UNITED STATES
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 January 31, 2001
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 Number: 1-7775
MASSEY ENERGY COMPANY
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(Name of Registrant as Specified In Its Charter)
Delaware 95-0740960
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
4 North 4th Street, Richmond, Virginia 23219
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(Address of principal executive offices) (Zip Code)
(804) 788-1800
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(Registrant's telephone number, including area code)
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 shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No[ ]
As of February 26, 2001 there were 73,829,043 shares of common stock, $0.625 par
value, outstanding.
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1
MASSEY ENERGY COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2001
TABLE OF CONTENTS PAGE
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Part I: Financial Information
Item 1. Condensed Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Discussions About Market Risk 11
Part II: Other Information 12
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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PART I: FINANCIAL INFORMATION
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MASSEY ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended January 31, 2001 and 2000
UNAUDITED
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2001 2000
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Net sales $ 273,112 $ 259,074
Other revenue 7,217 13,217
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Total revenue 280,329 272,291
----------- -----------
Costs and expenses
Cost of sales 225,044 191,893
Depreciation, depletion and amortization 42,894 41,981
Selling, general and administrative 8,801 8,698
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Total costs and expenses 276,739 242,572
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Earnings before interest and taxes 3,590 29,719
Interest income 2,464 4,702
Interest expense 8,270 --
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Earnings (loss) before taxes (2,216) 34,421
Income tax expense (benefit) (864) 10,568
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Net earnings (loss) $ (1,352) $ 23,853
=========== ===========
Earnings (loss) per share (Note 6)
Basic $ (0.02) $ 0.32
=========== ===========
Diluted $ (0.02) $ 0.32
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Shares used to calculate earnings (loss) per share (Note 6)
Basic 73,902 73,469
=========== ===========
Diluted 74,155 73,476
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Dividends Per Share $ 0.04 $ --
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
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MASSEY ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, 2001 and October 31, 2000
UNAUDITED
JANUARY 31, OCTOBER 31,
$ IN THOUSANDS 2001 2000 *
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ASSETS
Current Assets
Cash and cash equivalents $ 2,189 $ 6,929
Trade and other accounts receivable 200,302 215,574
Inventories 98,577 104,132
Deferred taxes 6,963 8,398
Prepaid expenses and other 96,796 67,813
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Total current assets 404,827 402,846
Net Property, Plant and Equipment 1,557,632 1,559,426
Other Noncurrent Assets
Pension assets 70,791 67,740
Other 118,049 131,118
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Total other noncurrent assets 188,840 198,858
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Total assets $ 2,151,299 $ 2,161,130
============= =============
* Amounts at October 31, 2000 have been derived from audited financial statements.
(Continued On Next Page)
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MASSEY ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, 2001 and October 31, 2000
UNAUDITED
JANUARY 31, OCTOBER 31,
$ IN THOUSANDS 2001 2000 *
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable, principally trade $ 93,279 $ 120,891
Commercial paper 269,000 --
Notes payable and bank overdrafts 24,932 32,566
Payroll and employee benefits 26,216 30,784
Income taxes payable 7,837 12,222
Other current liabilities 51,370 78,420
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Total current liabilities 472,634 274,883
Long-term debt 300,000 --
Noncurrent liabilities
Deferred taxes 255,317 254,022
Other noncurrent liabilities 257,638 257,607
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Total noncurrent liabilities 512,955 511,629
Shareholders' Equity
Capital Stock
Preferred - authorized 20,000,000 shares without
par value; none issued -- --
Common - authorized 150,000,000 shares of $0.625
par value; issued and outstanding - 73,748,470 shares 46,093 --
Additional capital 3,448 --
Retained earnings 821,998 --
Unamortized executive stock plan expense (5,829) --
Net investment by Fluor Corporation -- 1,653,682
Due from Fluor Corporation -- (279,064)
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Total shareholders' equity 865,710 1,374,618
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Total liabilities and shareholders' equity $ 2,151,299 $ 2,161,130
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* Amounts at October 31, 2000 have been derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
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MASSEY ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended January 31, 2001 and 2000
UNAUDITED
$ IN THOUSANDS 2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (1,352) $ 23,853
Adjustments to reconcile net earnings (loss) to cash utilized by operating activities:
Depreciation, depletion and amortization 42,894 41,981
Deferred taxes 3,118 5,613
Changes in operating assets and liabilities, excluding effects of business
acquisitions/dispositions (68,250) (81,065)
Other, net 1,910 (7,268)
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Cash utilized by operating activities (21,680) (16,886)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (43,010) (55,223)
Proceeds from sale of property, plant and equipment -- 8,021
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Cash utilized by investing activities (43,010) (47,202)
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CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term borrowings, net (9,229) --
Decrease in amount due from Fluor Corporation 67,554 62,140
Equity contributions from Fluor Corporation 2,476 4,754
Cash dividends paid (2,870) --
Stock options exercised 1,452 --
Other, net 567 --
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Cash provided by financing activities 59,950 66,894
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Increase (Decrease) in cash and cash equivalents (4,740) 2,806
Cash and cash equivalents at beginning of period 6,929 8,051
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Cash and cash equivalents at end of period $ 2,189 $ 10,857
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See Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) The condensed consolidated financial statements do not include
footnotes and certain financial information normally presented annually
under accounting principles generally accepted in the United States
and, therefore, should be read in conjunction with Massey Energy
Company's ("Massey" or "the Company") Annual Report on Form 10-K for
the fiscal year ended October 31, 2000. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at
year-end. The results of operations for the three months ended January
31, 2001 are not necessarily indicative of results that can be expected
for the full year.
The condensed consolidated financial statements included herein are
unaudited; however, they contain all adjustments (consisting of normal
recurring accruals) which, in the opinion of the Company, are necessary
to present fairly its consolidated financial position at January 31,
2001 and its consolidated results of operations and cash flows for the
three months ended January 31, 2001 and 2000.
Certain 2000 amounts have been reclassified to conform with the 2001
presentation.
(2) On November 30, 2000, Fluor Corporation ("Fluor") completed a reverse
spin-off, which divided it into two separate publicly-traded
corporations. As a result of the reverse spin-off (the "Spin-Off"),
Fluor separated into (i) the spun-off corporation, "new" Fluor
Corporation ("New Fluor"), which owns all of Fluor's then existing
businesses except for the coal-related business conducted by A. T.
Massey Coal Company, Inc. ("A.T. Massey"), and (ii) Fluor Corporation,
subsequently renamed Massey Energy Company, which owns the coal-related
business. Further discussion of the Spin-Off may be found in Massey's
Annual Report on Form 10-K for the fiscal year ended October 31, 2000
as filed with the Securities and Exchange Commission.
Immediately after the Spin-Off, Massey had 73,468,707 shares of $0.625
par value common stock outstanding. In connection with the Spin-Off, A.
T. Massey became the sole direct, and wholly owned subsidiary of
Massey. A. T. Massey now represents the sole operating subsidiary of
Massey, as Massey has no separate independent operations.
Due to the relative significance of the businesses transferred to New
Fluor following the Spin-Off, New Fluor has been treated as the
"accounting successor" for financial reporting purposes and the Company
has been treated by New Fluor as a discontinued operation despite the
legal form of separation resulting from the Spin-Off.
As a result of the Spin-Off, the following occurred which affected
Massey's ongoing operations:
o Massey no longer invests in the Fluor commercial paper;
o Massey no longer loans amounts in excess of operating and
capital needs to Fluor and the amounts due from Fluor were
repaid as part of the Spin-Off;
o Fluor's previously issued $300 million of 6.95 percent Senior
Notes due March 1, 2007, with interest payable semi-annually
on March 1 and September 1 of each year, became the obligation
of Massey; and
o Massey issued $275 million of its own commercial paper and
utilized $3.5 million of cash to refund the $278.5 million of
Fluor commercial paper assumed as a result of the Spin-Off.
Massey's equity structure was also impacted as a result of the Spin-
Off. As noted above, Massey assumed from Fluor $300 million of 6.95
percent Senior Notes and $278.5 million of Fluor commercial paper, in
addition to other equity contributions from Fluor. These Spin-Off
occurrences, in addition to the net loss for the three months ended
January 31, 2001, dividends paid, and options exercised, resulted in a
change in shareholders' equity from $1,374.6 million at October 31,
2000 to $865.7 million at January 31, 2001, a net reduction of $508.9
million.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(3) Effective November 1, 2000, the Company adopted Statement of Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". The
adoption of these accounting standards did not have a significant
effect on the Company's financial statements, however, the Financial
Accounting Standards Board ("FASB") continues to finalize and release
interpretive guidance, and, therefore, no assurance can be given that
any new interpretive guidance, if contrary to Massey's current
interpretation of SFAS 133 and SFAS 138, will not have a significant
impact on Massey's future financial position, results of operations, or
cashflows.
(4) Inventories are comprised of:
January 31, October 31,
$ in thousands 2001 2000
----------------------------------------------------------------
Coal $ 76,835 $ 82,636
Other 21,742 21,496
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$ 98,577 $ 104,132
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(5) Net Property, Plant and Equipment is comprised of:
January 31, October 31,
$ in thousands 2001 2000
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Property, Plant and Equipment, at cost $2,547,170 $2,517,052
Accumulated depreciation, depletion and amortization (989,538) (957,626)
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$1,557,632 $1,559,426
(6) The number of shares used to calculate basic earnings (loss) per share
for the three months ended January 31, 2000 is based on the number of
Massey shares outstanding immediately following the Spin-Off. The
number of shares used to calculate basic earnings (loss) per share for
all other periods presented is based on the weighted average
outstanding shares of Massey Energy during the respective periods. The
number of shares used to calculate diluted earnings (loss) per share is
based on the number of shares used to calculate basic earnings (loss)
per share plus the dilutive effect of stock options and other
stock-based instruments held by Massey employees each period.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis is provided to increase understanding of,
and should be read in conjunction with, the Condensed Consolidated Financial
Statements and accompanying notes and the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 2000.
FORWARD-LOOKING INFORMATION
---------------------------
From time to time, the Company makes certain comments and disclosures in reports
and statements, including this report or statements made by its officers or
directors which may be forward-looking in nature. Examples include statements
related to Company growth, the adequacy of funds to service debt and the
Company's opinions about trends and factors which may impact future operating
results. These forward-looking statements could also involve, among other
things, statements regarding the Company's intent, belief or expectation with
respect to (i) the Company's results of operations and financial condition, (ii)
the consummation of acquisition, disposition or financing transactions and the
effect thereof on the Company's business, and (iii) the Company's plans and
objectives for future operations and expansion or consolidation.
Any forward-looking statements are subject to the risks and uncertainties
that could cause actual results of operations, financial condition, cost
reductions, acquisitions, dispositions, financing transactions, operations,
expansion, consolidation and other events to differ materially from those
expressed or implied in such forward-looking statements. Any forward-looking
statements are also subject to a number of assumptions regarding, among other
things, future economic, competitive and market conditions generally. These
assumptions would be 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 events beyond the Company's control. As a result, the reader is
cautioned not to rely on these forward-looking statements.
The Company wishes to caution readers that forward-looking statements,
including disclosures which use words such as the Company "believes,"
"anticipates," "expects," "estimates" and similar statements, are subject to
certain risks and uncertainties which could cause actual results of operations
to differ materially from expectations. Any forward-looking statements should be
considered in context with the various disclosures made by the Company about its
businesses, including without limitation the risk factors more specifically
described below in Item 1. Business, under the heading "Business Risks", in the
Company's Annual Report on Form 10-K for its fiscal year ended October 31, 2000.
Such filings are available publicly and upon request from Massey's Investor
Relations Department: (804) 788-1800. The Company disclaims any intent or
obligation to update its forward-looking statements.
RESULTS OF OPERATIONS
---------------------
Three months ended January 31, 2001 compared with the three months ended January
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31, 2000.
---------
In the first quarter of 2001, net sales increased 5 percent to $273.1 million in
2001 compared with $259.1 million for the same period in 2000. Two factors that
impacted revenues during the first quarter 2001 were:
o The volume of tons sold increased from 9.4 million tons to 10.4
million tons consisting of an increase of utility, metallurgical and
industrial tons sold of 9, 11 and 14 percent, respectively, for an
overall increase of 10.3 percent.
o The average per ton realized price for coal sold declined by 5
percent.
The metallurgical coal market continued to be adversely affected by a weak coal
export market and continuing problems experienced by the domestic steel market.
Demand was weak for United States coal exported to foreign markets as the U.S.
dollar remained strong. The market for utility coal has improved during the
first three months of 2001 as spot market prices of Central Appalachian coal
increased to a 20 year high. Unfortunately, most of the Massey tonnage sold in
the first quarter was committed prior to the upturn in the market. Prices for
utility sales in the first three months of 2001 reflect a bottoming of the
market prior to the recent market upturn.
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Other revenue, which consists of royalties, rentals, miscellaneous income and
gains on the sale of less strategic assets, decreased 45 percent to $7.2 million
for the first quarter of 2001 compared with $13.2 million for the same period in
2000. The decrease was primarily due to a decrease in income from dispositions
of less strategic mineral reserves, which generated $7.4 million in 2000. As
part of its management of coal reserves, Massey regularly sells less strategic
reserves or exchanges them for reserves located in more synergistic locations.
Cost of sales increased 17 percent to $225.0 million for the first quarter of
2001 from $191.9 million in same period in 2000. This was primarily due to the
10.3 percent increase in tons sold. Cost of sales on a per ton basis increased
by approximately 7 percent in the first quarter of 2001 compared with same
period in 2000 as operational problems and adverse geologic conditions were
encountered. Operating difficulties related to two longwall mines and the
expansion of Massey's two large surface mines negatively affected the first
quarter results. The two new longwall mines which started in January, 2001
suffered through normal start-up problems. One longwall mine suffered through
difficult mining conditions while mining at an interim location during November
and December. The two surface mines experienced higher than expected overburden
ratios in the first quarter. Increases in operating costs related to the Martin
County Coal slurry spill and the idling of the Martin County Coal preparation
plant also negatively impacted cost of sales.
Depreciation, depletion and amortization increased by 2 percent to $42.9 million
in the first quarter of 2001 compared to $42.0 million in 2000.
Selling, general and administrative expenses were $8.8 million for 2001 compared
with $8.7 million for 2000.
Interest income decreased to $2.5 million for 2001 compared with $4.7 million
for 2000. This decrease was primarily due to an intercompany receivable from
Fluor Corporation, which was outstanding for only one month in the first quarter
of fiscal 2001 compared to three months in 2000.
Interest expense increased to $8.3 million for the first three months of 2001.
The increase was primarily due to the addition of the 6.95 percent Senior Notes
and commercial paper borrowings subsequent to Spin-Off.
Income tax benefit was $0.9 million for the first quarter 2001 compared with
income tax expense of $10.6 million for the same period in 2000. This primarily
reflects the loss incurred in the first quarter of 2001 compared to the income
for 2000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At January 31, 2001 the Company's available liquidity was $133 million,
including cash and cash equivalents of $2.2 million and $131 million from the
Company's commercial paper program. Massey has $150 million 364-day and $250
million 3-year revolving credit facilities that serve to provide liquidity
backstop to Massey's commercial paper program and are also available to meet the
Company's ongoing liquidity needs. The total debt to book capitalization ratio
was 39.7 percent at January 31, 2001. The cash flow utilized by operating
activities was $21.7 million in the first three months of 2001 and $16.9 million
for the same period in 2000. Cash utilized by operating activities reflects net
earnings (loss) adjusted for non-cash charges and changes in working capital
requirements. Net cash utilized by investing activities was $43.0 million for
the first three months in 2001, and $47.2 million for the same period in 2000.
The cash used in investing activities reflects capital expenditures in the
amount of $43.0 million and $55.2 million for the three months ended January 31,
2001 and 2000, respectively. These capital expenditures are for replacement of
mining equipment, the expansion of mining capacity and projects to improve the
efficiency of mining operations. Financing activities primarily reflect changes
in amounts due from Fluor Corporation and additional capital investments from
Fluor prior to the Spin-Off. In addition to the cash spent on capital
expenditures, during the first three months of 2001, the Company leased, through
operating leases, $37 million of longwall and surface mining equipment.
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OUTLOOK
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The second fiscal quarter of 2001 will continue to be difficult as the Martin
County Coal preparation plant remains closed, two new longwall operations work
through start up problems and two of the large surface mines work out of high
overburden ratio areas. The second half of the fiscal year is expected to show
improvement as the Company is expected to benefit from improved pricing on
approximately 10 percent of fiscal year 2001 sales and increased production from
new and expanding operations. These trends should continue into and throughout
2002 as well.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCUSSIONS ABOUT MARKET RISK
Massey's interest expense is sensitive to changes in the general level of
interest rates in the United States. At January 31, 2001, Massey had outstanding
$300 million aggregate principal amount of debt under fixed-rate instruments,
however, the Company's primary exposure to market risk for changes in interest
rates relates to its commercial paper program. At January 31, 2001, Massey had
an aggregate of $269 million in commercial paper outstanding. Massey's
commercial paper bore interest at an average rate of 6.60 percent. Based on the
commercial paper balance outstanding at January 31, 2001, a 100 basis point
increase in the average issuance rate for Massey's commercial paper would
increase Massey's annual interest expense by approximately $2.7 million.
Almost all of Massey's transactions are denominated in U.S. dollars, and, as a
result, it does not have material exposure to currency exchange-rate risks.
Massey has not engaged in any interest rate, foreign currency exchange-rate or
commodity price hedging transactions.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The following describes material changes in legal proceedings affecting the
Company described in Part I, Item 3 in the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 2000.
a) Big Sandy Company, L.P. ("Big Sandy") asserted a claim of forfeiture
of two leases covering coal reserves in Pike County, Kentucky and
which included active mining areas of Sidney Coal Company, Inc.
("Sidney"), an A.T. Massey subsidiary. The dispute was referred to
arbitration and heard in October 2000. The arbitrators rendered a
decision on February 6, 2001, holding that the leases remain in full
force and effect and were not subject to forfeiture. However, Sidney
will be required to pay approximately $150,000 in royalties that the
arbitrators determined to be payable to Big Sandy.
b) With respect to the Martin County Coal impoundment discharge described
in the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 2000, the Kentucky Department of Surface Mining,
Reclamation and Enforcement and the Federal Mine Safety and Health
Administration, on February 13, 2001, issued notices revoking the
permit required for Martin County Coal to operate the impoundment.
Martin County Coal has appealed the agency actions and is continuing
to negotiate with the applicable agencies for approval of certain uses
of the impoundment that would allow for resumed operations of Martin
County Coal's preparation plant.
Additionally, on March 6, 2001, Martin County Coal and the
Environmental Protection Agency ("EPA") entered into an Agreed Order
on Consent, which governs future clean-up and restoration activities
and pursuant to which, Martin County Coal has agreed to reimburse EPA
for costs incurred by EPA in responding to the impoundment discharge.
EPA response costs for the period prior to January 31, 2001 were
approximately $750,000.
Martin County Coal believes that the clean up of the spill is
approximately 90 percent complete. Approximately $31 million in clean
up costs have been incurred through March 13, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On November 30, 2000, the shareholders of Fluor approved the Spin-Off
by a vote of 60,487,215 to 434,352 with 399,715 shares abstaining, and
the Spin-Off was consummated on the same day.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.24 Employment Agreement between Massey Energy Company, A. T.
Massey Coal Company, Inc. and and Don L. Blankenship dated as
of November 1, 2001.
(b) Reports on Form 8-K.
The Company filed a Form 8-K on December 15, 2000 which included
various agreements associated with the Spin-Off and certain resulting
changes to incentive plans.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MASSEY ENERGY COMPANY
---------------------
(Registrant)
Date: March 16, 2001 /s/ J. M. Jarosinski
-------------------------------------
J. M. Jarosinski,
Vice President - Finance
and Chief Financial Officer
/s/ E. B. Tolbert
-------------------------------------
E. B. Tolbert, Controller
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.24 Employment Agreement between Massey Energy Company, A.T. Massey Coal
Company, Inc. and Don L. Blankenship dated as of November 1, 2001.
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