- Coal revenues climb $66 million, or 17%, compared with first quarter of 2007
- Net income for the quarter more than triples to $25.5 million, or $0.39 per diluted share
- Record EBITDA of $87.1 million, up $31.0 million from last year
- More than 750,000 additional tons of metallurgical coal contracted for delivery this year
- Company retains significant open sales position for 2009 and 2010
ABINGDON, Va., May 5 /PRNewswire-FirstCall/ -- Alpha Natural Resources,Inc. (NYSE: ANR), a leading supplier of high-quality Appalachian coal,reported a 17 percent improvement in revenues from coal sales in the firstquarter of 2008 over the first quarter of 2007 as the company achieved thehighest quarterly price realization in its history due to rising metallurgicalcoal exports and price levels.
For the three months ended March 31, 2008, Alpha recorded coal salesrevenues of $445.7 million compared with $380.2 million in the same period of2007. Net income for the most recent quarter was $25.5 million ($0.39 perdiluted share), compared with net income of $8.3 million ($0.13 per dilutedshare) in the first quarter of 2007.
Earnings before interest, taxes, depreciation, depletion and amortization(EBITDA) reached a new quarterly record of $87.1 million in the most recentquarter, representing an improvement of $31.0 million, or 55 percent, overlast year. The definition of EBITDA and a reconciliation to net income, themost closely related GAAP measure, is provided in a table included with theaccompanying financial schedules.
Global supplies of hard coking coals for making steel have tightenedconsiderably due to production and logistics issues in Eastern Europe andAustralia. With world steel output climbing an estimated 5 percent in thefirst two months of the year, prices for metallurgical coal have risen quicklyas has international demand. Alpha, the largest exporter of metallurgical coalout of the U.S., experienced a surge of 430,000 tons in its first-quarterexports, year-over-year, which boosted metallurgical coal sales to 42 percentof the company's total sales volumes for the quarter.
'Coal has joined the energy commodity boom and tight supplies are having ameaningful impact on prices, for both prompt deliveries and forwardcommitments,' said Michael Quillen, Chairman and CEO.
Quillen said that after the close of the first quarter, the companysecured commitments for 2008 delivery on three-quarters of a million tons ofplanned metallurgical production, at price levels consistent with recentlyannounced settlements with Japanese steelmakers. 'Those prices ranged from$295 to $305 per metric tonne at the port, which correlates to a realizedprice for Alpha of approximately $240-250 per short ton at the mine,' Quillensaid.
'In addition to improving our price deck for the current year, we've nowestablished a firm benchmark on price discussions for our 2009 metallurgicalsales, where we still had considerable planned production -- more than 10million tons -- left to commit and price as of mid-April,' added KevinCrutchfield, Alpha's president. 'We're convinced that supply and demandconditions in both the domestic and international steel markets will underpina strong price environment going forward.'
Quarterly Financial & Operating Highlights (in millions, except per-share and per-ton amounts)
Q1 Q1 Q4 2008 2007 2007
Coal revenues $445.7 $380.2* $439.3*
Income from operations $42.6 $20.2 $17.8
Net income $25.5 $8.3 $5.7
Earnings per diluted share $0.39 $0.13 $0.09
EBITDA $87.1 $56.1 $58.9
Tons of coal produced and processed 6.1 6.1 5.8
Tons of coal sold 6.9 6.6 7.5
Coal margin per ton $12.52 $10.24* $9.01*
*Adjusted from amounts reported in prior periods to exclude changes in fair value related to coal derivative contracts which are now recorded as a component of costs and expenses and to conform to current year income statement presentation. The adjustments have no effect on previously reported income from operations or net income.
A reconciliation of EBITDA to net income is included in the notesaccompanying the financial schedules.
Financial Performance -- First Quarter
-- Total revenues in the first quarter rose by 20 percent over last year to $516.9 million. Coal sales revenues were up 17 percent due to higher price realizations on both metallurgical and thermal coal, while other revenues rose 67 percent, mostly because of higher third-party processing revenue and increased sales in the company's mining equipment subsidiary, Maxxim Rebuild.
-- Alpha's income from operations was $42.6 million in the latest quarter, compared with $20.2 million in the first three months of 2007. An $18.0 million increase in margin on coal sales was partially offset by a $8.5 million increase in depreciation, depletion and amortization (DD&A) charges, primarily due to the acquisition in June 2007 of the Mingo Logan assets, higher surface mine depletion and prior-year capital additions. Results for the most recent quarter included a $10.9 million after-tax unrealized gain (equal to $0.17 per diluted share) related to mark-to-market adjustments of certain forward coal contracts, which the company had entered into in anticipation of increasing demand and pricing for coal. This compares with a mark-to-market after-tax charge of $0.2 million in the prior-year quarter.
At March 31, 2008, Alpha had unrealized net gains of $23.4 million on its balance sheet for certain open forward coal contracts for the purchase or sale of coal that are considered derivatives. Since Alpha intends to take delivery or provide delivery of coal under these contracts, the net unrealized gains will reverse into the income statement in future periods when ultimate delivery occurs. This reversal will result in higher cost and expenses in those future periods.
-- Interest expense (net) in the most recent quarter was $9.3 million, compared with $9.4 million in the corresponding period of 2007. The company's effective tax rate in the quarter just ended was 23.9 percent as compared to 24.0 percent in the prior year period.
Production and Sales -- First Quarter
-- Coal margin per ton, a key profitability measure for the company, rose 22 percent in the quarter just ended to $12.52, as the higher-priced metallurgical business accounted for 42 percent of total sales volumes versus 36 percent in the corresponding period last year. The company's average realized price per ton for the quarter reached $65.04, a new high.
-- Produced and processed tons (representing company, contractor-operated mines and purchased at our processing facilities) were 6.1 million tons in the quarter just ended, 1 percent less than the company produced and processed in the first quarter of 2007 but 6 percent more than the fourth quarter last year. Production increased sequentially from both deep mines and surface mines. With better production from captive mines, outside coal purchases were reduced by nearly 400,000 tons from the fourth quarter of 2007 although they were substantially higher than the first quarter of 2007.
-- Total coal sales volumes for the quarter just ended were 6.9 million tons, compared with 6.6 million tons sold in the first quarter of 2007. Sequentially, sales volumes were down 8 percent from the fourth quarter last year.
-- Alpha's average cost of coal sales per ton in the most recent quarter increased 11 percent from the comparable period in 2007, with produced and processed costs rising 10 percent and purchased coal costs increasing 12 percent. Diesel fuel cost increases accounted for approximately two-thirds of the increase in surface mine costs, while purchased coal costs have been rising in tandem with the market. Cost-per-ton of produced and processed coal rose 2 percent, sequentially, from the fourth quarter of last year while the unit cost of outside coal purchases climbed 25 percent.
Quarterly Production and Sales Data (in thousands, except per-ton amounts)
Q1 2008 Q1 2007 % Change Q4 2007 % Change Production Produced/ processed 6,087 6,144 (1%) 5,765 6% Purchased 1,066 714 49% 1,458 (27%) Total 7,153 6,858 4% 7,223 (1%)
Tons sold Steam 3,969 4,260 (7%) 4,568 (13%) Metallurgical 2,883 2,368 22% 2,919 (1%) Total 6,852 6,628 3% 7,487 (8%)
Coal sales revenue/ton Steam $50.51 $48.83* 3% $49.36* 2% Metallurgical $85.05 $72.70 17% $73.24 16% Total $65.04 $57.36* 13% $58.67* 11%
Cost of coal sales/ton(1) Alpha mines $49.98 $45.46 10% $49.12 2% Contract mines(2) $57.60 $50.16 15% $53.36 8% Total produced and processed $50.95 $46.22 10% $49.77 2% Purchased $61.30 $54.51* 12% $49.21* 25% Total $52.52 $47.12* 11% $49.66* 6%
Coal margin per ton(3) $12.52 $10.24* 22% $9.01* 39%
(1) Excludes changes in fair value of derivative coal contracts, freight & handling costs, cost of other revenues, DD&A and SG&A (2) Includes coal purchased from third parties and processed at our plants prior to resale (3) Coal sales revenue per ton less cost of coal sales per ton
*Adjusted from amounts reported in prior periods to exclude changes in fair value related to coal derivative contracts which are now recorded as a component of costs and expenses and to conform to current year income statement presentation. The adjustments have no effect on previously reported income from operations or net income.
Liquidity and Capital Resources
Cash provided by operations totaled $41.8 million in the first threemonths of 2008 compared with $52.6 million in the first quarter of 2007. Anincrease in net working capital drove the reduction in cash provided byoperations.
Capital expenditures totaled $33.8 million for the quarter just ended ascompared with $44.6 million in the comparable period of 2007.
At March 31, 2008, Alpha's total debt outstanding was $440.5 million,compared with $446.9 million at the end of 2007. The company had availableliquidity of $346.0 million at the end of the first quarter, including cash of$59.2 million.
Subsequent to the end of the first quarter, Alpha completed a series oftransactions that significantly increased the company's liquidity.
On April 7, 2008 the company completed concurrent offerings ofapproximately 4.2 million shares of common stock at $41.25 per share and$287.5 million aggregate principal amount of 2.375 percent convertible seniornotes due 2015.
Net proceeds of $444.4 million were used in part to repurchasesubstantially all of the outstanding principal amount of the 10% senior notesissued by Alpha subsidiaries, with the remaining proceeds designated for othergeneral corporate purposes, which could include acquisitions or investments inbusinesses, products or technologies.
In conjunction with the completion of the tender offer, substantially allthe restrictive covenants contained in the indenture governing the notes wereeliminated.
The company expects to take a charge of $14.5 million in the secondquarter related to the cost of repurchasing the senior notes.
In addition, Alpha and a subsidiary have amended their credit facility toincrease the amount available under the revolving line of credit from $275.0million to $375.0 million.
After completing the above transactions, as of April 15, Alpha hadavailable liquidity of approximately $602.5 million, including cash of $315.7million and $286.8 million available under the revolver.
Recent Developments
-- Alpha continues to improve its overall safety performance. The company's rate of days lost due to accidents during the first quarter was 60 percent better than the industry benchmark and was 47 percent better than the company's rate for all of 2007. Alpha's surface mines experienced no lost-time accidents in the first quarter.
-- On April 21, Alpha announced that it had increased its ownership stake in the Dominion Terminal Associates (DTA) coal export facility to 40.6 percent, which represents the largest stake among the three partners in the Newport News, Va. port facility. This effectively raises the company's potential export capacity at DTA from 6.5 million tons to 8 million tons annually.
-- Gallatin Materials experienced start-up issues after completing construction of its lime kiln in the first quarter. Recently the kiln has achieved normal production rates of up to 750 tons per day and Gallatin continues to work toward resolving the remaining production issues. Gallatin fully expects the kiln to achieve a normalized state of operations by no later than mid-year and expects a positive contribution in the later half of 2008.
-- On April 4, the Governor of Virginia announced $10 million in grants for the state Department of Transportation (VDOT) to advance construction of the Coalfields Expressway in southwestern Virginia. Through a unique public-private partnership with VDOT, Alpha and another coal producer plan to remove coal along the 51-mile expressway route while bringing the terrain to rough grade for the highway. Alpha's section of the route comprises approximately 30 miles.
-- On April 3, Standard & Poor's Ratings Services revised its outlook on Alpha Natural Resources to positive from stable, and assigned a 'B' rating to the company's new senior convertible notes. Standard & Poor's commented that their ratings 'reflect the company's high-margin metallurgical coal reserves, limited postretirement obligations, and favorable coal industry conditions.'
-- On May 1, Alpha launched an Employee Appreciation Program to reward employees for their service and role in the company's financial success and to enhance the company's retention efforts. Employees at all 57 mines and offices each received a grant of 25 shares of company stock. The package also includes a semi-annual bonus program based on continued service to the company; rewards for members of the company's volunteer mine rescue teams; elimination of employee contributions for medical, dental and vision insurance coverage; and a fuel assistance program. Alpha expects to take a charge of approximately $7.5 million in the second quarter of 2008 representing the fair value and income-tax gross up of the equity award to employees, and approximately $6.0 million in charges the remainder of the year for all other components of the program.
Outlook
Coal supply continues to tighten around the world. While traditional coalexporting nations such as Australia, Poland, Indonesia and South Africa havebeen subject to supply disruptions or voluntary cutbacks, U.S. exports of boththermal and metallurgical coal have shown sustained strength, up 30 percent ona combined basis in the first two months of 2008 after last year's 19 percentgain.
Rising natural gas prices and the U.S. dollar's weakness are adding fuelto thermal coal demand both domestically and overseas, while high steel priceshave mills searching the world for reliable supplies of metallurgical coal.U.S. steel mills, in particular, finished 2007 with coking coal inventories 34percent lower than in 2006, at a time when production is needed to restockservice center inventories and take advantage of record high steel prices.
In this environment, Alpha continues its strategy of gradually layering insales commitments at favorable prices.
On the thermal side, the company contracted substantially all of itsremaining uncommitted but planned 2008 production (approximately 340,000 tons)at an average realization of approximately $87 per ton. Commitments werereached on approximately five million tons of planned thermal production for2009, at an average realization of approximately $79 per ton.
While Alpha believes that the settlements with Asian steelmakers whichwere recently announced by Australian coal producers provides a validbenchmark for 2009 and 2010 contract discussions, it may be some time beforesignificant tonnages become locked up for those outlying years.
Altogether, as of mid-April, Alpha had more than 37 million tons ofplanned coal production uncommitted and unpriced for 2009 and 2010, includingmore than 21 million tons of metallurgical coal and 16 million tons of thermalcoal. In total, 57 percent of 2009 planned production was uncommitted andunpriced as of April 15, while 87 percent of planned 2010 production wasuncommitted and unpriced. These figures all exclude any third-party purchasesthat are blended and/or resold, which has historically represented four to sixmillion additional unpriced tons.
Alpha has six production optimization and new mine projects underdevelopment that are expected to add as much as 800,000 tons of incrementalproduction this year above what the company planned, partly to meet increaseddemand in the spot market. In aggregate, these projects should enable Alpha tocontinue to push a higher proportion of production into the metallurgical coalmarkets while also meeting utility commitments and opportunities.
Based upon its current outlook and assessment of market conditions and newcontractual commitments, Alpha is updating certain of the 2008 targets itdisclosed on Feb. 12, 2008:
TARGET ORIGINAL NEW
Production (produced & processed) 24 - 25 million tons 24.5 - 25.5 million tons
Purchased coal 4 - 4.5 million tons 4.5 - 5 million tons
Ave. realized price/ton $62 - $63 $70 - $71
DD&A $170 million - $175 million Unchanged
Effective tax rate 24% Unchanged
Capital expenditures $165 million - $175 million* Unchanged
*Includes $24 million for construction of a second kiln at Gallatin and $5 million carry-over from the prior year for completion of the first kiln; $136 million -- $146 million for coal operations.
First Quarter Earnings Conference Call
Alpha management will hold a conference call at 11:00 a.m. today, May 5,2008, to discuss the company's first quarter results and the business outlook.The call will be accessible through the Investor Relations section of Alpha'sweb site (http://alnr.client.shareholder.com/medialist.cfm) and will bearchived on the site for a period of two weeks. Also, a podcast of the callwill be available for downloading on the company's web site following thecall.
A telephone replay of the call will be available through May 19, 2008, bycalling 800-642-1687 (toll-free) or 706-645-9291 and entering pass code42167628.
About Alpha Natural Resources
Alpha Natural Resources is a leading supplier of high-quality Appalachiancoal to electric utilities, steel producers and heavy industry. Approximately89 percent of the company's reserve base is high Btu coal and 82 percent islow sulfur, qualities that are in high demand among electric utilities whichuse steam coal. Alpha is also the nation's largest supplier and exporter ofmetallurgical coal, a key ingredient in steel manufacturing. Alpha and itssubsidiaries currently operate mining complexes in four states, consisting of57 mines feeding 11 coal preparation and blending plants. The company and itssubsidiaries employ more than 3,600 people.
ANRG
Forward Looking Statements
This news release includes forward-looking statements as defined in thePrivate Securities Litigation Reform Act of 1995. These forward-lookingstatements are based on Alpha's expectations and beliefs concerning futureevents and involve risks and uncertainties that may cause actual results todiffer materially from current expectations. These factors are difficult topredict accurately and may be beyond Alpha's control. The following factorsare among those that may cause actual results to differ materially from ourforward-looking statements: market demand for coal, electricity and steel;future economic or capital market conditions; weather conditions orcatastrophic weather-related damage; our production capabilities; theconsummation of financing, acquisition or disposition transactions and theeffect thereof on our business; our ability to successfully integrate theoperations we have acquired with our existing operations and implement ourbusiness plans for these new operations, as well as our ability tosuccessfully integrate operations we may acquire in the future and implementour related business plans; our plans and objectives for future operations andexpansion or consolidation; our relationships with, and other conditionsaffecting, our customers; timing of changes in customer coal inventories;changes in, renewal of and acquiring new long-term coal supply arrangements;inherent risks of coal mining beyond our control; environmental laws,including those directly affecting our coal mining production, and thoseaffecting our customers' coal usage; competition in coal markets; railroad,barge, truck and other transportation performance and costs; the geologicalcharacteristics of Central and Northern Appalachian coal reserves;availability of mining and processing equipment and parts; our assumptionsconcerning economically recoverable coal reserve estimates; availability ofskilled employees and other employee workforce factors; regulatory and courtdecisions; future legislation and changes in regulations, governmentalpolicies or taxes; unfavorable government interventions in, or nationalizationof, foreign investments; changes in postretirement benefit obligations; ourliquidity, results of operations and financial condition; decline in coalprices; forward sales and purchase contracts not accounted for as a hedge;indemnification of certain obligations not being met; continued funding of theroad construction business; and disruption in coal supplies. These and otherrisks and uncertainties are discussed in greater detail in Alpha's AnnualReport on Form 10-K and other documents filed with the Securities and ExchangeCommission. Forward-looking statements in this news release or elsewhere speakonly as of the date made. New uncertainties and risks come up from time totime, and it is impossible for Alpha to predict these events or how they mayaffect the company. Alpha has no duty to, and does not intend to, update orrevise the forward-looking statements in this news release after the date itis issued. In light of these risks and uncertainties, investors should keepin mind that the results, events or developments disclosed in anyforward-looking statement made in this news release may not occur.
NOTES TO ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of EBITDA
EBITDA is a non-GAAP financial measure used by management to gaugeoperating performance. Alpha defines EBITDA as net income plus interestexpense, income tax expense, and depreciation, depletion and amortization,less tax benefit and interest income. Management presents EBITDA as asupplemental measure of the company's performance and debt-service capacitythat may be useful to securities analysts, investors and others. EBITDA isnot, however, a measure of financial performance under U.S. GAAP and shouldnot be considered as an alternative to net income, operating income or cashflow as determined in accordance with U.S. GAAP. Moreover, EBITDA is notcalculated identically by all companies. A reconciliation of EBITDA to netincome, the most directly comparable U.S. GAAP measure, is provided in anaccompanying table.
FINANCIAL TABLES FOLLOW
ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited) (In thousands, except share and per share amounts)
Three months ended March 31, 2008 2007 Revenues: Coal revenues $445,679 $380,150 Freight and handling revenues 59,172 43,211 Other revenues 12,055 7,230
Total revenues 516,906 430,591
Costs and expenses: Cost of coal sales (exclusive of items shown separately below) 359,846 312,273 (Increase) decrease in fair value of derivative coal contracts, net (14,319) 202 Freight and handling costs 59,172 43,211 Cost of other revenues 10,015 5,628 Depreciation, depletion and amortization 44,260 35,789 Selling, general and administrative expenses (exclusive of depreciation and amortization shown separately above) 15,354 13,239
Total costs and expenses 474,328 410,342
Income from operations 42,578 20,249
Other income (expense): Interest expense (10,087) (9,993) Interest income 789 637 Miscellaneous income, net 129 42 Total other income (expense), net (9,169) (9,314) Income before income taxes and minority interest 33,409 10,935
Income tax expense 7,968 2,629
Minority interest (89) (43) Net income $25,530 $8,349
Net income per basic and diluted share $0.39 $0.13
Weighted average shares-basic 65,091,470 64,579,163 Weighted average shares-diluted 65,883,356 64,793,602
ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share amounts)
March 31, December 31, 2008 2007 Assets Current assets: Cash and cash equivalents $59,160 $54,365 Trade accounts receivable, net 196,485 183,969 Notes and other receivables 10,961 11,141 Inventories 89,401 70,780 Prepaid expenses and other current assets 87,802 59,954
Total current assets 443,809 380,209
Property, plant, and equipment, net 628,412 640,258 Goodwill 20,547 20,547 Other intangibles, net 8,400 9,376 Deferred income taxes 93,622 97,130 Other assets 61,150 63,394
Total assets $1,255,940 $1,210,914
Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $2,424 $2,579 Note payable 12,673 18,883 Trade accounts payable 106,697 95,765 Deferred income taxes 8,505 9,753 Accrued expenses and other current liabilities 103,529 96,082
Total current liabilities 233,828 223,062
Long-term debt, net of current portion 425,448 425,451 Workers' compensation benefit obligations 8,586 9,055 Postretirement medical benefit obligations 55,345 53,811 Asset retirement obligation 83,665 83,020 Deferred gains on sale of property interests 2,963 3,176 Other liabilities 37,587 30,930
Total liabilities 847,422 828,505
Minority Interest 1,169 1,573 Commitments and contingencies Stockholders' equity: Preferred stock - par value $0.01, 10,000,000 shares authorized, none issued - - Common stock - par value $0.01, 100,000,000 shares authorized, 66,128,148 and 65,769,303 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively 661 658 Additional paid-in capital 232,666 227,336 Accumulated other comprehensive loss (26,640) (22,290) Retained earnings 200,662 175,132 Total stockholders' equity 407,349 380,836 Total liabilities and stockholders' equity $1,255,940 $1,210,914
ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Three months ended March 31, 2008 2007 Operating activities: Net income $25,530 $8,349 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 44,260 35,789 Amortization of debt issuance costs 600 570 Accretion of asset retirement obligation 1,852 1,556 Stock-based compensation 2,989 2,650 Amortization of deferred gains on sales of property interests (213) (228) Gain on sale of fixed assets and investments (672) (282) Minority interest (89) (43) Change in fair value of derivative instruments (16,684) (449) Deferred income tax expense (benefit) 3,681 (402) Other (380) 86 Changes in operating assets and liabilities (19,121) 5,014 Net cash provided by operating activities 41,753 52,610
Investing activities: Capital expenditures $(33,797) $(44,577) Proceeds from disposition of property, plant, and equipment 786 508 Investment in and advances to investee (29) (71) Proceeds from sale of investment in coal terminal 1,500 - Other (5) (404) Net cash used in investing activities (31,545) (44,544)
Financing activities: Repayments of note payable $(6,210) $(6,872) Repayments on long-term debt (158) (850) Decrease in bank overdraft (150) (2,704) Debt issuance costs (1,317) - Tax benefit from share-based compensation 734 - Proceeds from exercise of stock options 1,688 - Net cash used in financing activities (5,413) (10,426) Net increase (decrease) in cash and cash equivalents 4,795 (2,360) Cash and cash equivalents at beginning of period 54,365 33,256 Cash and cash equivalents at end of period $59,160 $30,896
The following table reconciles EBITDA to net income, the most directly comparable GAAP measure:
Quarter ended March 31, 2008 2007 (In thousands)
Net income $25,530 $8,349 Interest expense 10,087 9,993 Interest income (789) (637) Income tax expense 7,968 2,629 Depreciation, depletion and amortization 44,260 35,789 EBITDA $87,056 $56,123
SOURCE Alpha Natural Resources, Inc.
