1
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 June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 333-39643
ANKER COAL GROUP, INC.
(Exact Name Of Registrant As Specified in Its Charter)
Delaware 52-1990183
- ---------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2708 Cranberry Square
Morgantown, West Virginia 26508
-------------------------------
(Address Of Principal Executive Offices)
(304) 594-1616
--------------
(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 such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- -------
The Registrant has one class of common stock, par value $0.01 per share.
The number of shares of Registrant's common stock outstanding as of August 14,
2001 was 7.083.
2
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
JURISDICTION OF I.R.S. EMPLOYER ADDRESS AND TELEPHONE NUMBER OF REGISTRANT
EXACT NAME OF REGISTRANT GUARANTOR INCORPORATION OR IDENTIFICATION GUARANTOR'S
AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES
- ---------------------------------- ---------------- --------------- ------------------------------------------
Anker Energy Corporation Delaware 51-0217205 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Anker Group, Inc. Delaware 13-2961732 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Anker Power Services, Inc. West Virginia 55-0700346 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Anker Virginia Mining Company, Inc. Virginia 54-1867395 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Anker West Virginia Mining Company, Inc. West Virginia 55-0699931 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Bronco Mining Company, Inc. West Virginia 22-2094405 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Hawthorne Coal Company, Inc. West Virginia 55-0742562 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Heather Glen Resources, Inc. West Virginia 55-0746946 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Juliana Mining Company, Inc. West Virginia 55-0568083 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
King Knob Coal Co., Inc. West Virginia 55-0488823 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Marine Coal Sales Company Delaware 13-3307813 645 West Carmel Drive
Carmel, Indiana 46032
(317) 844-6628
Melrose Coal Company, Inc. West Virginia 55-0746947 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
New Allegheny Land Holding Company, Inc. West Virginia 31-1568515 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Patriot Mining Company, Inc. West Virginia 55-0550184 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Simba Group, Inc. Delaware 55-0753900 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Upshur Property, Inc. Delaware 95-4484172 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Vantrans, Inc. Delaware 22-2093700 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
Vindex Energy Corporation West Virginia 55-0753903 2708 Cranberry Square
Morgantown, West Virginia 26508
(304) 594-1616
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ANKER COAL GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
PART I
ITEM I. FINANCIAL STATEMENTS
Consolidated Statements of Operations - Three Months and Six Months
Ended June 30, 2001 and 2000...........................................................1
Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000....................................................2
Consolidated Statements of Cash Flows - Three Months and Six Months
Ended June 30, 2001 and 2000..........................................................3
Notes to Consolidated Financial Statements......................................................4-5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................................5-12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............................................12
PART II
ITEM 1. LEGAL
Proceedings.......................................................................................................13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................................................................13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..........................................................................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
SIGNATURE PAGES...................................................................................................15-33
NOTE CONCERNING FORWARD-LOOKING INFORMATION
This report contains statements which constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements include statements regarding our intent, belief or current
expectations for performance, our ability to implement our business plan and
related industry developments. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Readers are further cautioned that our actual results,
levels of activity, performance or achievements, or industry results may differ
materially from those described or implied in the forward-looking statements as
a result of various factors, many of which are beyond our control. These factors
include, but are not limited to: general economic and business conditions; our
ability to implement our business plan, achieve anticipated coal production
levels and maintain cost savings; the availability of liquidity and capital
resources; our ability to secure new mining permits; changes in the coal
production and electricity generation industries; weather; adverse geologic
conditions; variations in coal seam thickness; variations in rock and soil
overlying the coal deposit; risks inherent in mining; the ability of our
contract miners to perform their contractual obligations; a disruption or
increase in the cost of transportation services; early modification or
termination of our long-term coal supply contracts; renewal of coal supply
contracts; competition within the coal production and electricity generation
industries; government regulation and regulatory uncertainties; price
fluctuations; and labor disruptions. In addition to these factors, our business
is subject to other risks. For a description of these risks, please see Exhibit
99.2 to Form 8-K dated February 23, 2001 and filed with the Securities and
Exchange Commission on February 26, 2001 and Form 10-K for the year ended
December 31, 2000 filed with the Securities and Exchange Commission on April 13,
2001.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANKER COAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(unaudited) (unaudited)
Coal sales and related revenue $ 52,880 $ 54,717 $ 105,470 $ 112,380
Expenses:
Cost of operations and selling expenses 48,613 48,386 95,877 98,790
Depreciation, depletion and amortization 4,599 4,457 9,508 8,885
General and administrative 1,737 1,702 3,568 3,327
Financial restructuring fees 214 85 583 521
Non-recurring charges -- -- 158
--------- --------- --------- ---------
Total expenses 55,163 54,630 109,536 111,681
Operating (loss) income (2,283) 87 (4,066) 699
Interest, net (3,584) (4,213) (7,955) (8,268)
Other income, net 1,025 920 2,047 2,008
--------- --------- --------- ---------
Loss before income taxes (4,842) (3,206) (9,974) (5,561)
Income tax benefit -- 430 -- 580
--------- --------- --------- ---------
Net loss (4,842) (2,776) (9,974) (4,981)
Less stock dividends accruing on Class E preferred stock (1,069) -- (1,069) --
Less mandatorily redeemable preferred stock dividends (388) (368) (776) (738)
Less mandatorily redeemable preferred stock accretion (150) (150) (300) (300)
--------- --------- --------- ---------
Net loss available to common
stockholders $ (6,449) $ (3,294) $ (12,119) $ (6,019)
========= ========= ========= =========
The accompanying notes are an integral
part of the consolidated financial statements.
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ANKER COAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
JUNE 30, DECEMBER 31,
2001 2000
------------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 5 $ 5
Accounts receivable:
Trade 22,508 18,753
Affiliates 1 2
Inventories 2,903 2,183
Current portion of long-term notes receivable 1,066 1,616
Prepaid expenses and other 2,783 2,949
Deferred income taxes 1,326 1,326
--------- ---------
Total current assets 30,592 26,834
Property, plant and equipment:
Coal lands and mineral rights 70,647 67,728
Machinery and equipment 76,056 74,825
--------- ---------
146,703 142,553
Less allowances for depreciation, depletion and amortization 59,234 51,379
--------- ---------
87,469 91,174
Other assets:
Assets held for sale 9,000 9,000
Advance minimum royalties 8,540 7,828
Goodwill, net of accumulated amortization of $6,732 and $5,852, respectively 17,357 18,237
Other intangible assets, net of accumulated amortization of $3,035 and $2,535, respectively 4,186 4,686
Notes receivable 2,216 2,167
Other assets 3,598 3,870
Deferred income taxes 3,396 3,396
--------- ---------
Total assets $ 166,354 $ 167,192
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable:
Trade $ 9,079 $ 8,890
Affiliates 438 533
Cash overdraft 3,345 1,317
Accrued interest 3,644 4,698
Accrued expenses and other 5,019 5,036
Accrued reclamation expenses 714 786
Current maturities of long-term debt 4,308 4,286
Current maturities of capital lease obligations 385 371
--------- ---------
Total current liabilities 26,932 25,917
Long-term debt:
Long-term debt 141,571 167,008
Capital lease obligations 1,130 1,260
--------- ---------
Total long-term debt 142,701 168,268
Other liabilities:
Accrued reclamation expenses 16,991 16,960
Other 4,965 5,515
--------- ---------
Total other liabilities 21,956 22,475
Commitments and contingencies -- --
Mandatorily redeemable preferred stock 29,749 28,673
Stockholders' deficit:
Preferred stock 45,276 23,000
Common stock (100,000 shares authorized; 7.083 shares issued and outstanding) -- --
Paid-in capital 65,386 52,486
Paid-in capital - common stock warrants -- --
Accumulated deficit (160,646) (148,527)
Treasury stock, at cost (5,000) (5,100)
--------- ---------
Total stockholders' deficit (54,984) (78,141)
--------- ---------
Total liabilities and stockholders' deficit $ 166,354 $ 167,192
========= =========
The accompanying notes are an integral
part of the consolidated financial statements.
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ANKER COAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS
ENDED
JUNE 30,
-----------------------
2001 2000
---------- ----------
(unaudited)
Cash flows from operating activities:
Net loss $ (9,974) $ (4,981)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 9,508 8,885
Amortization of discount on senior notes 126 126
Amortization of unrealized gain on debt restructuring (1,581) (1,349)
Deferred taxes -- (580)
Gain on sale of properties (53) (233)
Changes in operating assets and liabilities:
Accounts receivable (3,754) 2,404
Inventories, prepaid expenses and other (554) 316
Advance minimum royalties (712) (909)
Accounts payable, accrued expenses and other 77 3,017
Accrued interest (1,054) 291
Accrued reclamation (41) (2,052)
Other assets 28 156
Other liabilities (550) (806)
--------- ---------
Net cash (used in) provided by operating activities $ (8,534) $ 4,285
--------- ---------
Cash flows from investing activities:
Purchases of properties, plant and equipment $ (4,265) $ (5,193)
Proceeds from sales of properties 139 629
Payments received on notes receivable 531 66
Issuance of notes receivable (30) (25)
--------- ---------
Net cash used in investing activities $ (3,625) $ (4,523)
--------- ---------
Cash flows from financing activities:
Proceeds from revolving line of credit and long-term
debt $ 102,607 $ 38,166
Principal payments on revolving line of credit and
long-term debt (92,198) (38,403)
Principal payments on capital leases (278) --
Change in cash overdraft 2,028 473
--------- ---------
Net cash provided by financing activities $ 12,159 $ 236
--------- ---------
Decrease in cash and cash equivalents $ -- $ (2)
Cash and cash equivalents at beginning of period 5 7
--------- ---------
Cash and cash equivalents at end of period $ 5 $ 5
========= =========
Supplemental Cash Flow Information:
Cash paid for interest $ 10,465 $ 775
Cash paid for income taxes -- 334
Redeemable preferred stock dividends and accretion 1,076 1,038
Stock dividends accruing on Class E preferred stock 1,069 --
Assets acquired under capital leases and other financing arrangements -- --
Exchange of long-term debt for Class E preferred stock 34,207 --
The accompanying notes are an integral
part of the consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. ACCOUNTING POLICIES
The unaudited interim consolidated financial statements of Anker Coal
Group, Inc. and its subsidiaries (the Company) presented herein have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q and do not include all of the
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles. In the
opinion of management, these consolidated financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position, results of operations and
cash flows. These unaudited interim consolidated financial statements should be
read in conjunction with the other disclosures contained herein and with our
audited consolidated financial statements and notes thereto contained in our
Form 10-K for the year ended December 31, 2000. Operating results for interim
periods are not necessarily indicative of results that may be expected for the
entire fiscal year.
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
2. INCOME TAXES
Income taxes are provided for financial reporting purposes based on
management's best estimate of the effective tax rate expected to be applicable
for the full calendar year.
3. INVENTORIES
Coal inventories are stated at the lower of average cost or market and
amounted to approximately $2,712 and $1,994 at June 30, 2001 and December 31,
2000, respectively. Supply inventories are stated at the lower of cost (first
in, first out) or market and amounted to approximately $191 and $189 at June 30,
2001 and December 31, 2000, respectively.
4. LONG-TERM DEBT
The Company recorded, during the current quarter, the exchange of
$34,207 of its 14.25% notes for 34,207 shares of Class E convertible preferred
stock. The exchange was recorded in accordance with FAS15 "Accounting by Debtors
and Creditors for Troubled Debt Restructurings". The Company reduced its
carrying value of the notes by $34,207, the fair market value of the Class E
preferred stock as determined by an independent valuation. The Company has
determined that the cash flows, on an undiscounted basis, of the remaining debt
obligation, including interest, exceed the carrying value of the 14.25% notes.
Accordingly, no further adjustment was made to the carrying value of the 14.25%
notes.
5. SUBSIDIARY GUARANTEES
Anker Coal Group, Inc. is a holding company with no assets other than
the investments in its subsidiaries. The 14.25% Series B Second Priority Senior
Secured Notes Due 2007 (paid-in-kind through April 1, 2000) are guaranteed by
all of the Company's subsidiaries. These subsidiaries are all wholly-owned
subsidiaries and have fully and unconditionally guaranteed the 14.25% notes on a
joint and several basis. Accordingly, the presentation of condensed financial
information concerning these subsidiaries is not considered material to
investors.
6. COMMITMENTS AND CONTINGENCIES
In January 2001, the Company paid $280 in disputed premiums, interest
and penalties related to the United Mine Workers of America 1992 Benefit Plan.
Additionally, the Company has agreed to make four additional quarterly
installments of $73 each, including interest, beginning in April 2001 as a final
settlement of its liability for premiums, interest and penalties under the 1992
Benefit Plan.
The Company is a party to various lawsuits and claims incidental to its
business. While it is not possible to predict accurately the outcome of these
matters, management does not believe that these actions will have a material
effect on the Company's consolidated financial position, results of operations
or cash flows.
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7. RECLASSIFICATIONS
Certain amounts have been reclassified in prior year financial
statements to conform with current year presentations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
THE IMPACT OF THE APRIL 2001 RESTRUCTURING AND FUTURE DEBT SERVICE
REQUIREMENTS
As a result of the consummation of the April 12, 2001 exchange which
was previously described in our Form 10-Q for the quarter ended March 31, 2001,
$34.2 million in aggregate principal of our 14.25% notes were exchanged for
34,207 shares of our Class E convertible preferred stock. Dividends are payable
on the preferred stock at a rate of 14.25% per annum, quarterly in arrears, in
cash or, at our option, in shares of Class E preferred stock at the liquidation
value of such shares. In addition, as a result of this exchange, our annual
interest expense will decline by approximately $3.5 million in 2001 and
approximately $4.9 million per year beginning in 2002.
We recorded this exchange during the quarter ended June 30, 2001 in
accordance with FAS15 "Accounting by Debtors and Creditors for Troubled Debt
Restructurings". Accordingly, the carrying value of our 14.25% notes was reduced
by the fair market value of the Class E preferred stock which was $34.2 million
as determined by an independent valuation. The carrying value of our 14.25%
notes is comprised of the principal amount of such notes, the unamortized
deferred gain related to the previous restructuring and any capitalized costs
related to such notes. The cash flows (undiscounted principal plus interest) of
the remaining debt obligation were then compared to the remaining carrying value
of the 14.25% notes. Since the cash flows exceed such carrying value, no further
adjustment was made to the carrying value.
Even after giving effect to the exchange offer, we will continue to
have significant future debt service requirements, including an October 1, 2001
interest payment under our remaining 14.25% notes in the amount of approximately
$6.6 million. Our debt service in 2001 under our 14.25% notes and the Foothill
loan agreement will be approximately $21.1 million. In 2002, we will be required
to make debt service payments related to the remaining 14.25% notes and the
Foothill loan agreement of approximately $18.2 million (excluding a $6.6 million
balloon payment due at the maturity of the original term loan on December 1,
2002). In order to meet these debt service obligations, we plan to continue to
implement our business plan, as more fully described in our Form 10-K for the
year ended December 31, 2000. Our only capital resources to make these debt
service payments will be available funds under the Foothill loan agreement, cash
from operations and asset sales, if any. Our ability to make our debt service
payments is subject to risks and uncertainties, including the risks and
uncertainties identified at the outset of this report.
CASH FLOWS
Our cash and cash equivalents remained constant from December 31, 2000
to June 30, 2001. During the six month period ended June 30, 2001, our
operations used $8.5 million of cash. These funds were used primarily to
increase operating assets, including inventory and advance minimum royalties and
reduce operating liabilities, including accrued reclamation expenses.
We used approximately $3.6 million in our investing activities. These
funds were used principally to purchase $4.3 million of property, plant and
equipment, and were partially offset by the collection of $531,000 of notes
receivable and the proceeds from the sale of properties of $139,000.
We generated approximately $12.2 million of cash from our financing
activities. These funds were provided by approximately $14.3 million of
borrowings and a cash overdraft under our credit facility and were partially
offset by required principal payments of $1.1 million on our term loan, required
principal payments of $840,000 on our supplemental term loan and required
principal payments of $278,000 under our capital lease obligations.
LONG-TERM DEBT
We have two long-term debt facilities. The first is a loan and security
agreement dated November 21, 1998 with Foothill Capital Corporation, as agent,
and other lenders. Our loan agreement with Foothill provides us with a credit
facility
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of up to $55.0 million. This facility consists of a commitment for a $40.0
million working capital revolver and a term loan with an original principal
amount of $15.0 million. Commitments under the credit facility will expire in
2005. The Foothill credit facility is secured by substantially all of our
present and future assets.
In September 2000, we entered into an amendment to the Foothill loan
agreement under which the lenders agreed to provide us with a $6.3 million
supplemental term loan to be used to fund, in part, the October 1, 2000 interest
payment due on our 14.25% notes. This supplemental term loan was provided to us
within the $40.0 million limit of the working capital revolver, and did not
increase the maximum borrowing amount of $55.0 million under the Foothill loan
agreement. Accordingly, the maximum amount of the working capital revolver has
been reduced by $6.3 million from $40.0 million to $33.7 million. The maximum
amount of the revolver will be restored as principal payments under the
supplemental term loan are made. The supplemental term loan was advanced to us
on October 2, 2000, the date on which the October 1, 2000 interest payment was
due under our 14.25% notes.
Borrowing availability under the working capital revolver is limited to
85% of eligible accounts receivable and 65% of eligible inventory. Borrowings
under the revolver bear interest, at our option, at either 1% above the prime
interest rate or at 3 3/4% above the adjusted Eurodollar rate. The original term
loan bears interest at 2 1/2% above the prime interest rate. This term loan is
payable in monthly installments of principal of approximately $179,000, plus
interest, through November 2002 and in a final balloon payment due on December
1, 2002 in an amount that will equal the then remaining principal balance of the
term loan (which we estimate will be approximately $6.6 million). The
supplemental term loan bears interest at 2 1/2% above the prime interest rate
and is payable in monthly installments of principal and interest starting on
January 1, 2001 and continuing through December 1, 2003. The scheduled monthly
principal payment under the supplemental term loan is $140,000 from January 1,
2001 through June 1, 2002 and $210,000 from July 1, 2002 through December 1,
2003.
The following table sets forth the amounts outstanding and borrowing
availability under our loan agreement with Foothill as of the dates shown below:
SUPPLEMENTAL REVOLVING REVOLVING
ORIGINAL TERM CREDIT CREDIT
DATE TERM LOAN LOAN BORROWINGS AVAILABILITY
---- --------- ------------ ---------- ------------
(DOLLARS IN MILLIONS)
12/31/00 $10.7 $6.3 $ - $13.8
03/30/01 10.2 5.9 2.3 13.1
04/30/01 10.0 5.7 13.0 5.1
05/31/01 9.8 5.6 13.6 5.7
06/30/01 9.6 5.5 12.4 5.4
07/30/01 9.5 5.3 9.9 5.9
The decrease in the outstanding principal balance of the original term
loan and supplemental term loan resulted from making the scheduled monthly
installment payments. The increase in revolving credit borrowings and decline in
revolving credit availability from March 30, 2001 to April 30, 2001 were
primarily due to the borrowing we made to fund the interest payment on our
14.25% notes on April 12, 2001 and, to a lesser extent, lower coal production.
Future changes in coal production and the resulting changes in coal inventory
and accounts receivable will impact future revolving credit availability.
Reductions in our borrowing base materially reduces our liquidity.
As discussed below, until November 1, 2001, in order for the borrowers
under the Foothill Loan Agreement to make intercompany loans to the guarantors,
including to Anker Coal Group, Inc. to pay interest on our 14.25% notes, the
borrowers must have borrowing availability of at least $2.5 million on the date
of the loan after giving effect thereto and for the 30 days immediately
preceding such loan. On November 2, 2001, the availability requirement increases
to $5.0 million. On May 2 and 3, 2001, revolving credit availability under the
Foothill Loan Agreement dropped below $2.5 million. Foothill and the other
lenders waived this default and amended the loan agreement to permit the
borrowers to make intercompany loans to the guarantors up to a maximum aggregate
amount of $450,000 through the first week of July 2001, even if availability
declined below $2.5 million. As discussed in "--Results of Operations" below, we
expect coal production to continue to increase from our Barbour and Upshur
County mining operations during the third quarter. As our coal production
increases, borrowing availability under the Foothill Loan Agreement should also
begin to increase.
The loan agreement with Foothill contains covenants that, among other
matters, restrict or limit our ability to pay interest and dividends, incur
indebtedness, acquire or sell assets and make capital expenditures. In
particular, the loan agreement requires that we maintain specified minimum
levels of earnings before interest, taxes, depreciation and
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amortization, referred to as EBITDA, as defined in the loan agreement, during
the term of the loan. Beginning with the fiscal quarter ending March 31, 2000,
and for each subsequent fiscal quarter, we must have EBITDA of at least $12.0
million at the end of each fiscal quarter for the immediately preceding four
fiscal quarters. For the four fiscal quarters ended June 30, 2001, our EBITDA,
as defined in the loan agreement, was $18.1 million. We are also required to
meet an additional temporary EBITDA requirement that was added to the loan
agreement pursuant to the amendment entered into in connection with the exchange
offer. Beginning with the three months ended June 30, 2001, and for each
subsequent three month period ended through, and including October 31, 2001, we
must have EBITDA of at least $3.435 million, $4.005 million, $4.381 million,
$4.721 million and $4.882 million, respectively. For the three month period
ended June 30, 2001, our EBITDA, as defined in the loan agreement, was $3.683
million.
In addition to the EBITDA requirements, the loan agreement with
Foothill prohibits us from making capital expenditures in any fiscal year in
excess of $12.0 million. The loan agreement also provides that, in order to
advance funds to the guarantors and us, the borrowers under the loan agreement
must have borrowing availability of at least $5.0 million after giving effect to
the advances and for the 30 days immediately preceding the advances. The
borrowing availability must be at least $10.0 million if the advanced funds are
to be used to prepay or purchase our 14.25% notes. The amendment entered into in
connection with the exchange offer temporarily reduced the $5.0 million
borrowing availability requirement to $2.5 million. The temporary reduction in
the borrowing availability requirement is in effect for the period from March
13, 2001 through November 1, 2001. As of August 6, 2001, borrowing availability
under the loan agreement was approximately $4.5 million. Thus, the maximum
amount of intercompany loans which the borrowers could have advanced to the
guarantors on that date, based on the temporary reduction relating to the excess
availability requirement, was approximately $2.0 million.
With respect to the original term loan, in addition to regularly
scheduled installment principal and interest payments, the loan agreement
requires that we apply the first $5.0 million of proceeds from designated asset
sales to the repayment of the original term loan. As of July 31, 2001, no
amounts had been applied to this requirement. Proceeds used to repay the
original term loan cannot be reborrowed.
Our second long-term debt facility is the indenture governing our
14.25% notes. As of December 31, 2000, the principal amount outstanding under
our 14.25% notes was approximately $126.7 million. After giving effect to the
exchange offer completed on April 12, 2001, the principal balance outstanding
under our 14.25% notes was approximately $92.5 million. The indenture contains
covenants that restrict or limit our ability to, among other things, sell
assets, pay dividends, redeem stock and incur additional indebtedness. Under the
indenture, we may not sell assets unless we receive fair market value and at
least 75% of the consideration is in cash or assets to be used in our coal
mining business. The indenture also limits our ability to use asset sale
proceeds. Specifically, the indenture permits us to use the first $1.0 million
of asset sale proceeds for general corporate purposes. We may use proceeds in
excess of $1.0 million for permitted purposes, including retiring senior secured
debt and making capital expenditures. To the extent we do not use asset sale
proceeds in excess of $1.0 million for permitted purposes, we must use 60% of
those proceeds to redeem notes at a purchase price equal to the principal amount
thereof plus accrued and unpaid interest and liquidated damages, if any. We may
use the remaining 40% for general corporate purposes. The indenture also
prohibits us from making restricted payments, such as cash dividends and stock
redemptions, unless several requirements are met. Except for permitted debt,
which includes senior debt up to $55.0 million, debt existing as of October 1,
1999, indebtedness represented by capital lease obligations, mortgage financings
or purchase money obligations, and other specified debt, the indenture prohibits
us from incurring additional indebtedness unless we meet a fixed charge ratio
test.
We are currently in compliance with the covenants and restrictions in
the loan agreement with Foothill, as discussed above, as well as the indenture
governing the 14.25% notes. In the event we fail to be in compliance with any
one or more of the covenants under our loan agreement with Foothill, Foothill
would have various rights and remedies which it could exercise, including the
right to (1) prohibit us from borrowing under the revolving credit facility, (2)
accelerate all outstanding borrowings and (3) foreclose on the collateral
securing the loan. Similarly, if we were not in compliance with the covenants in
the indenture, if we defaulted on a payment of our other senior secured
indebtedness or if our other senior secured indebtedness were accelerated as a
result of a default under that indebtedness, including the loan agreement with
Foothill, the trustee and the noteholders would have various rights and
remedies, including the right to call our outstanding notes and, except as
limited by the intercreditor agreement with Foothill, to foreclose on the
collateral that secures the 14.25% notes.
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CAPITAL EXPENDITURES AND OTHER COMMITMENTS AND CONTINGENCIES
We currently expect to make capital expenditures of approximately $8.2
million in 2001. We expect to obtain capital lease funding for $2.6 million of
such amount and to pay for all remaining expenditures from operating cash and
borrowings under our credit facilities.
We are required to pay advance minimum royalties under our coal leases.
Advance minimum royalties represent payments that we make as the coal lessee to
landowners for the right to mine coal from the landowners' property. We expect
to make advance minimum royalty payments under our current leases of
approximately $3.3 million in 2001; $2.4 million in 2002; $2.4 million in 2003;
$2.4 million in 2004; and $2.4 million in 2005.
We have various office and mining equipment operating lease agreements.
The minimum annual rentals for office and mining equipment is expected to be
approximately $2.5 million in 2001. Future minimum annual rentals for office and
mining equipment is currently expected to be approximately $1.9 million in 2002;
$410,000 in 2003; and $270,000 in 2004.
As previously announced on June 14, 2001, we have entered into an
agreement with Dominion to jointly develop a coal and waste-fired electric power
station and mining complex in Upshur County, West Virginia. Dominion will
construct, own and operate the 450-megawatt station. We will provide all of the
facility's fuel from on-site surface mining operations under a long-term fuel
supply agreement. We are continuing to work with Dominion to obtain the
necessary federal, state and local permitting that will enable this facility, if
developed, to be operational by the end of 2005. We currently anticipate that
our capital expenditures related to our mining complex operations at this
facility will be approximately $6.5 million in 2005.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2000
COAL SALES AND RELATED REVENUES. Coal sales and related revenue were
$52.9 million for the three months ended June 30, 2001 compared to $54.7 million
for the three months ended June 30, 2000, a decrease of 3.3%. This decrease is
the result of a $4.4 million decrease in revenue generated from our
company-produced coal operations in the second quarter of 2001 compared to the
same period in 2000. This decline was primarily the result of 219,000 fewer tons
of company-produced coal having been sold in the second quarter of 2001 as
opposed to the same period in 2000. This decline in company-produced coal
tonnage was slightly offset by higher average realization on a per ton basis for
the current quarter as compared to the same quarter of last year. The decrease
in company-produced coal revenue was also partially offset by a $2.9 million
increase in revenues from our brokered coal operations in the second quarter of
2001 as compared to the second quarter of 2000. The increase in these brokered
coal revenues was due to both higher sales volume and slightly higher average
realization on a per ton basis.
Coal sales volume declined by approximately 161,000 tons to
approximately 1.8 million tons for the quarter ended June 30, 2001, a decrease
of 8.2% from the same period in 2000. The decrease in coal sales volume is
attributable to a 219,000 ton reduction in the sale of company-produced coal,
partially offset by a 58,000 ton increase in the sale of brokered coal. The
decrease in the sales volume of company-produced coal was due to lower coal
production, which was attributable primarily to the following:
o Tonnage at our Upshur County deep mine were 169,000 tons lower
in the second quarter of 2001 due to the continued
lower-than-expected clean coal recovery. These mines continue
to experience geologic problems that result in bad roof
conditions. The Spruce Mine No. 1 has seen some improvement in
the geologic conditions and has seen a 5% improvement in the
clean coal recovery since April 1, 2001. The Spruce Mine No. 2
continues to encounter a thin layer of clay in the roof of the
mine which makes it difficult to hold the roof during
production. Our drilling data shows that production should not
be negatively impacted by this clay seam in future mining. We
are currently planning to drill two additional core holes
closer to our current mining to provide us with a better
indication of when we should expect to see a change in the
roof conditions. Continued lower-than-expected clean coal
recovery and geologic problems could have an adverse effect on
our borrowing availability, liquidity, financial condition and
results of operations.
o Tonnage at our Grant County deep mine, the Stony River mine,
were 56,000 tons lower in the current quarter than in the same
period of a year ago. This reduction was anticipated as a
result of a planned outage at VEPCO's Mt. Storm Power Station
for the installation of pollution scrubbing equipment.
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o Our Raleigh County deep mine, the Baybeck mine, produced
51,000 less tons in the second quarter of 2001 compared to the
second quarter of 2000. This reduced tonnage is the result of
the thinning of the coal seam as we near depletion of our
reserves at this mine. Production ceased at this operation in
late June as our contract miner did not have the equipment to
properly mine the lower seam heights remaining in the mine. We
are working with a new contract miner to develop and mine
areas of the reserve that contain these lower mining heights.
Because it is more costly to mine thinner coal, the per ton
cost for contract mining services to develop and mine these
areas will increase. If we are successful in developing areas
of the mine that contain thinner reserves, we expect to incur
higher operating costs, but that all or some portion of these
additional costs may be offset by an increase in price. We
currently anticipate that production will resume in mid-August
and that this mine will produce approximately 200,000 tons
annually for its remaining life. We are also continuing to
explore alternatives that will enable us to continue to use
our preparation plant, rail loading and related facilities
after the depletion of our reserves. These alternatives could
involve, among other things, purchasing coal from third party
producers or providing processing and loading services to
others. Our ability to extend the life of this mine or utilize
our assets following depletion of these reserves is subject to
certain risks and uncertainties, many of which are beyond our
control. Accordingly, we cannot assure you that we will be
able to achieve either of these goals on terms acceptable to
us, if at all.
While we experienced reduced production at the mines as described above,
tonnage levels during the second quarter of 2001 as compared to the same period
in 2000 increased at our surface mines in Monongalia County, West Virginia, and
at our deep mining operations in Garrett County, Maryland. These increases
partially offset the production decreases discussed above.
COST OF OPERATIONS AND SELLING EXPENSES. The cost of operations and
selling expenses totaled $48.6 million for the quarter ended June 30, 2001,
compared to $48.4 million for the quarter ended June 30, 2000, an increase of
0.4%. The cost per ton of operations and selling expenses for company-produced
and brokered coal for the quarter ended June 30, 2001 was $27.01 compared to
$24.68 of such costs per ton for the quarter ended June 30, 2000, an increase of
9.4%. This increase in the cost per ton of coal shipped is primarily related to
the decline in coal sales volume of 161,000 tons from the second quarter of
2000, as discussed above. This decline in coal sales volume was primarily
related to the lower-than-expected clean coal recovery and adverse geologic
conditions experienced at our Upshur County deep mines. Based on current
geologic information and our mine plans, we expect that we will work our way
through these conditions and that clean coal recovery will begin to increase. As
clean coal recovery increases, the per ton cost of operations and selling
expenses are expected to decrease. Such decreases, however, are expected to be
partially offset by higher per ton costs expected to be incurred as the thinner
reserves are mined at our Raleigh County deep mine, as discussed above.
As discussed in our Form 10-K for the year ended December 31, 2000 and
our Form 10-Q for the quarter ended March 31, 2001, the contract miner for the
Sentinel Mine in Barbour County and the Spruce Mine No. 1 in Upshur County
notified us on March 30, 2001 that it was ceasing operations at these mines. We
took over these operations and resumed production on April 2, 2001. In early
July, we entered into a contract mining agreement for the operations in Barbour
County and the contract miner began operations on July 6, 2001. Consistent with
our business plan to use contract miners at our deep mines, we are continuing to
evaluate the use of a contract miner at our Spruce Mine No. 1 in Upshur County.
In July 2001, we entered into an agency agreement with Enron North
America. In connection with this agreement, Enron will assume the sales and
marketing responsibility related to our coal operations. Enron is the holder of
approximately 21.5% of our Class E convertible preferred stock, and two
representatives of Enron serve on our board of directors.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization was $4.6 million for the quarter ended June 30, 2001 and $4.5
million for the quarter ended June 30, 2000.
OTHER OPERATING EXPENSES. Other operating expenses for the quarter
ended June 30, 2001 were $2.0 million compared to $1.8 million for the quarter
ended June 30, 2000. Included in other operating expenses are general and
administrative expenses and financial restructuring fees. General and
administrative expenses were $1.7 million for both the quarter ended June 30,
2001 and for the same period in 2000. Financial restructuring fees of $214,000
were recorded in the quarter ended June 30, 2001 related to the April 2001
restructuring compared to $85,000 for the same period of last year which were
related to the March 2000 restructuring.
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13
INTEREST EXPENSE. Interest expense was $3.6 million for the quarter
ended June 30, 2001, compared to $4.2 million for the quarter ended June 30,
2000, a decrease of 14.3%. This decrease is primarily attributable to the April
2001 restructuring in which $34.2 million of 14.25% notes were exchanged for
convertible preferred stock. Additionally, interest expense related to our term
loan was approximately $111,000 lower in the current quarter than in the same
period of last year resulting from both lower interest rates and the lower
outstanding balance due to repayments. These interest expense reductions were
offset by additional interest expense of $244,000 related to higher average
outstanding revolving credit borrowings in the second quarter of 2001 compared
to 2000, despite lower interest rates. Also offsetting the reduced interest
expense was additional interest expense on the outstanding supplemental term
loan and capital lease obligations for the quarter ended June 30, 2001 which
were not outstanding during the comparable quarter of 2000.
OTHER INCOME. Other income includes interest, gain or loss on sale of
fixed assets, royalties and miscellaneous income. Other income for the quarter
ended June 30, 2001 was approximately $1.0 million compared to $920,000 for the
same quarter of 2000.
INCOME TAXES. We did not record an income tax benefit for the quarter
ended June 30, 2001. An income tax benefit of $430,000 was recorded for the
quarter ended June 30, 2000, to reflect the deferred tax benefit which resulted
from the cancellation of indebtedness income during the financial restructuring.
Management has established a valuation allowance for deferred tax assets where
it is more likely than not that some portion or all of these assets will not be
realized.
NET LOSS. For the quarter ended June 30, 2001, our net loss was $6.4
million compared to a net loss of $3.3 million for the quarter ended June 30,
2000. Of the additional net loss available to common shareholders of $3.1
million compared to the second quarter of 2000, $2.4 million resulted from
operations, $1.1 million was due to dividends accruing on the Class E preferred
shares and $430,000 resulted from a reduced tax benefit. These amounts were
partially offset by interest expense savings of $629,000 and an increase of
$105,000 in other income.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000
COAL SALES AND RELATED REVENUES. Coal sales and related revenue were
$105.5 million for the six months ended June 30, 2001 compared to $112.4 million
for the six months ended June 30, 2000, a decrease of 6.1%. This decrease is the
result of a $10.0 million decrease in revenue generated from our
company-produced coal operations in the first six months of 2001 compared to the
same period in 2000. This decline was primarily the result of 457,000 fewer tons
of company-produced coal having been sold in the first six months of 2001
compared to the same period of 2000. This decline in company-produced coal
revenue was slightly offset by higher average realization on a per ton basis.
The decrease in company-produced coal revenue was also partially offset by an
increase of $3.3 million in revenues from our brokered coal operations in the
first six months of 2001 as compared to the first six months of 2000. The
increase in these revenues was due to both higher sales volume and increased
average realization on a per ton basis.
Coal sales volume declined by approximately 390,000 tons to 3.6 million
tons for the six months ended June 30, 2001, a decrease of 9.7% from the same
period in 2000. The decrease in coal sales volume is attributable to a 457,000
ton reduction in the sale of company-produced coal and partially offset by a
67,000 ton increase in the sale of brokered coal. The decrease in the sales
volume of company-produced coal was due to lower coal production, which was
attributable primarily to the following:
o Tonnage at our Barbour County deep mine were 214,000 tons
lower in the first six months of 2001 due to the cessation of
production while development work was begun in the Upper
Kittanning seam. We currently expect that production from this
deep mine will gradually increase during the remainder of 2001
and that we will produce tonnage during 2001 approximately 10%
higher than that produced from this operation in 2000. We
currently anticipate that the operation will continue to
increase production after 2001. If we are unable to increase
production from this mine to these expected levels, continued
lower-than-expected production could have an adverse effect on
our borrowing availability, liquidity, financial condition and
results of operations.
o Tonnage at our Upshur county deep mines were 214,000 tons
lower in the first six months of 2001 than in the first six
months of 2000 as a result of the adverse geologic conditions
encountered in these mines, as previously discussed.
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o Tonnage at our Grant County deep mine, the Stony River mine,
were 114,000 tons lower in the six months ended June 30, 2001
than in the same period of a year ago. This reduction was
anticipated, and planned for, as a result of a planned outage
at VEPCO's Mt. Storm Power Station for the installation of
pollution scrubbing equipment.
While we experienced reduced production at the mines as described above,
tonnage levels during the first six months of 2001 as compared to the same
period in 2000 increased at our deep mine in Garrett County, Maryland and at
surface mining operations in Monongalia County, West Virginia. These increases
partially offset the production decreases discussed above.
COST OF OPERATIONS AND SELLING EXPENSES. The cost of operations and
selling expenses totaled $95.9 million for the six months ended June 30, 2001,
compared to $98.8 million for the six months ended June 30, 2000, a decrease of
2.9%. The cost per ton of operations and selling expenses for company-produced
and brokered coal for the six months ended June 30, 2001 was $26.35 compared to
$24.53 of such costs per ton for the six months ended June 30, 2000, an increase
of 7.4%. This increase in the cost per ton of coal shipped was primarily related
to the 390,000 ton decline in coal sales volume, as previously discussed. This
decline in coal sales volume was the result of the Upshur County geologic
conditions and the development work at our Barbour County operation which halted
production at this deep mine during the first quarter of this year. As the
geologic conditions improve and clean coal recovery increases at our Upshur
County deep mines and as production increases at Barbour County as a result of
mining the Upper Kittanning seam, we expect that the cost per ton of operations
and selling expenses will decline slightly. This slight decline is expected to
be partially offset by higher costs per ton to mine the thinner reserves at our
Raleigh County deep mine.
As discussed in our Form 10-K for the year ended December 31, 2000 and
our Form 10-Q for the quarter ended March 31, 2001, the contract miner for the
Sentinel Mine in Barbour County and the Spruce Mine No. 1 in Upshur County
notified us on March 30, 2001 that it was ceasing operations at these mines. We
took over these operations and resumed production on April 2, 2001. In early
July, we entered into a contract mining agreement for the operations in Barbour
County and the contract miner began operations on July 6, 2001. Consistent with
our business plan to use contract miners at our deep mines, we are continuing to
evaluate the use of a contract miner at our Spruce Mine No. 1 in Upshur County.
In July 2001, we entered into an agency agreement with Enron North
America. In connection with this agreement, Enron will assume the sales and
marketing responsibility related to our coal operations. Enron is the holder of
approximately 21.5% of our Class E convertible preferred stock, and two
representatives of Enron serve on our board of directors.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization was approximately $9.5 million for the six months ended June 30,
2001 and $8.9 million for the six months ended June 30, 2000. This increase is
primarily due to additional depreciation expense recorded in the six month
period ended June 30, 2001 on the $3.2 million of assets acquired in late
December 2000 under capital lease and other financing arrangements. This
increase was partially offset by reduced depletion and amortization expense
recorded at our Barbour County operations while such operations were in the
development stage.
OTHER OPERATING EXPENSES. Other operating expenses for the six months
ended June 30, 2001 were $4.2 million compared to $4.0 million for the six
months ended June 30, 2000. Included in other operating expenses are general and
administrative expenses, financial restructuring fees and non-recurring charges.
General and administrative expenses increased 9.1%, from $3.3 million for the
six months ended June 30, 2000 to $3.6 million for the same period in 2001. This
increase is primarily the result of a charge of $175,000 recorded as an
allowance for doubtful notes receivable and advances made to one of our contract
miners.
INTEREST EXPENSE. Interest expense was $8.0 million for the six months
ended June 30, 2001 compared to $8.3 million for the six months ended June 30,
2000, a decrease of 3.6%. This decrease is primarily attributable to the April
2001 restructuring in which $34.2 million of 14.25% notes were exchanged for
convertible preferred stock. This interest expense reduction was offset by
interest expense on the outstanding supplemental term loan and capital lease
obligations which were not outstanding in the same period of 2000 and also by
additional interest expense of $253,000 related to higher average outstanding
revolving credit borrowings in the first six months of 2001 compared to the same
period of 2000, despite lower interest rates in the current period.
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OTHER INCOME. Other income includes interest, gain or loss on sale of
fixed assets, royalties and miscellaneous income. Other income for both the six
months ended June 30, 2001 and June 30, 2000 was approximately $2.0 million.
INCOME TAXES. We did not record an income tax benefit for the six
months ended June 30, 2001. An income tax benefit of $580,000 was recorded for
the six months ended June 30, 2000, to reflect the deferred tax benefit which
resulted from the cancellation of indebtedness income during the financial
restructuring. Management has established a valuation allowance for deferred tax
assets where it is more likely than not that some portion or all of these assets
will not be realized.
NET LOSS. For the six months ended June 30, 2001, our net loss was
$12.1 million compared to a net loss of $6.0 million for the six months ended
June 30, 2000. The additional net loss available to common shareholders of $6.1
million from the six months ended June 30, 2000 to the six months ended June 30,
2001 is primarily due to lower operating performance of $4.8 million, $1.1
million of dividends accruing on the Class E preferred shares and $580,000 from
a reduced tax benefit. These amounts were offset by interest expense savings of
$313,000 and an increase of $39,000 in other income.
DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES
As of June 30, 2001, there were no restrictions affecting the ability
of the subsidiaries guaranteeing our 14.25% notes to make distributions to us or
other subsidiaries, except for restrictions in our loan agreement with Foothill
and those restrictions provided by law generally, such as the requirement of
adequate capital to pay dividends under corporate law. The loan agreement with
Foothill provides that, in order to advance funds to us and the other
guarantors, the borrowers under the loan agreement must have borrowing
availability of at least $5.0 million after giving effect to the advances of
funds (or $10.0 million if advances are for prepayment or purchases of our
14.25% notes). This requirement related to the borrowing availability was
temporarily reduced to $2.5 million as a result of our April 2001 restructuring.
The temporary reduction is in effect for the period from March 13, 2001 through
November 1, 2001. As of August 6, 2001, revolving credit availability under the
loan agreement was approximately $4.5 million. Thus, the maximum amount of
intercompany loans which the borrowers could have advanced to the guarantors on
that date, based on the temporary reduction relating to the excess availability
requirement, was approximately $2.0 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Information about market risks for the three-month period ended June
30, 2001 does not differ materially from that discussed in Item 7A of our Form
10-K for the year ended December 31, 2000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material litigation has been filed by or against us during the three
months ended June 30, 2001. In addition, there were no material changes during
the second quarter in legal proceedings previously disclosed by us.
In January 2001, we paid $280,000 in disputed premiums, interest and
penalties related to the United Mine Workers of America 1992 Benefit Plan.
Additionally, we have agreed to make four additional quarterly installments of
$73,000 each, including interest, beginning in April 2001 as a final settlement
of our liability for premiums, interest and penalties under the 1992 Benefit
Plan.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 12, 2001, the Company issued 34,207 shares of Class E
Convertible Preferred Stock in exchange for $34.2 million of the Company's
14.25% Series B Second Priority Senior Secured Notes due 2007 (paid-in-kind
through April 1, 2000). The payment obligations on the Class E Convertible
Preferred Stock are jointly and severally guaranteed, fully and unconditionally,
by the Company's wholly-owned subsidiaries. The Class E Convertible Preferred
Stock is convertible into 99.99% of the Company's fully diluted common stock as
of the effective date of the exchange. The exchange was completed without a
registration under the Securities Act of 1933 in reliance upon the exemption in
Section 3(a)(9) of that Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Prior to the closing of the April 2001 restructuring on April 12, we
obtained the written consent of our stockholders, in lieu of holding a special
meeting, to take the following action:
o to file a second amended and restated certificate of
incorporation;
o
o to file the Class E convertible preferred stock certificate of
designation; and
o
o to amend and restate each of the Class A, Class B and Class D
preferred stock certificates of designation.
These actions were approved separately by:
o a majority of the holders of our voting capital stock, voting
as a single class;
o
o all holders of our Class A preferred stock, voting as a single
class;
o
o all holders of our Class B preferred stock, voting as a single
class; and
o
o all holders of our Class D preferred stock, voting as a single
class.
On June 28, 2001, the holders of a majority of our voting capital stock
authorized and approved the filing of the third amended and restated certificate
of incorporation by written consent in lieu of a special meeting. The record
date for the stockholders' consent was June 27, 2001.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit number 3.1, Third Amended and Restated Certificate of
Incorporation of Anker Coal Group, Inc., is filed herewith.
Exhibit number 10.1, Contract Mining Agreement, dated June 28, 2001, by
and between Anker West Virginia Mining Company, Inc. and Ryanstone
Coal, L.L.C., for contract mining services to be provided at the
underground mining operation and related surface facilities in Barbour
County, West Virginia, known as the "Sentinel Mine", is filed
herewith.*
Exhibit number 10.2, Business Opportunity Agreement, dated June 29,
2001, by and between Anker Coal Group, Inc. and Enron North America
Corp., is filed herewith.
Exhibit number 10.3, Business Opportunity Agreement, dated June 29,
2001, by and between Anker Coal Group, Inc., WL Ross & Co, LLC, and
WLR Recovery Fund L.P., is filed herewith.
Exhibit number 10.4, Business Opportunity Agreement, dated June 29,
2001, by and between Anker Coal Group, Inc. and Wexford Capital, LLC,
Valentis Investors, LLC, Wexford Spectrum Investors, LLC, and Solitair
Corp., is filed herewith.
* A portion of the exhibit, as indicated therein, has been redacted
pursuant to a request for confidential treatment filed with the
Commission.
(b) Reports on Form 8-K.
The Company filed ten reports on Form 8-K in the second quarter of
2001. The date of each report, the items reported and the financial
statements filed, if any, with each report are listed below:
Form 8-K, dated April 2, 2001, reporting on Item 5, regarding our
further extending the exchange offer.
Form 8-K, dated March 30, 2001 and filed on April 3, 2001, reporting on
Item 5, regarding our taking over operations at two of our deep mines.
Form 8-K, dated April 9, 2001, reporting on Item 5, regarding our
further extending the exchange offer.
Form 8-K, dated April 11, 2001, reporting on Item 5, regarding our
further extending the exchange offer.
Form 8-K, dated April 11, 2001, reporting on Item 5, regarding our
update concerning the tender amount of the exchange offer.
Form 8-K, dated April 11, 2001, reporting on Item 5, regarding the
announcement of the results of the exchange offer.
Form 8-K, dated April 12, 2001, reporting on Item 5, regarding the
successful completion of the exchange offer.
Form 8-K, dated May 15, 2001, reporting on Item 5, announcing first
quarter 2001 results.
Form 8-K, dated May 24, 2001, reporting on Item 5, regarding the
consent of the lenders to a waiver and proposed amendment.
Form 8-K, dated June 14, 2001, reporting on Item 5, jointly announcing
with Dominion, plans to develop a new coal and waste-fired electric
power station and mining complex in Upshur County, WV.
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SIGNATURES
Pursuant to the requirements 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.
ANKER COAL GROUP, INC.
By: /s/ P. Bruce Sparks
----------------------
Title: President
By: /s/ David D. Struth
----------------------
Title: Treasurer
Dated: August 14, 2001
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Pursuant to the requirements 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.
ANKER ENERGY CORPORATION
By: /s/ P. Bruce Sparks
--------------------------------
Title: President
By: /s/ David D. Struth
----------------------
Title: Treasurer
Dated: August 14, 2001
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Pursuant to the requirements 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.
ANKER GROUP, INC.
By: /s/ P. Bruce Sparks
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
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Pursuant to the requirements 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.
ANKER POWER SERVICES, INC.
By: /s/ Richard B. Bolen
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
18
22
Pursuant to the requirements 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.
ANKER VIRGINIA MINING COMPANY, INC.
By: /s/ Gerald Peacock
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
19
23
Pursuant to the requirements 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.
ANKER WEST VIRGINIA MINING
COMPANY, INC.
By: /s/ Gerald Peacock
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
20
24
Pursuant to the requirements 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.
BRONCO MINING COMPANY, INC.
By: /s/ P. Bruce Sparks
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
21
25
Pursuant to the requirements 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.
HAWTHORNE COAL COMPANY, INC.
By: /s/ Charles C. Dunbar
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
22
26
Pursuant to the requirements 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.
HEATHER GLEN RESOURCES, INC.
By: /s/ Jeffrey P. Kelley
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
23
27
Pursuant to the requirements 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.
JULIANA MINING COMPANY, INC.
By: /s/ Gerald Peacock
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
24
28
Pursuant to the requirements 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.
KING KNOB COAL CO., INC.
By: /s/ David D. Struth
--------------------------------
Title: President and Treasurer
Dated: August 14, 2001
25
29
Pursuant to the requirements 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.
MARINE COAL SALES COMPANY
By: /s/ Larry F. Kaelin
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
26
30
Pursuant to the requirements 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.
MELROSE COAL COMPANY, INC.
By: /s/ David D. Struth
--------------------------------
Title: President and Treasurer
Dated: August 14, 2001
27
31
Pursuant to the requirements 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.
NEW ALLEGHENY LAND HOLDING
COMPANY, INC.
By: /s/ David D. Struth
--------------------------------
Title: President and Treasurer
Dated: August 14, 2001
28
32
Pursuant to the requirements 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.
PATRIOT MINING COMPANY, INC.
By: /s/ Gerald Peacock
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
29
33
Pursuant to the requirements 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.
SIMBA GROUP, INC.
By: /s/ P. Bruce Sparks
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
30
34
Pursuant to the requirements 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.
UPSHUR PROPERTY, INC.
By: /s/ Jeffrey P. Kelley
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
31
35
Pursuant to the requirements 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.
VANTRANS, INC.
By: /s/ David D. Struth
--------------------------------
Title: President and Treasurer
Dated: August 14, 2001
32
36
Pursuant to the requirements 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.
VINDEX ENERGY CORPORATION
By: /s/ Gerald Peacock
--------------------------------
Title: President
By: /s/ David D. Struth
--------------------------------
Title: Treasurer
Dated: August 14, 2001
33