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 April 30, 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 June 8, 2001 there were 74,371,409 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 APRIL 30, 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 12
Part II: Other Information 13
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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2
PART I: FINANCIAL INFORMATION
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MASSEY ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Three Months Ended Six Months Ended
April 30, April 30,
------------------------------------ ----------------------------------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2001 2000 2001 2000
---- ---- ---- ----
Net sales $ 307,893 $ 260,540 $ 581,005 $ 519,614
Other revenue 9,895 17,863 17,112 31,080
---------------- ---------------- --------------- --------------
Total revenue 317,788 278,403 598,117 550,694
Costs and expenses
Cost of sales 254,227 198,445 479,271 390,338
Depreciation, depletion and amortization 44,678 43,698 87,572 85,679
Selling, general and administrative 10,516 8,081 19,317 16,779
---------------- ---------------- --------------- --------------
Total costs and expenses 309,421 250,224 586,160 492,796
Earnings before interest and taxes 8,367 28,179 11,957 57,898
Interest income 4,079 4,198 6,543 8,900
Interest expense 9,197 - 17,467 -
---------------- ---------------- --------------- --------------
Earnings before taxes 3,249 32,377 1,033 66,798
Income tax expense 1,168 11,520 304 22,088
---------------- ---------------- --------------- --------------
Net earnings $ 2,081 $ 20,857 $ 729 $ 44,710
================ ================ =============== ==============
Earnings per share (Note 6)
Basic and Diluted $ 0.03 $ 0.28 $ 0.01 $ 0.61
================ ================ =============== ==============
Shares used to calculate earnings per share (Note 6)
Basic 73,663 73,469 73,733 73,469
================ ================ =============== ==============
Diluted 74,277 73,469 74,167 73,473
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Dividends Per Share $ 0.04 $ - $ 0.08 $ -
================ ================ =============== ==============
See Notes to Condensed Consolidated Financial Statements.
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3
MASSEY ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2001 and October 31, 2000
UNAUDITED
APRIL 30, OCTOBER 31,
$ IN THOUSANDS 2001 2000 *
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ASSETS
Current Assets
Cash and cash equivalents $ 11,221 $ 6,929
Trade and other accounts receivable 198,075 215,574
Inventories 98,486 104,132
Deferred taxes 8,527 8,398
Prepaid expenses and other 82,040 67,813
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Total current assets 398,349 402,846
Net Property, Plant and Equipment 1,559,934 1,559,426
Other Noncurrent Assets
Pension assets 73,890 67,740
Other 142,979 131,118
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Total other noncurrent assets 216,869 198,858
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Total assets $ 2,175,152 $ 2,161,130
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* Amounts at October 31, 2000 have been derived from audited financial statements.
(Continued On Next Page)
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4
MASSEY ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2001 and October 31, 2000
UNAUDITED
APRIL 30, OCTOBER 31,
$ IN THOUSANDS 2001 2000 *
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable, principally trade, and bank overdrafts $ 157,927 $ 152,063
Commercial paper 216,886 -
Payroll and employee benefits 30,790 30,784
Income taxes payable 11,826 12,222
Other current liabilities 55,788 79,814
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Total current liabilities 473,217 274,883
Long-term debt 300,000 -
Noncurrent liabilities
Deferred taxes 253,877 254,022
Other noncurrent liabilities 271,848 257,607
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Total noncurrent liabilities 525,725 511,629
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 - 74,322,269 shares 46,451 -
Additional capital 9,713 -
Retained earnings 825,383 -
Unamortized executive stock plan expense (5,337) -
Net investment by Fluor Corporation - 1,653,682
Due from Fluor Corporation - (279,064)
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Total shareholders' equity 876,210 1,374,618
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Total liabilities and shareholders' equity $ 2,175,152 $ 2,161,130
======================= ======================
* Amounts at October 31, 2000 have been derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
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5
MASSEY ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended April 30, 2001 and 2000
UNAUDITED
$ IN THOUSANDS 2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 729 $ 44,710
Adjustments to reconcile net earnings to cash utilized by operating activities:
Depreciation, depletion and amortization 87,572 85,679
Deferred taxes 114 13,486
Changes in operating assets and liabilities, excluding effects of business
acquisitions/dispositions (1,923) (150,831)
Other, net 1,509 (15,539)
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Cash utilized by operating activities 88,001 (22,495)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (99,907) (99,946)
Cash from sale of interest in Appalachian Synfuel, LLC 3,600 -
Proceeds from sale of property, plant and equipment 946 16,744
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Cash utilized by investing activities (95,361) (83,202)
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CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term borrowings, net (61,343) -
Decrease in amount due from Fluor Corporation 67,554 98,037
Equity contributions from Fluor Corporation 2,476 8,363
Cash dividends paid (5,827) -
Stock options exercised 8,048 -
Other, net 744 -
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Cash provided by financing activities 11,652 106,400
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Increase in cash and cash equivalents 4,292 703
Cash and cash equivalents at beginning of period 6,929 8,051
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Cash and cash equivalents at end of period $ 11,221 $ 8,754
=================== ================
See Notes to Condensed Consolidated Financial Statements.
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6
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 and six months
ended April 30, 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 April 30,
2001, its consolidated results of operations for the three months and
six months ended April 30, 2001 and 2000, and its consolidated cash
flows for the six months ended April 30, 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 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, $278.5 million of Fluor commercial paper,
other equity contributions from Fluor, and assumed Fluor's common stock
equity structure. These Spin-Off occurrences, in addition to the net
income for the six months ended April 30, 2001, dividends paid, and
options exercised, resulted in a change in shareholders' equity from
$1,374.6 million at October 31, 2000 to $876.2 million at April 30,
2001, a net reduction of $498.4 million.
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7
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 Hedging Activities". The adoption of
these accounting standards did not have a significant impact on the
Company's financial statements. The Derivatives Implementation Group
(DIG), a group sponsored by the FASB, continues to develop interpretive
guidance.
In April 2001, the Financial Accounting Standards Board (FASB) released
certain implementation guidance related to SFAS 133 concluded by the
DIG. The Company has reviewed its contracts in light of the new
implementation guidance. Management continues to evaluate whether
certain of its contracts will be subject to the fair value accounting
under SFAS 133 as a result of this new interpretative guidance. If any
of the Company's current contracts are required to be recorded at fair
value the Company would record the change as a cumulative effect of a
change in accounting principle in the third fiscal quarter of 2001.
The DIG has not yet concluded on certain other issues that could
ultimately impact Massey's application of FAS 133.
(4) Inventories are comprised of:
April 30, October 31,
$ in thousands 2001 2000
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Coal $ 77,332 $ 82,636
Other 21,154 21,496
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$ 98,486 $ 104,132
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(5) Net Property, Plant and Equipment is comprised of:
April 30, October 31,
$ in thousands 2001 2000
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Property, Plant and Equipment, at cost $2,573,368 $2,517,052
Accumulated depreciation, depletion and amortization (1,013,434) (957,626)
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$1,559,934 $1,559,426
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(6) The number of shares used to calculate basic earnings per share for the
three months and six months ended April 30, 2000 is based on the number
of Massey shares outstanding immediately following the Spin-Off. The
number of shares used to calculate basic earnings 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 per share is based on the
number of shares used to calculate basic earnings per share plus the
dilutive effect of stock options and other stock-based instruments held
by Massey employees each period.
(7) On March 15, 2001, the Company sold a substantial interest in its
synfuel producing subsidiary, Appalachian Synfuel, LLC, contingent upon
a favorable Internal Revenue Service ruling. The Company received cash
of $3.6 million,a recourse promissory note for $15.2 million that will
be paid in quarterly installments of $765,000 plus interest, and a
contingent promissory note that is paid on a cents per Section 29
credit dollar earned based on synfuel tonnage shipped. All gains
associated with the sale of this facility have been deferred. The
Company will continue to manage the facility under an operating
agreement.
(8) With respect to the Martin County Coal impoundment discharge described
in the Company Annual Report on Form 10-K for the fiscal year ended
October 31, 2000, and the Company's Quarterly Report on Form 10-Q for
the first quarter of fiscal year 2001, the Company increased the
remediation accrual, included in other current liabilities, and the
probable insurance recoveries, included in trade and other accounts
receivables, by $10 million, respectively. Given that remediation
efforts are still in progress and there remains a degree of uncertainty
with respect to certain claims, fines and penalties, it is reasonably
possible the Company's estimates with respect to the slurry spill could
change.
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8
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
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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 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: (866) 814-6512. The Company disclaims any intent or
obligation to update its forward-looking statements.
RESULTS OF OPERATIONS
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Three months ended April 30, 2001 compared with the three months ended April 30,
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2000.
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In the second fiscal quarter of 2001, net sales increased 18 percent to $307.9
million in 2001 compared with $260.5 million for the same period in 2000. Two
factors that impacted net sales during the second quarter 2001 were:
o The volume of tons sold increased from 10.1 million tons to 11.3
million tons consisting of an increase of utility and industrial
tons sold of 21 and 16 percent, respectively and a decrease of
metallurgical tons sold of 2 percent, for an overall increase of
13 percent.
o The average per ton realized price for coal sold increased by 5
percent.
The market for utility coal continued to improve during the second quarter of
fiscal year 2001 as spot market prices of Central Appalachian coal have
increased to 20-year highs. Unfortunately, most of the Massey tonnage sold in
the second quarter was committed prior to the upturn in the market. Realized
prices for utility sales in the second fiscal quarter continue to reflect a
bottoming of the market prior to the recent market upturn.
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9
Other revenue, which consists of royalties, rentals, miscellaneous income and
gains on the sale of non-strategic assets, decreased 45 percent to $9.9 million
for the second quarter of 2001 compared with $17.9 million for the same period
in 2000. The decrease was primarily due to a decrease in income from
dispositions of non-strategic mineral reserves, which generated $8.5 million in
2000. As part of its management of coal reserves, Massey regularly sells
reserves located in less strategic areas or exchanges them for reserves located
in more synergistic locations.
Cost of sales increased 28 percent to $254.2 million for the second quarter of
2001 from $198.4 million in same period in 2000. This primarily was due to the
13 percent increase in tons sold. Cost of sales on a per ton basis increased by
approximately 15 percent in the second quarter of 2001 compared with same period
in 2000 as operating difficulties at several of Massey's longwall mines
continued to negatively impact production and costs during the second quarter.
The Ellis Eagle longwall mine experienced flooding that caused significant
disruption to coal production during April. The flooding caused reduced
shipments from both the Marfork and Goals preparation plants. The Company's
labor costs were higher in the quarter due to the extremely tight labor market
in Central Appalachia and decreases in productivity related to the training of
new miners.
Cost of sales for the second quarter of fiscal year 2001 was partially offset by
a $6.5 million pre-tax refund related to black lung excise taxes paid on coal
export sales tonnage. The payment of black lung excise taxes on exported coal
was determined to be unconstitutional by a 1998 federal district court decision.
During the quarter, the Internal Revenue Service substantially completed its
audit of the Company's requested refund of black lung excise tax payments.
Depreciation, depletion and amortization increased by 2 percent to $44.7 million
in the second quarter of 2001 compared to $43.7 million in 2000. The increase of
$1.0 million was primarily due to capital expenditures made in recent years.
Selling, general and administrative expenses were $10.5 million for the second
quarter of 2001 compared to $8.1 million for 2000. The increase was attributed
to additions in the administrative workforce due to the increased workload that
is part of running a stand-alone publicly traded company, and to increases in
accruals for long-term executive stock-based compensation plans as a result of
increases in the Massey stock price during the quarter.
Earnings before interest, taxes, depreciation, depletion and amortization
("EBITDA"), was a positive $53.0 million for the three months ended April 30,
2001 compared to $71.9 million of the same period in 2000.
Interest income decreased to $4.1 million for 2001 compared with $4.2 million
for 2000. This decrease was primarily due to an intercompany receivable from
Fluor Corporation, which was only in place in 2000 until the Spin-Off. The
amount for the second quarter of 2001 includes $3.2 million (pre-tax) for
interest due on the black lung excise tax refund as discussed above.
Interest expense increased to $9.2 million for the three months ended April 30,
2001. The increase was primarily due to the addition of the 6.95 percent Senior
Notes and commercial paper borrowings subsequent to the Spin-Off.
Income tax expense was $1.2 million for the second quarter 2001 compared with
income tax expense of $11.5 million for the same period in 2000. This primarily
reflects the decrease in earnings before interest and taxes in the second
quarter of 2001 compared to the income for 2000.
Six months ended April 30, 2001 compared with the six months ended April 30,
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2000.
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For the six months period ended April 30, 2001, net sales increased 12 percent
to $581.0 million in 2001 compared with $519.6 million for the same period in
2000. Two factors that impacted net sales during the first six months of 2001
were:
o The volume of tons sold increased from 19.4 million tons to 21.7
million tons consisting of an increase of utility, metallurgical
and industrial tons sold of 15, 15 and 4 percent, respectively,
for an overall increase of 12 percent.
o The average per ton realized price for coal sold remained
consistent over the periods.
The market for utility coal has improved during the first six 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 six months was
committed prior to the upturn in the market. Realized prices for utility sales
in the first six months of 2001 reflect a bottoming of the market prior to the
recent market upturn.
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10
Other revenue, which consists of royalties, rentals, miscellaneous income and
gains on the sale of non-strategic assets, decreased 45 percent to $17.1 million
for the six months period ended April 30, 2001 compared with $31.1 million for
the same period in 2000. The decrease was primarily due to a decrease in income
from dispositions of non-strategic mineral reserves, which generated $15.9
million in 2000.
Cost of sales increased 23 percent to $479.3 million for the six months ended
April 30, 2001 from $390.3 million in same period in 2000. This primarily was
due to the 12 percent increase in tons sold. Cost of sales on a per ton basis
increased by approximately 11 percent for the six months period ended April 30,
2001 compared with same period in 2000 as operational problems and adverse
geologic conditions were encountered. Operating difficulties were encountered at
several longwall mines and during the expansion of Massey's two large surface
mines. Two new longwall mines, which started in January 2001, suffered through
normal start-up problems. One longwall mine encountered unfavorable mining
conditions while mining at an interim location during November and December. The
Ellis Eagle longwall mine experienced flooding that caused significant
disruption to coal production during April. The flooding caused reduced
shipments from both the Marfork and Goals preparation plants. The two surface
mines experienced higher than expected overburden ratios in the first and second
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.
Cost of sales for the first six months of 2001 was partially offset by a $6.5
million pre-tax refund related to black lung excise taxes paid on coal export
sales tonnage. The payment of black lung excise taxes on exported coal was
determined to be unconstitutional by a 1998 federal district court decision.
During the second quarter, the Internal Revenue Service substantially completed
its audit of the Company's requested refund of black lung excise tax payments.
Depreciation, depletion and amortization increased by 2 percent to $87.6 million
for the six months period ended April 30, 2001, compared to $85.7 million in
2000. The increase of $1.9 million was primarily due to capital expenditures
made in recent years.
Selling, general and administrative expenses were $19.3 million for 2001, an
increase from $16.8 million for 2000. The increase was attributed to additions
in the administrative workforce due to the increased workload that is part of
running a stand-alone publicly traded company, and increases in accruals for
long-term executive stock-based compensation plans as a result of increases in
the Massey stock price over the last six months.
Earnings before interest, taxes, depreciation, depletion and amortization
("EBITDA"), was a positive $99.5 million for the six months ended April 30, 2001
compared to $143.6 million of the same period in 2000.
Interest income decreased to $6.5 million for 2001 compared with $8.9 million
for 2000. This decrease was primarily due to an intercompany receivable from
Fluor Corporation, which was outstanding for one month in the first six months
of fiscal 2001 compared to six months in 2000. As noted above, $3.2 million was
accrued in 2001 for interest due on the black lung excise tax refund.
Interest expense increased to $17.5 million for the six months ended April 30,
2001. The increase was primarily due to the addition of the 6.95 percent Senior
Notes and commercial paper borrowings subsequent to the Spin-Off.
Income tax expense was $0.3 million for the six months period ended April 30,
2001 compared with income tax expense of $22.1 million for the same period in
2000. This primarily reflects the decrease in earnings before taxes in the first
two quarters of 2001 compared to the income for 2000.
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11
LIQUIDITY AND CAPITAL RESOURCES
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At April 30, 2001, the Company's available liquidity was $193.8 million,
including cash and cash equivalents of $11.2 million and $182.6 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 37 percent at April 30, 2001. The cash flow provided/(utilized) by operating
activities was $88.0 million in the first six months of 2001 and ($22.5) million
for the same period in 2000. Cash utilized by operating activities reflects net
earnings adjusted for non-cash charges and changes in working capital
requirements. Net cash utilized by investing activities was $95.4 million for
the first six months in 2001, and $83.2 million for the same period in 2000. The
cash used in investing activities reflects capital expenditures in the amount of
$99.9 million and $99.9 million for the six months ended April 30, 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 six months of 2001, the Company leased, through
operating leases, $60.7 million of longwall and surface mining equipment.
OUTLOOK
- -------
The Company expects a loss for the third fiscal quarter as the tight labor
market, operational problems and generally poor mining conditions experienced in
the first half of the fiscal year continue to impact earnings. Massey has taken
a number of steps to mitigate the effects of these events and is in the process
of expanding production, including the opening of seven new surface mines. The
Company expects that record spot coal prices and increasing demand for coal will
positively impact sales in 2002 and 2003.
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 April 30, 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 April 30, 2001, Massey had
$217.4 million of aggregate principal amount of commercial paper outstanding
($216.9 million net of discount). At April 30, 2001 Massey's commercial paper
bore interest at an average rate of 5.26 percent. Based on the commercial paper
balance outstanding at April 30, 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 $2.2 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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12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The following describes material developments in legal proceedings
affecting the Company, as previously described in Part II, Item 1 in the
Company's Quarterly Report on Form 10-Q dated March 16, 2001, as they
relate to the fiscal quarter ending April 30, 2001.
a) 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, and further discussed in the Company's Quarterly
Report on Form 10-Q for the first quarter of Fiscal Year 2001, Martin
County Coal reopened its preparation plant on April 2, 2001 after
federal and state regulators approved an alternate means of refuse
disposal. Martin County Coal is continuing to negotiate with the
applicable agencies for refuse disposal areas that would allow for a
long-term continuation of operations of Martin County Coal's
preparation plant.
Martin County Coal believes that the clean up of the spill is now
largely complete.
Item 4. Submission of Matters to a Vote of Security Holders
a) On April 17, 2001, Massey Energy Company held its annual shareholders
meeting for the purpose of (1) electing directors; (2) ratifying the
appointment of Ernst and Young LLP as Massey Energy Company's
independent public accountants for fiscal year 2001; (3) approving and
adopting an amendment to the Stock Plan for Non-Employee Directors; and
(4) approving and adopting an amendment to the 1997 Restricted Stock
Plan for Non-Employee Directors.
(1) Shareholders elected the following Class II directors and the vote
tabulation for each individual director was as follows:
Nominee For Withheld
------- --- --------
William R. Grant 62,564,014 185,013
Dr. Martha Seger 62,572,014 177,013
(2) Proposal to ratify the appointment of Ernst & Young LLP as
auditors for the fiscal year ending October 31, 2001. This
proposal was approved by a vote of 62,615,014 to 45,020, with
88,993 shares abstaining.
(3) Proposal to approve and adopt an amendment to the Massey Energy
Company Stock Plan for Non-Employee Directors that increases the
number of shares of Common Stock authorized to be issued under
such plan from 25,000 to 100,000. This proposal as approved by a
vote of 60,445,933 to 2,072,471, with 219,063 shares abstaining.
(4) Proposal to approve and adopt an amendment to the Massey Energy
Company 1997 Restricted Stock Plan for Non-Employee Directors that
increases the number of shares of Common Stock authorized to be
issued under such plan from 60,000 to 200,000. This proposal was
approved by a vote of 60,624,280 to 1,846,057, with 266,631 shares
abstaining.
Item 5. Other Information
a) The Company's subsidiary, Marfork Coal Company, experienced unforeseen
flooding of its Ellis Eagle longwall mine. The flooding, which began on
April 14, 2000, has caused significant disruption to coal production.
Shipments from both the Marfork and Goals preparation plants have been
impacted. Additionally, the Marfork plant has suffered numerous
flood-related operating problems due to excessive moisture in the raw
coal. As a result, the affected Massey subsidiaries have issued notices
of force majeure to about 15 domestic and export customers. Certain
customers have complained about short falls in coal shipments. Massey
has taken a number of steps to mitigate the effects of these events,
and the Martin County spill including the establishment of additional
surface mines and the restarting of the Martin County preparation
plant.
b) On October 20, 1999, the United States District Court for the Southern
District of West Virginia ("District Court") issued an injunction
against the West Virginia Division of Environmental Protection ("DEP")
prohibiting it from issuing permits for the construction of valley
fills over both intermittent and perennial stream segments as part of
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13
mining operations. While Massey is not a party to this litigation,
virtually all mining operations (including those of Massey) utilize
valley fills to dispose of excess materials mined during coal
production. On April 24, 2001, the Fourth Circuit Court of Appeals
overruled the district court, finding that the 11th Amendment to the
U.S. Constitution barred the suit against DEP in Federal Court. The
plaintiffs may appeal the Fourth Circuit decision to the U.S. Supreme
Court.
c) On May 4, 2001, the Board of Directors unanimously elected James H.
Harless as a Class I Director.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
----------- -----------
3.1 Restated Bylaws (as amended effective April 27, 2001)
of Massey Energy Company
(b) Reports on Form 8-K.
The Company filed a Form 8-K on May 24, 2001 which updated the
description of the capital stock of Massey Energy Company ("Massey
Energy"), which had been previously filed with the Securities and
Exchange Commission under the Securities and Exchange Act of 1934, as
amended, for the purpose of incorporation by reference in future
filings under the securities laws.
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14
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: June 14, 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
- ------ -----------
3.1 Restated Bylaws (as amended effective April 27, 2001) of Massey
Energy Company
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15