the effect of certain dilutive securities was excluded
from the calculation of the diluted net income per share in the three
months ended March 31, 2009, and March 31, 2008, as such inclusion would
result in antidilution.
Note 2: "Gain on derivative instruments" for the three months ended
March 31, 2009, represents the net gain for certain coal contracts
deemed derivative instruments under Statement of Financial
Accounting Standard 133, "Accounting for Derivative Instruments and
Hedging Instruments," ("SFAS 133"). Contracts that qualify as
derivatives under SFAS 133 are recognized at fair value and changes
to their value are recognized as gains or losses in the current period
earnings.
Note 3: "EBIT" is defined as Income before interest and taxes.
"EBITDA" is defined as Income before interest and taxes before
deducting Depreciation, depletion, and amortization ("DD&A").
Although neither EBIT nor EBITDA are measures of performance
calculated in accordance with Generally Accepted Accounting Principles
("GAAP"), we believe that both measures are useful to an investor in
evaluating us because they are widely used in the coal industry as
measures to evaluate a company's operating performance before debt
expense and as a measure of its cash flow. Neither EBIT nor EBITDA
purport to represent operating income, net income or cash generated
by operating activities and should not be considered in isolation or
as a substitute for measures of performance calculated in accordance
with GAAP. In addition, because neither EBIT nor EBITDA are calculated
identically by all companies, the presentation here may not be
comparable to other similarly titled measures of other companies. The
table below reconciles the GAAP measure of Net Income to EBIT and to
EBITDA. December 31, 2008 amounts have been restated in accordance
with accounting guidance related to the 3.25% Notes, effective January 1,
2009 (see Note 5 below).
Three months ended
RESTATED
March 31, March 31, December 31,
2009 2008 2008
---- ---- ----
Net income $43.4 $41.9 $47.7
Plus: Income tax expense 13.0 11.3 12.0
Plus: Net interest expense 16.4 15.8 15.2
---- ---- ----
EBIT 72.8 69.0 74.9
Plus: Depreciation, depletion and
amortization 72.6 60.2 69.5
---- ---- ----
EBITDA $145.4 $129.2 $144.4
====== ====== ======
Note 4: "Average cash cost per ton" is calculated as the sum of Cost of
produced coal revenue and Selling, general and administrative expense
("SG&A") (excluding DD&A), divided by the number of produced tons sold.
Although Average cash cost per ton is not a measure of performance
calculated in accordance with GAAP, we believe that it is useful to
investors in evaluating us because it is widely used in the coal industry
as a measure to evaluate a company's control over its cash costs. Average
cash cost per ton should not be considered in isolation or as a substitute
for measures of performance in accordance with GAAP. In addition, because
Average cash cost per ton is not calculated identically by all companies,
the presentation here may not be comparable to other similarly titled
measures of other companies. The table below reconciles the GAAP measure
of Total costs and expenses to Average cash cost per ton. December 31,
2008 amounts have been restated in accordance with accounting guidance
related to the 3.25% Notes, effective January 1, 2009 (see Note 5 below).
Three months ended
RESTATED
March 31, March 31, December 31,
2009 2008 2008
---- ---- ----
$ per ton $ per ton $ per ton
--- ------- --- ------- --- -------
Total costs and expenses $695.3 $575.6 $680.2
Less: Freight and handling
costs 57.8 65.0 76.8
Less: Cost of purchased coal
revenue 5.2 9.9 8.7
Less: Depreciation, depletion
and amortization 72.6 60.2 69.5
Less: Other expense 0.8 0.8 0.8
Less: Litigation income - - (1.0)
Less: Gain on financing
transactions - - (4.1)
Less: (Gain)/loss on
derivative instruments (8.9) - 22.6
---- ----
Average cash cost $567.8 $52.55 $439.7 $45.62 $506.9 $49.66
====== ====== ======
Note 5: On January 1, 2009, the Company adopted Financial Accounting
Standards Board ("FASB") Staff Position ("FSP") Accounting Principles
Board ("APB") 14-1, "Accounting for Convertible Debt Instruments That May
Be Settled in Cash upon Conversion (Including Partial Cash Settlement)"
(FSP APB 14-1") for the 3.25% Notes issued in August 2008. This FSP
indicated that convertible debt instruments that may be settled in cash
upon conversion, including partial cash settlement, should separately
account for the liability and equity components in a manner that reflects
the Company's nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. Upon adopting FSP APB 14-1, the
provisions were retroactively applied. As a result, $4.5 million
of additional non-cash interest expense was recorded for the three months
ended March 31, 2009. The Company's debt is comprised of the following:
RESTATED
March 31, December 31
2009 2008
---- ----
6.785% senior notes due 2013, net of discount $756.2 $756.0
3.25% convertible senior notes due 2015, net of
discount 522.1 517.6
6.625% senior notes due 2010 21.9 21.9
2.25% convertible senior notes due 2024 9.6 9.6
4.75% convertible senior notes due 2023 0.1 0.1
Capital lease obligations 6.5 7.0
--- ---
Total debt 1,316.4 1,312.2
Less: Short-term debt 2.1 2.0
--- ---
Total long-term debt $1,314.3 $1,310.2
======== ========
The adoption of FSP APB 14-1 also impacted the historical accounting for
the 3.25% Notes which resulted in the restatement of the Company's
Condensed Consolidated Statement of Income and Condensed Consolidated
Balance Sheet as of and for the quarter ended December 31, 2008, as
follows:
As originally
Presented RESTATED
For the For the
three three
months ended months ended
Condensed Consolidated Statement of December 31, December 31,
Income 2008 2008
------------ -----------
Gain on financing transactions $8.6 $4.1
Total costs and expenses 675.7 680.2
Net interest expense 11.2 15.2
Income tax expense 14.5 12.0
Net income 53.6 47.7
As
originally
Presented RESTATED
December 31, December 31,
Condensed Consolidated Balance Sheet 2008 2008
----------- -----------
Other noncurrent assets $142.6 $139.2
Total assets 3,675.8 3,672.4
Long-term debt 1,463.6 1,310.2
Other noncurrent liabilities 671.4 731.4
Total liabilities 2,639.2 2,545.8
Total shareholders' equity 1,036.6 1,126.6
Total liabilities and
shareholders' equity 3,675.8 3,672.4
Note 6: "Net debt" is calculated as the sum of Short-term debt and
Long-term debt less Cash and cash equivalents, Short-term investment and
Restricted cash, which is included in Other current assets. Although Net
debt is not a measure of performance calculated in accordance with GAAP,
management believes that it is useful to an investor in evaluating Massey
Energy because it provides a clearer comparison of the Company's debt
position from period to period. Net debt should not be considered in
isolation or as a substitute for measures of performance in accordance
with GAAP. The table below reconciles the GAAP measure of Long-term debt
to Net debt. December 31, 2008 amounts have been restated in accordance
with accounting guidance related to the 3.25% Notes, effective January 1,
2009 (see Note 5).
RESTATED
March 31, December 31,
2009 2008
---- ----
Long-term debt $1,314.3 $1,310.2
Plus: Short-term debt 2.1 2.0
Less: Cash and cash equivalents 566.7 607.0
Less: Short-term investment 24.9 39.4
Less: Restricted cash 46.0 46.0
---- ----
Net debt $678.8 $619.8
====== ======
Note 7: The "Total debt-to-book capitalization" ratio is calculated as
the sum of Short-term debt and Long-term debt divided by the sum of
Short-term debt, Long-term debt and Total shareholders' equity. The
"Total net debt-to-book capitalization" ratio is calculated as the sum
of Net debt (calculated in Note 6) divided by the sum of Net debt and
Total shareholders' equity. The tables below calculate the Total
debt-to-book capitalization and Total net debt-to-book capitalization
ratios. December 31, 2008 amounts have been restated in accordance
with accounting guidance related to the 3.25% Notes, effective
January 1, 2009 (see Note 5).
RESTATED
March 31, December 31,
2009 2008
---- ----
Long-term debt $1,314.3 $1,310.2
Plus: Short-term debt 2.1 2.0
--- ---
Total debt (numerator) 1,316.4 1,312.2
Plus: Total shareholders' equity 1,171.2 1,126.6
------- -------
Book capitalization (denominator) $2,487.6 $2,438.8
======== ========
Total debt-to-book capitalization
ratio 52.9% 53.8%
==== ====
--------------------------------- ----- -----
Net debt (from Note 6) (numerator) 678.8 619.8
Plus: Total shareholders' equity 1,171.2 1,126.6
------- -------
Adjusted book capitalization
(denominator) $1,850.0 $1,746.4
======== ========
Total net debt-to-book capitalization
ratio 36.7% 35.5%
==== ====
Note 8: "Operating cash margin per ton" is calculated as the difference
between Produced coal revenue per ton sold (Produced coal revenue divided
by Total produced tons sold) and Average cash cost per ton (computed in
Note 4). Although Operating cash margin per ton is not a measure of
performance calculated in accordance with GAAP, management believes that
it is useful to an investor in evaluating Massey Energy because it is
widely used in the coal industry as a measure to evaluate a company's
profitability from produced tons sold. Operating cash margin per ton
should not be considered in isolation or as a substitute for measures of
performance in accordance with GAAP. In addition, because Operating cash
margin per ton may not be calculated identically by all companies, the
presentation here may not be comparable to other similarly titled measures
of other companies. The table below reconciles the GAAP measure of
produced coal revenue to Operating cash margin per ton.
Three months ended
March 31, 2009 March 31, 2008
-------------- --------------
$ per ton $ per ton
- ------- - -------
Produced coal revenue $681.0 $63.03 $543.2 $56.36
Less: Average cash cost (from
Note 4) 567.8 52.55 439.7 45.62
----- ----- ----- -----
Operating cash margin $113.2 $10.48 $103.5 $10.74
====== ====== ====== ======
Note 9: "Other income" is calculated as the sum of Purchased coal revenue
and Other revenue less Cost of purchased coal revenue and Other expense.
Although Other income is not a measure of performance calculated in
accordance with GAAP, management believes that it is useful to investors
in evaluating Massey Energy because it is a widely used measure of gross
income from non-core sources. Other income should not be considered in
isolation or as a substitute for measures of performance in accordance
with GAAP. In addition, because Other income is not calculated identically
by all companies, the presentation here may not be comparable to other
similarly titled measures of other companies. The table below reconciles
the GAAP measure of Other revenue to Other income.
Three months ended March 31,
----------------------------
2009 2008
---- ----
Other revenue $19.3 $25.7
Plus: Purchased coal revenue 10.0 10.7
Less: Cost of purchased coal revenue 5.2 9.9
Less: Other expense 0.8 0.8
--- ---
Other income $23.3 $25.7
===== =====
SOURCE Massey Energy